BY STRATEGIC ADVISERS INVESTMENT TEAM
Lower corporate taxes may provide a boost to earnings. Beginning in 2018, corporate tax rates will be cut from 35% to 21%. Generally speaking, lower tax rates may allow businesses to keep more of their earnings. This has the potential to boost stock prices and dividends. Although corporate earnings were already projected to rise in 2018,1 it is possible that they may be further enhanced by lower corporate taxes. In particular, businesses with more US-based sales, like banks or smaller companies, may see the biggest potential boost to earnings. This is because they have historically paid higher taxes relative to those businesses with more international sales.
Economically, we believe it is likely that the recently passed tax bill may only modestly enhance US growth in the near term. That is because pro-growth packages typically provide more of a lift to an economy when it is seeing lower or no growth. Today, we believe the US is in a more mature phase of economic growth. However, over the long term, lower corporate taxes could incentivize businesses to invest more inside the US economy. This may lead to better productivity and job opportunities, which in turn could boost economic growth prospects for the US.