FANG Stocks Fall On Tax Cut Talks

Wednesday’s stock market action was driven by the changes that will go into effect when the tax cuts are passed. The Russell 2000 was up 0.38% and the Dow was up 0.44% while the S&P 500 was down 0.04% and the Nasdaq was down 1.27%. As you can see from the chart below, the effective tax rate is much lower than the statutory tax rate. With the statutory tax rate going from 35% to 20% and some deductions eliminated, there will be some firms helped and some firms hurt. A company like Disney will be helped as it pays a 30% effective tax rate; that’s why its stock was up 1.77%. On the other hand, the FANG stocks were hurt today because they pay low tax rates. Facebook’s effective tax rate last quarter was 10% which is why its stock was down 4%. Amazon’s effective tax rate last quarter was 0% which is why its stock was down 2.71%. Netflix’s effective tax rate was 0% and its stock was down 5.54%. Finally, Google’s effective tax rate was 16% and its stock was down 2.46%.

Senate Votes To Start Debate On Tax Bill

The Senate is planning to vote on the tax bill this week. On Wednesday, the Senate voted 52-48 to debate on the tax bill. This is a great sign of unity for the GOP. Unless there’s a turncoat moment like what Senator McCain did in the summer on the healthcare legislation, the Senate should pass this plan when it votes later this week. Lisa Murkowski, one of the holdouts on the healthcare reform plan, says she will vote in favor of the tax plan. This supports the expectation that it will pass. The vote on Wednesday started a 20 hour window where the plan will be debated before a ‘vote-a-rama’ starts. This is where any Senator can put an amendment to the plan up for a vote. The votes made on the amendments will make or break the decisions of those senators who are on the fence about the bill such as Susan Collins, Steve Daines, and Jeff Flake. One of the final concepts being debated by Republicans is if the plan should include triggers. These triggers are tax increases which will go into effect if the dynamic growth caused by the tax cut doesn’t cover enough of the projected $1.4 trillion debt increase expected to be incurred from this plan over the next 10 years.