Sweeping tax cuts to the value of $1.5tn have been passed in the US. The American Senate has approved President Donald Trump’s tax bill (more below), the biggest overhaul of the US tax code for two generations. The House of Representatives will likely pass the bill today.
Asian markets were subdued overnight with Hong Kong’s Hang Seng down -0.29% and Shanghai sliding -0.33% lower while the Japanese Nikkei was up +0.10%. This was despite auto maker Subaru slumping more than -4% as fuel test allegations circulated. A global bonds fall-off also fed the lower Asian mood.
Bitcoin had a wild ride on Asian markets, crashing below the $16,000 level at one point – a -20% shock fall. At close to 7am London time the crypto currency had recovered to $16,110.99. Some of the volatility had not been helped by exchange Coinbase announcing that customers could trade in bitcoin cash. Its website seized as the value of bitcoin surged.
- UK FTSE 100 7,544.09 +0.09%
- DAX 13,215.79 -0.72%
- CAC 40 5,382.91 -0.69%
- Dow 24,741.49 -0.20%
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- Nikkei 225 22,891.72 +0.10%
- Gold 1,266.40 +0.17%
- Oil WTI 57.43 +0.47%
Trump close to tax victory
Donald Trump has managed to put some distance on the humiliation of his Obamacare setback with his new (almost) tax code victory. The bill was passed yesterday by 51 to 48. All Republicans (eventually) passed the plan apart from John McCain, not present due to illness.
The tax reforms are claimed to return more spending power to the US middle classes. But corporate America, hence the surging US stock market, is the biggest winner. The corporate tax rate is slashed from 35% to 20% meaning significant potential for new tax-driven restructurings, M&A moves plus big breaks for unincorporated businesses (many high earners will likely turn themselves into mini corporations).
The downside to the tax code change includes a lack of rationality and clarity in several areas for an over-worked US Internal Revenue Service (the IRS). While many Republicans claimed that the previous 35% corporate rate was unfair compared to other OECD countries, in reality the effective rate paid on profits for many companies was closer to 25% thanks to tax breaks and opportunities to switch profits to more congenial jurisdictions.