On Thursday, President Trump promised Americans “a big, beautiful Christmas present.” He wasn’t talking about the new iPhone X, which sold out soon after they went on sale at Apple stores Friday.
No, he was referring to the new tax reform plan unveiled by House Republicans Thursday which, they promised, would “jump start” an economy already growing at 3% a year and where unemployment hit 4.1% last month.
But there was another gift President Santa unwrapped eight weeks early while temperatures on the East Coast topped 70 degrees: Jerome Powell, his pick for the new Federal Reserve chairman. (Never mind that he had called the current Fed chair, Janet Yellen, a “spectacular person” who was doing a “terrific job.” When push came to shove, he told her, “You’re fired!”)
The biggest beneficiaries of the president’s and Republicans’ early generosity won’t be America’s good little girls and boys. Nor will they be the much-lauded but little rewarded American middle class. Nope, the biggest winners will be the super-rich, big corporations and corporate executives, and the investors who own their stock.
Here’s how it breaks down:
After all the tax cuts, changed exemptions and reduced tax breaks, the tax bill will add a net $1.5 trillion to the national debt over the next decade. Congress must stay within that limit to get a bill through the Senate with a simple majority and not trigger the 60-vote filibuster rule.
Of that total, $300 billion (20%) would go to individual Americans, according to the Committee for a Responsible Federal Budget. Another $200 billion would go to the super-rich (like the president and his family) from the phase-out of the estate tax. And $1 trillion—two-thirds of the net cost—would come from tax cuts for business.
The theory, of course, is that all this extra money in companies’ hands will spur job growth in the United States. Whether or not that happens, the $1 trillion added to businesses’ already bulging coffers would mean higher earnings and higher share prices. That’s a big reason stocks have been soaring the last few months.
The Powell appointment is another big plus. President Trump and Wall Street love low interest rates. As Fed governor, Powell has been in lockstep with Chair Yellen’s policy of gradually raising rates and reducing the balance sheet, and his monetary policy probably will be Yellen’s in a suit and tie. He’s also more likely to favor looser regulation of banks, a bright red ribbon on this much-desired gift.
The tax cut is the change Wall Street has bet on. Powell’s pick is the continuity it needs. Until the tax plan passes or fails, that’s enough to keep stock prices moving higher.