Part 4 - The Debt Load of the Tax Bill

by Michael Keane

Part 4 of the series on Likely Tax Bill Outcomes will focus on the debt load increase that has been created by the bill. There is a correct feeling of danger towards the idea that this will add over $1 trillion to the nations debt without a backstop or plan if the debt does not look to be paid off after a couple of years. If this is the case, it will be just another unfortunate financial burden that the Boomer and X generations (I am considered part of Generation X) will put on Millenials and beyond.

There is an ideology that the tax benefits from the increased profits from both corporations and individuals created will more than cover the current debt that has been saddled on the taxpayers. While this may sound like a probable process, greed and envy tend to get in the way of the plan. The likely scenario will be much different than this. Previous similar actions have been met with less capital expenditures and higher dividends to investors from corporations. Individuals that receive the most financial benefits will likely save and not spend the majority of their tax bill savings. There is also the issue of rising rates which will reinforce the issuance of dividends and increase savings.

This tax bill could not come at a more peculiar time. The Federal Reserve is about to start unloading their massive balance sheet. The administration is presenting a budget that increases spending. Adding all three actions up at the same time does not sound like good fiscal planning. The securities markets are going to need time to digest this action. You can look for ten year interest rates to continue to climb north of 3 percent in the next 6-12 months. If it moves quickly, ripple effects will be felt in the stock market and the economy as a whole.  It is strange that Republicans who champion the idea of fiscal conservatism are in charge. These actions on the tax bill clearly show that regardless of party, fiscal responsibility has some serious blinders on. It's kind of a bummer.

You can find the links to parts 1-3 below:

- Tax Bill Likely Outcomes (Part 1)

- Corporate Responses to Tax Bill (Part 2)

- Here Come The Earnings (Part 3)

 ** This blog is used for opinions and ideas and should not be used as a direction to act without doing your due diligence.**



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