After a turnaround on Tuesday, stocks were in the green for most of the session on Wednesday with the tech sector leading the way as the tech-heavy Nasdaq gained almost 1%.
The Dow and S&P 500 also posted higher closes.
On Thursday, markets will get a run of economic data, including initial jobless claims, the final piece of labor market data before Friday’s big report from the government. This data will also follow Wednesday’s report on August job growth in the private sector from data processing firm ADP.
ADP’s report showed that 237,000 jobs were created in August, and with job openings still at a record and Americans’ satisfaction with the labor market at its highest level in 16 years, the shortage of American workers appears set to continue.
Elsewhere on the calendar on Thursday, investors will get the July numbers on personal income and spending, pending home sales, and manufacturing data from the Midwest.
On the corporate earnings side, the headline report on Thursday is expected to be results from Campbell’s Soup (CPB).
Tax cuts and growth
President Donald Trump’s biggest economic promise right now is that his administration will cut taxes.
By how much, and for whom these cuts will matter most, has not yet been hammered out. But what has been made clear is that lower taxes — which brings down revenue to the government — will be accompanied by faster economic growth — which increases revenue to the government.
But as we learned on Wednesday, the U.S. economy grew at an annualized rate of 3% in the second quarter of the year, a rate that is close to the rate Trump has pledged the economy will return under his administration as a result of tax cuts and other economic plans (infrastructure spending, healthcare reform, and so on).
This accelerating growth, however, sort of begs the question of whether a massive tax overhaul is really as essential to our economic wellbeing and Trump and many commentators argue that it is.
Certainly all tax payers would like to pay lower taxes. But taxes also pay for services that we as citizens enjoy — Medicare and Social Security among them — and helps provide services for those of us who are less fortunate. Initially, a lower tax rate makes both of these more challenging, even if faster growth results from the cut.
Moreover, as we highlighted earlier this year, research shows that an uptick in economic growth doesn’t follow from lower taxes the way some suggest. And in the late-90s, tax rates were actually increasing alongside economic growth.
Yahoo Finance’s Rick Newman took a look at which of Trump’s plans for taxes seem most feasible, with overseas profits coming back to the U.S. at a discounted rate seeming likely but the corporate tax rate going to 15% seeming less so.
But, again, no matter what package actually gets to the floor of the House, it is the accelerated growth that will be needed to make up for the lower revenue that comes in due to lower tax rates, as any tax package seems likely to be passed using congressional rules that require it to be deficit-neutral.
Which brings us back to growth.
In the first full quarter of Trump’s presidency, the U.S. economy saw its fastest quarter of growth since the start of 2015. And this is, as some economists noted on Tuesday, despite all of the chaos that has come along with the Trump era. And while conventional wisdom says that stocks and the economy will really take off if taxes are cut, it’s not so clear — beyond many simply believing it — that this will be the case.
Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland
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