The United States introduced its first federal income tax statute with the Revenue Act of 1861 to help fund the Civil War, though the income tax provision was repealed soon after in 1862. Since the passage of the 16th amendment in 1913, the deadline for filing taxes had been in March. However, in 1955, the date was moved to April 15.
In celebration of this day—or that this day is almost over—let’s take a look at some of the estimated impacts of the 2017 Tax Cuts and Jobs Act (thanks to our friends at Strategas Research Partners for their analytical support):
- Individual and small business tax cuts totaling $122.5 billion are being put into place this year, followed by $184.4 billion in 2019. Paychecks reflected lower taxes in February, which may have helped support the just reported bump in retail sales in March.
- Domestic corporate tax cuts totaling $163 billion were put in place for 2018, which will be followed by $128.6 billion in 2019. The effective corporate tax rate for S&P 500 Index companies has dropped from 25.2% to 19.7% as a result of the tax law changes. The offset in terms of international corporate tax changes is just $79.6 billion in 2018 and $38.5 billion in 2019.
- The overall impact of the new tax law on S&P 500 profits is expected to be about 6% in 2018. However, even without that boost, S&P 500 earnings are predicted to have grown at a double-digit pace during the first quarter of 2018 and possibly for the full year as well; and this estimate may prove conservative given the delayed benefit of repatriation of overseas cash, which is substantial.
- The dollar amount expected to be repatriated, as prescribed by the new tax law, may exceed $500 billion and could be as large as $700 billion. The proceeds are being directed toward capital spending, employee bonuses, share buybacks, dividend increases, and acquisitions, all of which should be net positives for stock prices in our view.
- The Congressional Budget Office overestimated the deficit after the 2003 tax cuts. Although the latest tax cuts will almost certainly increase the deficit, the increase may be smaller than expected.
Last, as we noted at the start of the month, April has historically been very strong for stocks. Well, as our Chart of the Day shows, the majority of those gains happen late in the month, once everyone files their taxes:
The S&P 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
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