Questionable US Tax Reform Could Create Headaches for the Fed
The effective tax rate being paid by US corporations is significantly below the current statutory rate, thereby raising questions as to whether the proposed statutory rate reduction needs to be so aggressive.
Unincorporated businesses will not enjoy the benefits of the proposed permanent 15 percentage point reduction in the statutory corporate tax rate, because their returns are typically filed on an individual basis.
Current tax reform proposals differ from the 1986 measures, notably due to the retention of generous expensing of business investment, as well as large anticipated losses to aggregate federal government revenue.
Any passage of tax reform so close to full employment will be closely monitored by the Fed, particularly if the unemployment rate declines further before lower tax rates become effective.
US labour demand is ending 2017 in extremely respectable shape and small businesses cite deteriorating available labour quality as their biggest concern, suggesting rising prospective wage inflation.
Recent economic acceleration has increased the chances of the unemployment rate declining further and raising the ante on the Federal Open Market Committee (FOMC) to tilt forward guidance in a more hawkish direction.
DeSaque Macro Research Limited was formed by Said DeSaque in April 2012 with the intention of delivering independent global macro investment insights and new thematic long-term ideas to investors, along with an agnostic opinion of the markets.
Said DeSaque has over 29 years of experience working as a professional economist in financial services, primarily based in London. His working role has involved extensive travel around the world, bringing him into contact with investors of different cultural backgrounds and investment requirements. Prior to establishing DeSaque Macro Research, Said held positions as Senior Economist and Investment Strategist at US banks Robert W Baird and William Blair. He began his career as a graduate at PaineWebber in 1986, where he became Head of the London Economics Department in 1996. This role allowed him to engage with senior investment professionals, alongside regulators and provided a unique perspective of market intelligence at work.
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