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Goldman: Trump Tax Cut “Smaller Than Expected”; Here’s What Can Kill It

Courtesy of ZeroHedge. View original post here.

Just hours before the Trump tax plan was leaked this morning, Goldman noted that "even if this tentative budget agreement in the Senate becomes official the forthcoming proposal would have to be scaled substantially to fit within the fiscal constraints Congress is likely to impose" which we summarized as follows:

In other words, for all the hype, the final Trump tax cut – if it passes – will be a pale shadow of its initial proposal

Goldman also presented the following comparison table to summarize how the expected plan would fare in context:

 

Moments ago Goldman again took aim at the Trump tax plan – now published ahead of Trump's speech today - and has concluded that the Tax plan details are largely as expected "but suggest a slightly smaller net tax cut than earlier reports."

1. Details have been released regarding the tax reform plan outlined by the “Big Six” negotiators from the White House, House and Senate, and look roughly as expected based on press reports over the last few days. Overall, this proposal can be characterized as resembling the House Republican “blueprint” on tax reform, with a few changes: a smaller tax cut for upper income earners, no border adjusted tax, and some type of minimum or global tax on foreign corporate income as part of a shift to a territorial system.

2. We estimated that the revenue loss associated with the proposal based on details that had been released as of last night might be $3-4 trillion over ten years on a static basis, but the proposal released this morning looks like it might be at the lower end of that range, because the proposal essentially replaces the existing personal exemption and standard deduction with a new larger standard deduction, rather than simply increasing the standard deduction alone. 

3. Regardless of the exact cost, the proposal still looks likely to reduce revenues by more than the $1.5 trillion over ten years envisioned in the tentative Senate budget agreement reported last week.  Either the budget agreement will need to expand, or the tax cut will need to contract (though additional base broadening or smaller rate reductions) for tax reform to pass in the House and, in particular, the Senate.

4. We therefore continue to focus in particular on the outlook for the Senate’s budget resolution, details of which are likely to become known in coming days, with a vote in the Senate Budget Committee possible next week (the week of Oct. 2). If the House and Senate are able to pass a budget resolution that makes room for a tax cut of $1.5 trillion as has recently been discussed, we believe this would substantially raise the odds of enactment of tax reform in 2018. 

Goldman also explained what is the one even that can assure the Trump tax plan joins Obamacare repeal on the compost heap of failed campaign promises:

By contrast, a revenue-neutral tax “instruction” in the final budget resolution would make reform difficult, as would failure to agree on a budget resolution at all.

The bottom line:

The details of the tax reform outline from the “Big Six” have been released and are largely in line with expectations. The size of the net tax cut for individuals looks somewhat smaller than the details floated in the press over the last few days, though the corporate provisions are largely as expected.

We continue to think that the plan will need to be scaled back to meet fiscal constraints in Congress.

The next issue to focus on will be the size of the tax cut “instruction” in the Senate’s budget resolution, which is likely to be unveiled in coming days.

In other words, smaller already, and set to get even smaller in the coming weeks… assuming it ever passes, of course.


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