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Widespread US tax reform appears increasingly unlikely

Wednesday, June 21, 2017

Subject

Prospects for US corporate tax reform

Significance

The US administration is growing increasingly anxious for legislative successes, focusing attention on whether Congressional Republicans can deliver on their promise of corporate tax reform. Sustained business confidence and buoyant stock markets suggest businesses remain hopeful, but as Congress gets to work on reforming the tax code, intra-party rifts will increasingly reveal themselves.

Impacts

  • Senate debate on healthcare reform saw many controversies arise; a similar course looks unavoidable for corporate tax reform.
  • Stock markets might celebrate a simple and temporary tax cut, but bond investors would flee from the prospect of a wider budget deficit.
  • Other countries would likely react with their own cuts; widespread low rates mean that tax already has less influence on a firm’s location.
  • Losing control of the House of Representatives in the November 2018 mid-term elections would make reform trickier for the Republicans.
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