Posted by Peter Schiff on October 24, 2017 1:08 am

We’re getting a tax cut!

There is one thing now that that has the potential to cause a short-term decline of more than 3% in the stock market, and that would be: no tax cut.  If the Republicans announce that they’re at a deadlock, and we’re not going to have any tax reform or tax cuts, it seems to me the stock market will get hit.  Washington and Wall Street both agree that if we don’t get this tax cut, the market’s going down.  So what does that mean?  We’re getting a tax cut!

Making the Stock Market Great Again

After all, the market is now the barometer of the success of the Trump Presidency, and by extension, the Republicans in the House and Senate.  If House Republicans want to get elected in 2018, the Dow Jones had better be higher than when Trump was elected. This is not about making America Great Again, it’s about Making the Stock Market Great Again. Not that it wasn’t great before Trump was elected, but now the greatness of the stock market goes hand in hand with the greatness of America.

Accelerating the Growth of the Budget Deficit

So we are going to get a tax cut, but that pretty much assures that we are going to get an increase in deficits and the National Debt.  They’ve already cleared the way now in the Senate and the House is about to rubber stamp it someway that the Republicans are allowed to reduce revenue to the Federal government by $1.5 trillion in the tax cut bill – over 10 years.  So it’s not $1.5 trillion a year, it’s only $150 billion a year, over 10 years. Remember, government spending is going to rise substantially over those 10 years, so the government actually needs a lot more revenue in order to cover all its spending. So when you reduce the revenue you just further accelerate the growth of the budget deficit and the resulting National debt.

Republicans Don’t Care About the Deficit

We’ve got a number of Republicans who were very hawkish about the debt and when Obama was President, “We’re going to shut down the government…” “We’re not going to raise the debt ceiling…” They demanded fiscal discipline.  In fact, there was some modicum of discipline imposed on the budget, but all that is now being unraveled under Trump.  Now the Republicans can throw out whatever discipline that they forced into the system when Obama was President.  I’ve said this before, that when Republicans are in the minority, they can at least try to exert some pressure on government spending. The minute they have both houses of Congress and the White House, precedence shows that they don’t care about the deficit.

Consequences of Tax Cuts: Higher Inflation and Higher Interest Rates

The deficits are only a problem when the Republicans are in the minority. But when they have the power, they don’t care about it because they want a tax cut, and deficits be damned. Especially when the market now depends on it.  Nobody wants to stand in the way of the market. Even Rand Paul, who was the one Republican who voted against the Senate budget resolution, has already said that he will vote for the tax cuts.  He just did not want to vote for the budget bill to enable the tax cuts.  Somehow now that the budget bill has been enacted, he is going to vote for the tax cuts. He’d rather people pay lower tax than deal with the consequences, which are: higher inflation, higher interest rates.  There is not free lunch.  That is the problem with these tax cuts.

Source: Peter Schiff

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