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The Main Takeaways from Trump’s Tax Plan as Congressional Battle Looms

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Following months of speculation, Republican leaders officially unveiled a plan Wednesday to rewrite the U.S. tax code. The ambitious framework matches or comes close to matching President Donald Trump’s campaign promise to reduce taxes on businesses and individuals.

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The proposed plan, which aims to lower taxes on corporate income and simplify individual income tax brackets, is expected to make its way through Congress in the coming months. According to analysts, that’s where the real challenge starts.

For starters, Congress hasn’t approved a tax rewrite this ambitious since 1986. Secondly, the Trump camp has struggled mightily to earn lawmakers’ support around healthcare reform and other controversial reforms. This is likely to continue as the tax debate heats up.

Main Takeaways from the Trump Tax Plan

The plan shaves $2.2 trillion from federal coffers.

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The GOP framework aims to reduce taxes by $5.8 trillion over a decade, according to the nonpartisan Committee for a Responsible Federal Budget. The program will raise $3.6 trillion via new revenue streams, for a net cut of $2.2 trillion.

President Trump is confident that the decline in revenue will be offset by faster economic growth. The new tax provisions, combined with deregulation and fiscal stimulus, is expected to produce annual growth of 3% or more for the foreseeable future. That is, once the plans are up and running.

It’s good for the wealthy. 

Not only does the Republican plan shave off a few percentage points off the top income bracket, it repeals the estate tax. It also includes the elimination of the 25% alternative minimum tax, which is the rate applied to businesses that pay taxes on their owners’ individual returns.

That being said, the GOP plan leaves an opening for a fourth income tax bracket above 35%, which would apply to very high earners. The current proposal reduces individual tax rates to just three brackets set at 12%, 25% and 35%.

It may offer relief to lower- and middle-income households.

The framework also benefits lower- and middle-income earners by doubling the basic standard deduction to $12,000 for individuals and $24,000 for married couples.

However, current law provides married couples with two children tax exempt status on the first $28,900. That’s because of the personal exemption and standard deduction standards currently in place. In this case, the $24,000 deduction under the Trump plan would be smaller than the relief they get under the current framework.

It conceals as much as it reveals. 

Though still in its formative stage, the GOP plan offers scant details about important business taxation issues. Although Trump is sticking to a 20% corporate tax rate, versus 35% today, nothing is mentioned on non-corporate business. This impacts real estate, agriculture and private-equity firms.

Although the plan talks about a reduce rate on international business, it doesn’t really offer much incentive for multinationals to repatriate. According to analysts, the draft framework suggests corporations would be subject to minimum tax on foreign income (they are opposed to this).

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.5 stars on average, based on 164 rated postsSam Bourgi is Chief Editor to Hacked.com, where he specializes in cryptocurrency, economics and the broader financial markets. Sam has nearly eight years of progressive experience as an analyst, writer and financial market commentator where he has contributed to the world's foremost newscasts.




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Market Overview

Bitcoin is Clear

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It’s not often that drama from reality television influences the stock markets but I suppose it’s one of the hallmarks of the new world we live in.

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For those of you who haven’t heard yet. Kylie Jenner sent out this tweet…

…and SNAP stocks did this…

The follow-up apology didn’t seem to help much though.


Love or no love, it’s pretty clear that investors are following these personalities fairly closely and taking notes.

@MatiGreenspan
eToro, Senior Market Analyst

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Today’s Highlights

  • More Market Funk
  • Bitcoin is Clear
  • CME Bitcoin Expiration

Please note: All data, figures & graphs are valid as of February 23rd. All trading carries risk. Only risk capital you can afford to lose.

Traditional Markets

The market funk continues. All the indicators are totally sensational and correlations are way-out.

The Dow Jones went up and the Nasdaq was down. This morning the Asians did great but Europe is starting out weird.

Things are just kind of all over the place. There weren’t really any progressions in Volatility or the 10 Year Yield. Both kind of just coasted through Thursday.

But hey, today is Friday. So we could get some action going into the weekend. Especially with some heavy fed activity planned for this evening.

Of course, the only FOMC member traders really want to hear from at the moment is the newly appointed Jerome Powell, who will be giving his first interest rate announcement on March 21st.

Bitcoin in the Clear

The community celebrated yesterday as the bitcoin mempool was cleared for the first time in months.

Here we can see that during the peak of the FOMO from December 8th util January 21st, the bitcoin network was backlogged with more than 100,000 unconfirmed transactions at any time.

This comes as the adoption of both Segwit and the Bitcoin Lightening Network have been dramatically increased.

In short, the scaling issue that we’ve spoken about often in the last few months may finally have a solution. Of course, we’ll only know for sure once we give it a real test.

For now, transactions rates are at the lowest point since at least May of 2016, with an average of only 2.14 transactions per second (TPS) over the last 7 days.

It should be noted however that adoption of the Lightning Network will actually reduce the TPS rates since Lightening transactions happen off of Bitcoin’s main chain.

Rather than adding each transaction to the main blockchain, trusted parties are able to transact freely with each other. They then send an aggregate summary of their transactions onto the main blockchain so that the rest of the network can update the final results.

Either way, it’s clear for now that there’s simply less activity on Bitcoin since the pullback. This can be confirmed by Google Trends which shows that interest in the world’s largest digital currency is now as low as it was in early November, which at the time was an all-time high.

Futures

Another thing to bear in mind is that the CME February Bitcoin futures contracts will expire today. Any positions that are not rolled over to the March contracts will need to be settled in cash on the Gemini exchange.

It should be noted that Wall Street is still taking it very slowly with bitcoin, and so far only 5,840 BTC have been traded on the February CME contracts.

Some people have pointed out that the price of bitcoin tends to dip around the time of the contract expirations, but I still haven’t seen enough evidence to support this theory.

For now, my tinfoil hat is still in the closet. Will let you know once I take it out. 😉

Have an amazing weekend!!

This content is provided for information and educational purposes only and should not be considered to be investment advice or recommendation. The outlook presented is a personal opinion of the analyst and does not represent an official position of eToro. Past performance is not an indication of future results. All trading involves risk; only risk capital you are prepared to lose. Cryptocurrencies can widely fluctuate in prices and are not appropriate for all investors. Trading cryptocurrencies is not supervised by any EU regulatory framework.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 34 rated postsSenior Market Analyst at Etoro.com.




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Analysis

Pre-Market: Stocks Refuse to Fall Even as China Takes Over Key Insurer

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Although it should have been a very quiet week in China, thanks to the New Year celebrations, the recent surge in volatility and the plunge in equities didn’t pass without consequences in the key market. Just shortly after effectively shutting down the Chinese version of the Volatility Index (VIX) (presumably to calm the markets…), one of the main actors of the monstrous financial web, Anbang, of the country had to be taken over to avoid a systemic event and stop the “creative” financial engineering that involved criminal activity (the shadow of 2008).

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China will likely need many more duck-tapes like this one if it wants to stop the largest credit bubble in human history to collapse, but for now, the solution could work. Equity futures edged higher since yesterday’s volatile close, and as the major US indices are holding up well, not far off last Friday’s highs, our bearish short-term view might have to be revised.

Nasdaq 100 Futures, 4-Hour Chart Analysis

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As we discussed before, the long-term uptrend is intact, and we expect at least a re-test of the highs even if we are in a large-scale top formation, but we thought that the technical damage caused by the crash three weeks ago would require more healing.

We are not turning bullish just yet, but today’s session could finally decide if we the BTFD-crowd is strong enough to turn the tide after the choppy drift lower this week. We are still focusing on the Nasdaq, as the broader market seems to be following the lead of the tech benchmark, and a move 6850 (in the Nasdaq 100 futures, and still the 2735 level in the S&P) would be a very positive sign for bulls.

DAX Index, 4-Hour Chart Analysis

The German DAX index is also showing some tentative short-term relative strength although it remains almost 10% below its all-time high, and it remains a strong negative divergence to be monitored.

Forex Markets Quiet

EUR/USD, 4-Hour Chart Analysis

The main pairs are trading in a choppy narrow range today after the strong move in the Yen and the drop in the USD yesterday. US Treasury Yields are edging lower today, helping the calm in equities and currencies, but on a bearish note, commodity currencies failed to rebound so far, and they were providing good signals since the crash. Day-traders should note that the Canadian Dollar will likely be very active again, with the Canadian CPI report coming out pre-market.

To sum the outlook up, we are still leaning on the risk-off side here regarding the short-term outlook, but we wouldn’t bet the farm on that, as there are mixed signals before the weekend.

Featured image from Shutterstock

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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Analysis

Daily Analysis: No Questions Answered

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Thursday Market Recap

Asset Current Value Daily Change
S&P 500 2718 0.97%
DAX 12,468 0.31%
WTI Crude Oil 62.61 2.02%
GOLD 1332.00 0.52%
Bitcoin 9780 -8.00%
EUR/USD 1.2324 0.26%

It was a strange day indeed in equity markets, with mixed signals popping up across the board after yesterday’s crazy quasi-FED day. An ugly overnight session, followed by a strong pre-market rally, an early-day pump, and a late-day dump. That is the summary of the day, but under the surface, there is a real struggle between market forces, with still an edge for bears in the battle for control.

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NASDAQ 100 Futures, 4-Hour Chart Analysis

It seems that the Nasdaq is still the key, as the relative strength of the tech benchmark is the most reliable gauge of the market direction, at least regarding the intraday trends. That said, at the end of the day, the Nasdaq closed in the red 4 times in a row, at least as far as the normal trading day is concerned, and still, the major indices are trading not far off last Friday’s top, despite the downward drift.

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Forex Markets and Commodities

Adding to the confusion, the Dollar corrected lower after a positive period, and with Treasury yields trading all over the place, investors were left scratching their heads yet again. The Japanese Yen was the clear winner of the day among currencies, as the primary safe-haven got bid heavily during the Asian session, and it remained throughout the up-and-downs of the day, despite the strong bounce in stocks and risk-on currencies.

USD/JPY, 4-Hour Chart Analysis

The EUR/USD pair had a very active and volatile session, but the common currency remained above the lows from two weeks ago, while also halting below yesterday’s highs, so all-in-all, no technical conclusion to draw. As in stocks, the next clear directional day will be crucial, as the tug of war is getting tenser and tenser.

EUR/USD, 4-Hour Chart Analysis

The Canadian Dollar plummeted during the day, thanks to the dismal Retail Sales figures, but it finished well off its lows, boosted by the stock recovery and the jump in the price of crude oil. The Black Gold was pushed higher by the surprisingly bullish US inventory data, and the WTI contract closed back above $62.50 per barrel.

USD/CAD, 4-Hour Chart Analysis

Gold continued to follow the Euro, finishing the day slightly higher, but the precious metal showed notable relative strength during the Asian session, and that could be the precursor of a move to new rally highs, should the bearish scenario play out in equities.

Cryptocurrencies

The segment had another bearish session, and the bleeding continued after the US session, with BTC leading the way lower this time around after a long period of relative strength. A crucial test might be ahead of the most valuable coin, as the $9000-$9200 support zone would be a perfect target for the current correction, to keep the uptrend going. That said, that zone is still almost 50% above the prior low, leaving plenty of room for the coin to bottom out.

BTC/USDT, 4-Hour Chart Analysis

With all of the major altcoins also sporting significant losses, bulls would like to see more of the early relative strength that some coins have been showing, to establish a leadership that can guide the segment out of the plunge. For now, the crash lows are way below the current levels, and the bullish long-term scenario remains intact.

Featured image from Shutterstock

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.7 stars on average, based on 113 rated postsTrader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.




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