Trump Tones it Down for His First Congressional Speech
President Trump showed a significant shift in tone in his first address to Congress yesterday. His speech focused on corporate tax relief, improved health care regulations, and immigration reform. Critics note that while the speech was heavy on optimism, the specifics were conspicuously absent. Investors in America and abroad are looking for more details regarding Trump plans to slash regulations, and how he will handle import taxes.
Trump Wants to Lower the Tax Burden on Businesses
Trump began his speech by stressing his commitment to lowering the burden on businesses, thereby helping them to compete with the rest of the world. American businesses are currently are hit with taxes of 35 percent. This is the highest corporate tax rate in the industrialized world. This, in addition to lower wages, provides a strong incentive for companies to move production offshore.
While the speech did not provide a target that Trump would like to reach, during the campaign he proposed an optimal rate of 15 percent. However, this would add almost $3 trillion in debt within ten years. It is also unclear whether the reduced taxes would apply only to corporations, or would also be given to self-employed individuals, which would increase both the benefits and the costs associated with the plan.
Republicans Offer a Solution to Corporate Tax Reductions
Republicans in the House of Representatives have created a Border Adjustment Tax (BAT). This would collect revenue on imports and provide subsidies for exports. The Republicans advocate for a 20 percent corporate tax, which together with the BAT would be revenue neutral for the current budget. Companies, such as Walmart, who rely on heavily on imports are against the BAT, as it would lead to increased prices on goods or lower profitability.
Health Care Is a Top Target for Reform
Trump has been against the Affordable Care Act (ACA) throughout his campaign. Last night’s speech addressed the costs associated with the program, along with the penalties borne by individuals without coverage and businesses who do not provide employees with insurance. While the ACA is expected to cost almost $2 trillion by 2027, the cost was balanced by a healthcare tax on the top 1 percent of wage earners, along with cuts in charges for patients covered under government programs like Medicare and Medicaid. President Trump has yet to explain where he will find the funds to pay for the subsidies he wishes to give insurance pools to accept high-risk individuals. It is likely that he will need to create a new task to meet this goal.
Trump Tackles Immigration
The President also took a more conciliatory stance on immigration. Trump continues to lobby for a limit on low-skilled workers. Still, he debuted plans for a system based on merit like that put in place by Australia. Skilled workers account for about 60 percent of those granted permanent residency in Australia. In the United States, employment is a factor in only about 15 percent of immigration cases. According to Trump, “adopting a merit-based system will have many benefits: it will save countless dollars, raise workers’ wages and help struggling families – including immigrant families – enter the middle class.”
Trump Changes Focus on Border Wall
Trump still wants to build a barrier between along the southern border of the United States. He said this was to stop crime and drug trafficking. The wall would cost a total of $22 billion. Absent from the speech was any demand that Mexico pay for the wall. Trump’s speech also avoided mentioning migrants. Some experts believe that Trump’s new immigration plan may provide a solution for the “Dreamers”. This is a group of young people brought across the Mexican-U.S. border illegally as children. The Obama administration granted asylum to this group.
How Does Trump’s Speech to Congress Affect Trading?
The speech offered a mixed bag for investors. Reduced corporate taxes would lift the U.S. indices like the Dow and the S&P 500. However if this leads to more national debt, it would drive down the dollar. Increased import taxes would hurt the euro and the London FTSE. They would hurt some individual stocks like Walmart and Target as well. Additionally, several countries have advised that they will respond with tariffs on American goods if Trump succeeds raising taxes on goods coming into the U.S.