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Secretary Munchin seeks Reconciliation with Congress, American Tax Negotiations Continue

By Patrick Higgins  |  27/10/2017 13:39
As negotiations for Trump's tax overhaul continue in Congress, Treasury Secretary Steve Mnuchin has sought to reassure the public that the President's feuds with dominant Republicans will not derail legislative collaboration.

Speaking from Jerusalem after high-level talks regarding the issue of terrorist financing with Israeli Prime Minister Benjamin Netanyahu, Secretary Mnuchin reiterated that crucial tenets of the tax overhaul would be preserved against all opposition, despite misgivings of tax raises for the middle class.

Mnuchin held firm on the corporate tax rate being cut to 20% but said that the administration could be open to suggestions regarding potential areas of saving, such as the tax-free threshold being lowered for 401k plans.

Though Trump has been aggressively against the passing of these proposals, they are being debated in Congress because they’re potentially huge money savers. Eliminating tax deduction alone would save the US government $1.3 trillion per year. Another proposal on the table is the raising of taxes for the wealthiest tax brackets, but this is not popular.

Most interestingly, Secretary Mnuchin praised Senator Corker, who has been entangled in a nasty public dispute with President Trump for the past few weeks.

Mnuchin's speech of reconciliation is significant, due to the increasing level of angry rhetoric and personal attacks emerging from the Trump White House. Mnuchin is seeking to mend the rifts between legislators and the President in order to advance Trump's agenda. The collaborative failure on health-care reform, which was such a fundamental campaign promise of Trump's, is most likely a key reason why Mnuchin is speaking out with praise and understanding to those Republicans who have been publicly feuding with Trump.

Investors, who are betting on negotiations to be fruitful, have been pricing in potential benefits of the tax overhaul, including the almost -15% reduction of corporate tax. The S&P 500 has grown nearly 6% in value since Trump's announcement of the overhaul in August, and many predict that much of the $2.6 trillion stored in corporate off-shore accounts would be brought back to the US. If the tax overhaul is to fail like health-care reform, declines in the S&P 500 of up to 5% could be seen.

Traders should carefully watch the playing-out of these congressional negotiations. The success or the failure of the tax overhaul could potentially have a huge impact on stock markets, as well as the levels of capital inflow and potential business to be done in the US.

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