Stocks are slumping, and Trump critics are happy about it. In their obstructionism, they would rather see the country fail than Trump succeed.
Despite the destructive attitude, things aren’t quite the way they might hope. While growth has plateaued, market values are still near record-level highs, and the slowed growth is still primed to explode once more.
The Year So Far
Trump ushered in a brand new stock rally that was a welcome change from the previous eight years of stagnation. That rally carried into the new year, with January and February both seeing record gains.
While everyone disagreed about the future of the market, there was no question that the rally itself was a product of newfound confidence. Most of Trump’s platform throughout the campaign was very business friendly, and investors were excited at the prospects.
March saw the first sign of slowdown since Trump’s election. The short version of the story is that confidence stalled all of a sudden, and Trump will only get the major gains back by having more success with Congress.
Why Healthcare Matters
In the big scheme, the healthcare bill that failed Congress recently is small potatoes for the business world, but it isn’t an entirely non-factor. First, the failure brings us back to confidence. The major investment swings so far have been on good faith, and that faith was not rewarded in its first test.
If Trump’s team couldn’t get their first priority through Congress, how will that affect the rest of the agenda? Business owners and investors are less worried about the state of health care than they are Trump’s ability to back his pro-business promises.
While it is clear that he will not abandon his promises, the reality of the presidency is that it is in reliant on Congress, and the first test was not inspiring.
Of course, there is an important business component to the health vote as well. One of the major points of reform many investors were hoping to see tie into tax law and health insurance penalties. Right now, small to medium businesses are struggling to meet the costly rigors of Obamacare. Trump’s reform originally intended to remove many related penalties, which would have put a lot of money back into business and productivity.
Furthermore, on a more niche scale, health insurers were looking for reform as a means to improve their ability to cover patients and turn profits. For now, the status quo will remain, and it isn’t one that is good for the economy.
Tax Reform
Trump is moving to his next major item without hesitation. He said he would wait for the Obamacare vote before attacking taxes, and that time is now upon us.
While critics will cite the healthcare failure as indicative of Trump’s whole presidency, that is beyond premature. A more realistic reality is that Trump will have to cave on his more extreme points in order to levy at least some reduced tax burden for business owners.
The biggest chance for economic boon is a cash repatriation holiday. The concept is simple: hundreds of billions of dollars are kept offshores to avoid excessive taxes. Trump wants to permanently lower this tax, but a compromise could create a limited window for corporations to repatriate their money at a reduced penalty.
That is something that is likely to get through Congress (assuming they don’t completely abandon tax reform like they have health care), and it alone is enough to jump start another market rally.
Trump can go even farther if he can eliminate some of the more esoteric and outdated penalties that serve only to hurt business. While sweeping reform would be wonderful, a watered down version would still be plenty to free cash for spending and investing.
An average of five-percent savings across small and medium businesses is more than enough to restore the market rally beyond what we have seen so far, and this conservative estimate is completely attainable.
Regulation
Tied closely to tax law is deregulation. Trump is pushing this agenda as far as he can without Congress, but ultimately they will have to play ball too. This is where negotiation will be key. Even if Congress is stubborn on tax issues, compromises can be met with regulatory changes, and it’s the culmination of the two that is the real opportunity. Every dollar saved through this give and take will go right back into the economy.
Trump has lived up to his promises, but Congress is another issue. This is nothing new to American politics, and it will not prevent Trump from bringing economic success back to the country.
In reality, he doesn’t have to hit home runs to win the game. Even meager business savings add up quickly, and it will be enough for him to bring the country to success. After all, Trump’s “stalled” economy has still been more successful than Obama’s “recovery.”
Regards,
Ethan Warrick
Editor
Wealth Authority
