The stock market is not the economy. The economy is not the stock market.
These statements may be self-evident, but too often the financial industrial complex conflates the two. While the stock market and the American economy are interwoven with each other, they are not clones, especially as it relates to the tax reform legislation moving on Capitol Hill.
Tax reform legislation is likely to come back before the House and Senate in the week ahead. The two chambers have been ironing out differences in the details of their respective bills in hopes of delivering a final version to President Donald Trump before Congress begins its holiday break.
It appears both the highest individual tax rate and the corporate tax rate will be cut. There will be a list of other changes to what and how much people and companies can deduct from their incomes.
Don’t let anyone tell you with certainty how these changes will affect the economy.
How will rich Americans use their tax savings? Will a cap on mortgage interest deduction hold back home values, the biggest asset for most Americans? What does the tax bill do for worker productivity? How will it influence production and consumption behavior?
It will take years to see evidence of the answers to these economic questions. As out-going Federal Reserve Chairman Janet Yellen said at her last news conference last week, “The magnitude and timing of the macroeconomic effects of any tax package remain uncertain.”
But the growing likelihood of this tax package already has helped pump up the stock market in recent weeks. JP Morgan Chase CEO Jamie Dimon told a conference last week how he thinks corporate America will use its tax savings. “Some will raise wages. Some will buy companies. So may do dividends and buybacks. Don’t act like that is a bad thing. That is their money.”
With its rally to new highs, stock investors are confident that money is a good thing for them.
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