Tax cuts are 'most important' part of GOP tax bill for markets
Republicans are racing to finalize President Trump's tax bill ahead of July 4.
Brett Ryan, senior US economist at Deutsche Bank, joins Market Catalysts to break down the short-term stimulus effects of the tax bill and the long-term risks to deficit reduction.
To watch more expert insights and analysis on the latest market action, check out more Market Catalysts here.
The Congressional Budget Office, known in your hood as the CBO, estimated that the GOP's tax bill will increase the deficit by $2.4 trillion over the next 10 years. University of Pennsylvania's Wharton budget model estimates that estimates that it could increase by as much as $4.3 trillion, with the Senate and House hoping to have a finished version of the tax bill ready by July 4th. This could be the next big piece of economic data. I want to bring in Brett Ryan, Deutsche Bank's senior US economist, and so with me, we've got Thomas Hayes, Great Hill Capital chairman and managing member. Great to have both of you here on set for this conversation. Brett, you know, as we consider what Ben was just breaking down and and teeing up and what we're seeing in the difference of long-term costs that are anticipated here, how are you and your team kind of running the modeling around this?
Yeah, sure. So you have the near-term impacts which, you know, all of the the tax benefits, especially for businesses and some of the individual uh measures are front loaded, but the cost savings are back loaded. And you know, we've seen this before, um, and the question is, are you ever going to realize those cost savings? There's obviously substantial debate over Medicaid, uh, and that's where the chunk, a good chunk of the cost savings are coming from. So there is a very real question around that. I think near term, it's probably about 100 to 150 billion of additional stimulus to the economy on top of the uh, on top of the extension of the TCJA. So, and you know, we keep things ba, you know, baseline and then you're adding about another 100 to 150 billion over the next, let's call it two to three years.
And so, Tom, there might be people out there wondering, why is this the next major catalyst for the markets, knowing that we've already moved through the Fed's most recent decision and they gave some type of or at least alluded to how they're thinking through certain aspects when asked about it. And then additionally, we already had stronger treasury auctions that took place the week prior to that as well. So what is the the larger implications that traders and investors are thinking through in their mindset?
The most important thing here is the tax cuts. Okay, so we've gone from bombing and tariffs to growth and deregulation, and growth is a function of the tax cuts. Uh, as Brett is alluding to, it's a little bit stimulative here and you can kind of talk a little bit more about that in detail. I would just say, uh, so that's critical. So, you know, if tax rates were to go up, uh, it's going to impact earnings, it's going to have a negative impact on the economy hiring, growth, the whole thing. So that's not going to happen. We've got, uh, the treasury doing what they're doing with the SLR, we've got the tax cuts coming in, and animal spirits coming back because mana management can plan, they can start to forecast, kind of understand the rules whereas the first half of the year, everyone was uncertain. So, uh, Brett, how do you handicap this getting done by July 4th or no vacation, no one goes home, lock him in a room. You've been through this process many times. Does this look any different or is this just the normal back and forth and eventually they get something done?
Yeah, I mean, it does look like the normal process of back and forth. Um, it's just that there are the two biggest portions of this bill, which are salt cap and Medicaid, are still outstanding and we're a week, we're a week away. And so, you know, our baseline has been that it gets done uh sometime after the July 4th recess. You know, this is an arbitrary deadline. Yeah. You know, the only thing that the shot clock here is the debt limit and that's not until September or October. So could this slip till later? Of course, absolutely. Um, but to your point about markets, this is a large anticipation as we saw in the wake of the 2017 tax cuts. Um, there share buybacks increased materially. That's one of the reasons why equity markets are probably um, a little bit uh, you know, bouncing back from all of these issues.
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