Years ago an economist named Laffer proposed Tax Cuts as a way to stimulate the economy and keep the budget balanced. The theory supposed that by cutting taxes people would work harder, be more productive, invest more and make more money. And the lower tax rate would be made up for by massively higher incomes. This was also referred to as trickle-down economics as the tax cuts would go to the rich who would supposedly invest, create jobs and be the engine that drove the economy to new heights. If the proposed tax cuts go through we will see how that works. In the meantime what stocks will benefit from a $1.5 Trillion tax cut? CNN Money lists 8 stocks that could cash in on the Trump tax cut.
The relentless rally in the stock market has been powered by strong economic growth, low interest rates and hopes that tax cuts will turbocharge Corporate America’s already healthy bottom line.
But some stocks may benefit more than others from changes to the tax code.
For instance, companies that already pay low corporate tax rates, like Pepsi (PEP), may not cash in as much as those that pay Uncle Sam a much higher rate, like Under Armour (UA). Companies pay different rates because of loopholes, tax reduction strategies and how much money they make overseas.
There is even a Tax Reform Stock Fund that would supposedly skyrocket if taxes are cut. Here is the CNN list of companies likely to benefit from lower taxes.
- Ford
- Chipotle
- Denny´s
- CarMax
- Southwest Airlines
- AK Steel
- Phillips 66
- W.W. Grainger
These companies pay excessively high taxes and would become much more competitive onshore and offshore with a tax cut.
Not Everyone Is Excited about Tax Cuts
Our sister site, Profitable Investing Tips asked if Republicans or economists are right about tax cuts.
Stock traders may make short term profits from the enthusiasm generated by the possibility of tax cuts. And short term investors may do well from stimulated business activity. But long term investors like the Warren Buffetts of the world are essentially betting on the US economy and too much debt will kill any benefits of tax cuts on economic growth and on stock prices. In short congress needs to get this right.
The Huffington Post is more aggressive calling tax cuts a Republican lie.
Call it the refusal of “trickle-down economics” to die. Ever since Ronald Reagan introduced the idea, Republicans have clung to a very mistaken concept – that tax cuts always pay for themselves. Though proven false again and again, this is the fallback Republican position when trying to hoodwink the American public into massive tax cuts for those at the tippy-top of the income scale. “Don’t worry,” the GOP tells the public, “these tax cuts will generate so much new growth that they will pay for themselves!” As always, the reality turns out to fall far short of this lofty goal.
In the short to medium term the market will benefit from tax cuts and so will the economy. But the bogyman hovering over the US economy is its massive debt. That will likely get worse at trickle-down will not result in a balanced budget but increasing debt that will choke off growth.
