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A Cheat Sheet For 2017 Tax Reform

Wayne Duggan

After more than a year of speculation and negotiations, the Republican tax cut bill is taking its final form. Assuming Republicans can get the votes to pass the bill, it seems as if investors are now anticipating a major corporate tax cut that could provide a significant boost to U.S. companies’ earnings.

Odds Of Passage

A vote is tentatively scheduled for Tuesday, and Height Securities analyst Stefanie Miller said tax reform now looks like a done deal. 

“Our odds are now 95 percent and trending up that Congress will approve tax reform, and we no longer decouple timing — we think passage must occur this week if it’s going to occur at all,” she said in a Monday note. 

What's In The Bill? 

Among the final tweaks to the bill are the following provisions:

  • A corporate tax rate of 21 percent versus 20 percent in both the House and Senate bills.
  • A top marginal interest rate of 37 percent, rather than 38.5 percent in the Senate bill and 39.6 percent in the House bill. 
  • A mortgage interest deduction cap of $750,000 versus $1 million in the Senate bill and $500,000 in the House bill.

Even without Senator John McCain’s vote, Miller said investors should expect President Donald Trump to sign the tax cut into law by the end of this week. A handful of Republican senators, including McCain, Bob Corker, Marco Rubio, Thad Cochran, Susan Collins and Jeff Flake are reportedly on the fence, but Miller ultimately expects all of them to toe the party line and vote yes. Republicans will likely only be able to afford to lose a single vote; Miller projects a party line 51-48 passage. 

Price Action

Investors are certainly optimistic about the impact the bill could have on the market. Here’s a look at how popular ETFs were trading on Monday morning ahead of the vote:

  • SPDR S&P 500 ETF Trust (NYSE: SPY) was up 0.6 percent.
  • SPDR Dow Jones Industrial Average ETF (NYSE: DIA) was up 0.7 percent.
  • Financial Select Sector SPDR Fund (NYSE: XLF) was up 0.9 percent.

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