Happy New Year wishes.

The final Congressional Budget Office (CBO) scoring of the tax bill was submitted to the House Ways and Means Committee on December 15. A summary of the scoring is available here in PDF form.

Mike Englund of Action Economics had this to say about the CBO analysis:

“The CBO Score of the new tax bill shows a bigger 2018–19 GDP fiscal boost than in the earlier Senate scoring. We expect year-end tax arbitrage, as corporations pull expenses into 2017, while individuals delay receipt of bonus income to Q1 and pre-pay January state tax in December. Asset sales will be delayed to Q1 given higher AMT limits (and no corporate AMT), leaving a likely January stock market pullback. The new tax code has lifted the value of corporate income, leaving a big ‘wealth effect’ for 2018, while consumer inflation will be restrained by lower corporate tax costs. Finally, disposable income will be boosted when new withholding tables are applied, while after-tax corporate profits will surge, leaving a likely 2018 boost in real GDP to the 3% area.”

We think Mike has it right on the mark. Taxes matter. Most folks and businesses view taxes as expenses. For nearly all of America that expense just dropped.

Forget the “postcard” metaphor. The tax code is now more complex than ever. And you cannot deduct the higher accountant fees and tax advisory costs that you will need to incur in order to sort through it. So much for political fixes!

Once the transitional shock of year-end is absorbed, we think the tax bill will raise the valuation of US stocks. Simply put, the tax bill will generate a permanent shift upward of somewhere between $10 and $14 in the threshold of S&P 500 earnings. Once you adjust for that permanent shift, you may continue to factor in the earnings growth rate that you expect from a US economy that is going to grow at 3% instead of 2%. We believe that growth rate is likely for a couple of years.