Stocks Slide for Week as Wall Street Sees Little Hope for Tax Reform

For the week, the Dow Jones Industrial Average declined 0.50% finishing with its first weekly decline after eight straight weekly gains, though the blue chip index remained less than 150 points from an all-time closing high set on Wednesday, November 8.

The S&P 500 finished the week lower as well, but only marginally so. It was the S&P's first weekly decline in nine weeks. The NASDAQ posted its first weekly loss in seven weeks. Both the NASDAQ and S&P closed at record highs on Wednesday as well.

The one index that did not reach record highs during the week past was also the broadest. The NYSE Composite index closed down for the second week in the past three, but those losses were more than offset by gains in the prior six weeks.

In general, analysts blamed congress for the poor performance in equities, citing the lack of a clear path to a tax overhaul that was a cornerstone of President Trump's winning strategy of a year ago. The House and Senate both introduced measures that vary widely and seem unlikely to offer much in the way of relief for individuals or businesses. Rolled out on Thursday, the Senate version pushes for a permanent (until they change it) tax rate of 20% for corporations, but delays implementing the proposed rate until 2019.

Both versions increase the standard deduction to $12,000 for individuals and $24,000 for married couples filing joint returns, but the congress and the media fail to mention that both versions cut out the personal exemption, which was $4,050 in 2016. That leaves the net gain for most single taxpayers at $1,650, and $3,300 for couples.

The standard deduction for 2016 was $6300 for singles, and $12,600 for married couples.

With Democrats generally understood to oppose any Republican plan, the chances for passage this year of either bill remain slim. President Trump and conservative leaders in the Senate face any number of challenges from the likes of Ted Cruz, John McCain, Bob Corker and others who have either stated their opposition to the measures or are likely to vote against any changes to the intricate, pitfall-ridden federal income tax code.

As far as Wall Street is concerned, lowering the corporate tax and the tax on offshore profits are at the top of the wish list, but, little is being done to address their concerns with a congress largely already focused on being re-elected in the 2018 midterms, now less than a year away.

It has become more than obvious to most Americans that congress is an inept, bought-and-paid body, loyal only to special interests which fund their expensive campaigns. Any thoughts of providing relief to beleaguered taxpayers or companies are beyond their admittedly limited legislative scope.

Thus, investors should treat any talk of reform coming from the mouths of elected officials in Washington as nothing more than make believe rhetoric, designed solely to make themselves appear to be working when they are, in fact, not.

At the Close, Friday, November 10, 2017:
Dow: 23,422.21, -39.73 (-0.17%)
NASDAQ: 6,750.94, +0.89 (+0.01%)
S&P 500: 2,582.30, -2.32 (-0.09%)
NYSE Composite: 12,322.60, -17.06 (-0.14%)

For the Week:
Dow: -116.98 (-0.50%)
NASDAQ: -13.50 (-0.20%)
S&P 500: -5.54 (-0.21%)
NYSE Composite: -50.46 (-0.41%)

Stocks Are Up Because... Trump's Tax Plan? Maybe, But for all the Wrong Reasons

Every day the market is open, especially since the advent of financial news networks like CNBC, there always has to be a reason for stocks to go up, down, or sideways.

Usually, the reason is a political event - like Wednesday's release of the Trump tax plan - or a weather event, or, for heaven's sake, an actual financial event, like the Fed hiking or lowering the federal funds rate.

Generally speaking, however, the reasoning for general market advances or declines is just a cover story, and usually nonsense. Stocks go up because some greater fool is willing to pay more for shares than the previous fool. They go lower when there are the fools are selling, usually to people wishing to catch falling knives, buy the dip or any of a number of cliche rationales.

So, with Wednesday's broad advance, the financial media was giddy over the prospects for an overhaul to the federal income tax regime. That's the story, and the talking heads are sticking to it.

What belies their fabulous innuendo is the reality that the tax plan was only released as an outline and is sure to undergo great debate (if congress can be said to do anything "great") and numerous revisions before it ever comes out of committees, onto the floors of the dual chambers and sent to the president for his final signature.

The plan released on Wednesday was the result of months of wrangling and preparing by the so-called "Big Six," which includes House Majority Leader Paul Ryan, House Ways and Means Chairman Kevin Brady, Senate Majority Leader Mitch McConnell, Senate Finance Chairman Orrin Hatch, National Economic Council Director Gary Cohn and Treasury Secretary Steven Mnuchin, all Republicans.

The plan may have sounded good on the surface, but only to the ultra-heathy in the top tax bracket, who get a reduction in their rate, from 39.6% to 35%. While the plan reduces the number of brackets from seven to three, the lowest rate goes from 10% to 12%, which is supposedly going to be offset by a near doubling of the standard deduction and an increase in the child tax credit. The devil is in the details, however. The higher standard deduction is attained by taking away the personal exemption. It's a swap-out, and a swindle that's not being properly reported.

The other windfall for the upper crust is a reduction in the corporate tax rate, from the current 35% to 20%. Superficially, that's a big cut, but it is also widely understood that very few, if any, corporations actually pay at that level, thanks to an assortment of loopholes and very loose policies on deductions and amortizations.

One of the more controversial parts of the plan is the scrapping of almost every deduction at the personal level, except those for mortgage interest and charitable contributions, an odd combination, since people who have mortgages often don't have much left over to help out others in need. Additionally, the plan caps the deduction for state taxes, which will largely affect people who live in high state income tax states like New York, New Jersey, and California.

So, for the lower and what's left of the middle class, the changes don't really add up to much, except that if you're really on the lowest rung of the income ladder, you may not have to file at all, though the government will make sure to deduct 15-18% of your earnings every pay period in order to fund the failing entitlements of Social Security and Medicaid/Medicare. Of course, most people won't see that much deducted, as their employers pay half. Still, the government is already in the people's pockets before they get to cash their paltry checks.

The winning side is obvious in this case. People making over $250,000 or whatever the low end of the top tax rate will be, are going to save bundles of cash under the new rates. An individual or couple earning $500,000, will see a 4.6% reduction in their tax, or $23,000. That's an entire year's earnings for somebody at or near the bottom.

That poor schlub, will pay 12% on $11,000, instead of 10%, or $1320 instead of $1100. How paying another $220 in taxes exactly helps out the lower class is a mystery.

With tax reform like this, it's a wonder more people don't simply incorporate themselves. The tax rate is lower, the deductions greater and more liberal, and there are more ways to save and hold profits and losses over years than those offered to the simple plebeians.

Without a doubt, the plan as rolled out benefits only people in upper income brackets and the rhetoric from President Trump about creating more jobs and helping out the middle class is shameful, to say the least.

More of the same. Americans can change their president every four years, but loosening the tax noose around their collective throats is obviously a tougher proposition, one which the president's advisors and the plotters and planners in congress want to keep as tight as possible around the necks of the lower and middle classes.

At the Close, Wednesday, September 27, 2017:
Dow: 22,340.71, +56.39 (+0.25%)
NASDAQ: 6,453.26, +73.10 (+1.15%)
S&P 500: 2,507.04, +10.20 (+0.41%)
NYSE Composite: 12,157.65, +29.73 (+0.25%)