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US tax reform shot fired the global capital competition and tax spill war

December 04, 2017 at 07:25
source: Beijing Commercial Daily
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Trump tax reform is about to land, while tax reform triggered by global capital competition and tax spillover effects, will also be slowly kicked off.

K Figure udi_0

"The U.S. dollar is our currency, but it is your trouble." The famous international economy in the 1970s is ushering in the latest version, "Our tax reform, your troubles." After a long and difficult discussion and amendment, on December 1, the Republican Party proposed the tax reform bill with a 51:49 vote in the Senate. Despite the "revolution has not been successful," Trump tax reform is about to land, while tax reform triggered by global capital competition and tax spillover effects will also be slowly kicked off.

  "Deduction deduction"

Nearly a year in office, Trump finally ushered in his "turnaround." If "the revolution succeeds," the bill will be Trump's first real-life policy, and the U.S. Congress will also see its first major tax law revision in 31 years.

According to the current situation is expected, Trump will be formally signed by the end of 2017 to approve the tax reform act. But now is not the time for the Republicans to celebrate - the Republicans voted to amend part of the bill before the vote to get more votes from the Senate, and there are even many handwritten revisions to the bill that eventually votes the governors .

As a result, the tax reform passed by the Senate and the version passed earlier by the House of Representatives are divided. Before Trump signed, lawmakers needed to resolve the distinction between the two versions of the bill passed by both houses of parliament and the Senate. Recently, the Senate and House of Representatives will start to resolve the differences between the two versions and finally present a bill to Trump.

No matter how the details of the changes, the tax reform "reduction" trend has been firmly established. At the beginning of this tax reform, the Republicans proposed the Better Way, raising the idea of ​​levying a tax on cash-flow based on consumption. The cash flow tax is based on cash receipts and payments, allowing enterprises to deduct the entire investment cost from the tax base without depreciation and implementing "border adjustment" based on consumption.

However, with the continuous reform of the tax reform plan, the Trump administration hopes to stimulate economic growth through large-scale reduction of income tax rates and reduce taxes on businesses and the public. Therefore, this tax reform is aimed at tax cuts, Trump insists it is "cut minus act" (Cut cut cut act) is not without reason.

Compared with the existing tax system, the following major changes in this tax reform. First of all, the personal income tax rate has been reduced from the seventh to the fourth gear and has been simplified compared with the previous one. Second, corporate tax has dropped from 35% to 20%. The third is to raise the threshold of estate tax and will eventually abolish. Fourth, overseas profits will be remitted to enjoy a lower tax rate, from 35% to 5% -12%.

  Tax reform "difficult labor"

Trump on the eve of the tax reform eager. However, after a long debate, the tax reform "dystocia" for nearly a year's time. In fact, the two most controversial aspects of this tax reform are two major aspects.

First of all, because the tax reform will benefit more from the rich, this will increase the unfair distribution and widen the gap between the rich and the poor. This is also the reason that the Democratic Party opposes this tax reform. Indeed, this new tax averts most people's tax payments, but not every family benefits. High-income people will benefit greatly from the tax reform, while the middle class will pay significantly less tax cuts than the rich and some middle-class families will even suffer losses.

Second, tax cuts may increase the fiscal deficit. According to the forecast, the tax relief measures of the tax reform bill will bring the U.S. deficit of 1 trillion U.S. dollars, which has also become the focus of the previous stalemate. Conservatives in the Republican Party claim that the deficit is neutral, meaning there is tax relief for tax increases. However, it is difficult to reduce the tax liability and the deficit increase is almost a foregone conclusion. In this regard, Trump declared that, despite lower tax rates, tax cuts will not lead to excessive fiscal deficits because of economic growth.

According to TPC, US federal revenue will decrease by 2.4 trillion to 2.5 trillion US dollars in 2017-2027 due to this tax reform, and 3.4 trillion US dollars in 2027-2037. This will increase the U.S. budget deficit by 1.5 trillion U.S. dollars in the next ten years. If you want to ensure that the deficit accounted forGDPWith the same ratio, the U.S. GDP growth needs to reach 4.5%. However, the U.S. Congressional Budget Bureau estimates that the potential growth rate of GDP is only about 2%, even if the fiscal stimulus is taken into consideration, and it will reach less than 3%. Therefore, a large rate of this tax reform will increase the U.S. fiscal deficit.

  "U.S. Priority"

Although the controversy over Trump tax reform is still ongoing, it does not really hinder the pace of the tax reform. The reason is that the tax reform will bring huge investment and consumption promotion to the United States. However, the purpose of "U.S. priority" will inevitably attract the return of capital.

In terms of investment, lowering the corporate income tax to 20% and increasing profits retained by the enterprise will stimulate investment. Short-term capital investment is allowed to offset operating income as income without depreciation, which is equivalent to reducing the tax burden and boosting investment. However, although the original corporate tax rate in the United States was as high as 39.6%, this does not mean that enterprises actually pay such high taxes.

Companies with higher effective taxes are more likely to benefit from lower corporate taxes. One of the companies can be broadly divided into two categories: First, the proportion of local revenue, the effective tax rate of high companies, such as telecommunications, medicine and so on. Second, small and medium-sized companies. For most industries, large enterprises are more capable of planning tax revenue properly. Therefore, this tax reduction will benefit small and medium-sized enterprises.

In the Trump tax reform has always been the "United States priority" throughout this belief, Trump declared that the tax reform is to once again give priority to the United States. This time, the sharp drop in the rate of return on overseas profits is the best proof. According to the statistics of UBS (2005: 17.52, 0.34, 1.98%), U.S. businesses accumulated as much as 2.5 trillion U.S. dollars in overseas profits in 2016. Therefore, the reduction of overseas profit repatriation tax rate is expected to bring about a considerable overseas remittance of profits and domestic investment . In turn, investment will play a multiplier effect to promote economic growth.

  "Spillover" war

Trump tax reform a hair move the whole body. As the world's largest economy, such a major tax reform policy of the United States will inevitably have a synergic effect on global capital markets. And the first one is to lead the wave of global tax cuts. At the very beginning of the tax reform act, Germany and France issued a statement one after another that said the move would have a serious impact on the enterprises in their country and made it clear that they could not accept this "act of team-mate."

If Trump tax breaks down, the major economies in the world will inevitably follow up on tax cuts - in the United States to reduce taxes, if other countries maintain the original tax rate unchanged, the capital-f Will choose a cheaper market for investment, while other countries will face loss of capital, investment, and bring a series of economic problems.

Tariff for Trump currently, many countries have begun to introduce tax cuts plan to deal with. For example, the United Kingdom announced that it will cut its corporate tax rate to 17% by 2020, while the Modi government in India has introduced reform measures such as tax cuts for individuals and small and medium-sized enterprises.

According to KPMG research, the challenges of the tax reform in the House of Representatives to the coordination of the global tax system and the international industrial chain should not be underestimated. If this version of the bill eventually becomes law, it may force many current bilateral and multilateral tax agreements Adjustment.

This tax reform will also have a greater impact on China. The United States tax cuts encourage investment, may attract more Chinese enterprises overseas investment. China's corporate income tax accounted for 3.8% of GDP in 2014, compared with 2.6% in the United States. If the United States further cuts the tax, it is expected to stimulate Chinese enterprises' overseas investment. The investments by China in the direct investment into the United States are mostly made up of advanced manufacturing, consumer and high-tech industries, which are also major industries benefiting from this tax reform.

Nevertheless, as the world's second-largest economy, the drastic tax cuts by the United States will exert a tremendous impact on China. For example, the U.S. tax cuts and the RMB exchange rate will exert downward pressure on the U.S. dollar and may also have some impact on exports. China's pressure on the flow of short-term liquid capital will increase, yesforeign exchange reservesThere will be adverse effects.

If a new wave of global tax relief is formed in the future and other developing countries have also lowered their income tax rates substantially, then China will face severe challenges.

However, for the capital market, the tax rate is only one of the influencing factors, as well as a series of factors such as market potential, institutional environment, technological innovation, labor costs and energy and other comprehensive costs. Therefore, analysts say the role of tax cuts should not be overstated.

  Interpretation of the agency

  Guotai Junan: What is the outcome of the U.S. tax cuts and their impact?

Impact: 1) For the United States: U.S. deficits, debt and the economy will all accelerate. 2) For China's economy, the successful tax cuts of the United States will drive its economic recovery and thus help China's exports to the United States, thus boosting the upward investment in China's manufacturing investment, especially in the high-end equipment manufacturing industry. 3) In the short term, capital will not be returned to the United States in large quantities. On the one hand, China is still actively pushing tax cuts and reductions in recent years. On the other hand, China's labor costs still have advantages over the United States. 4) US tax cuts really put pressure on China's fiscal policies, especially the tax cuts. In recent years, China has been tax cuts, and constantly improve the tax system, the current macro tax burden in the United States is still slightly higher than China. The next stage: the combination of individual income tax and tax consolidation is expected to be implemented. The integration of various grades of the VAT rate and the reduction of the tax rate will also have the effect of tax reduction.

  Qianhai Open Source Fund Yang Delong: US tax cuts favorable A-share compensatory growth strong demand

Former open source Yang Delong said Trump's tax reform plan was passed by the U.S. Senate. According to Trump's tax relief plan, the tax reduction and exemption for the next 10 years will amount to about 1.4 trillion U.S. dollars, which will have a significant stimulating effect on the U.S. economy . Tax relief program gained By eliminating the uncertainty and increase corporate earnings expectations, may lead to further gains in US stocks, leading the global bull market to accelerate. For the first time in 30 years, the MSCI ACWI Global Stock Index recorded a thirteen consecutive rally with a cumulative increase of 21.3%. since this yearGlobal stock marketEverywhere, showing the most significant general upsurge in recent years, compared to the Chinese stock market laggard, strong demand for compensatory growth. U.S. tax cuts have stimulated a faster recovery of U.S. economy and boosted China's export growth to the United States. It is estimated that in 2018, A-share market will continue.

  British Securities Li Xiaoxiao: US tax reform on the global stock market have a positive impact

Li Daxiao, director of Yingda Securities Research Institute, said that this is a major tax adjustment in the United States. Its tax reduction efforts are the largest in the history of the United States and a major victory since President Trump assumed office. This has notable stimulating effect on U.S. economic growth. It also has a positive impact on the global economy. It is also an important promoter of the strength of the U.S. stock market and has a positive impact on the global stock market.

  Changjiang Securities: US tax cuts which industries in China will benefit

The macro-analysis team at the Yangtze River believes that the import growth rate of the three rounds of tax cuts in the history of the United States all rose sharply.

In 1981, 1986 and 2001-2003, the United States implemented a total of three rounds of tax cuts. After the implementation of tax cuts in each round of the United States, its domestic private consumption and investment growth have both risen significantly. Driven by the improvement in domestic demand, the import growth of the United States has risen sharply, including substantial expansion in the import of minerals, chemicals and machinery and equipment. During the tax cuts, stimulated by the U.S. demand, the growth rates of the world's major manufacturing-oriented countries' exports have greatly improved. Under the division of labor in the global value chain, consumer countries represented by the United States provide demand while producing countries represented by China, Germany and Japan are responsible for production.

Therefore, if the current round of tariff reductions is implemented in the United States and Rwanda, the export growth of China's electromechanical, chemical, plastic, rubber, basic metal and instrument manufacturing industries will increase significantly. On the one hand, after the U.S. tax relief in 2001, corresponding to the improvement in the import of the U.S. trade, Germany and Japan expanded their exports to such industries as the production of electromechanical, chemical, plastic, rubber, basic metal and equipment. On the other hand, since 2001, China's competitiveness in the above industries has increased substantially. The proportion of imports of these industries in the United States has basically exceeded that of Germany and Japan. Therefore, the current round of the United States tax cuts, exports of China's electrical and mechanical, chemical products, plastics and rubber, basic metals and equipment manufacturing industries will significantly improve.

  Founder Securities Talk about tax reform: not too much pressure on the exchange rate

According to Founder's statistics, Yang Weiwei believes that this will not result in excessive outflow of capital and will not exert too much pressure on the exchange rate. He further said that the devaluation of the renminbi will surely rise but will not lead to a sharp devaluation of the exchange rate because the domestic exchange rate formation system had undergone an anti-marketization change in May this year. When the counter-cyclical factor is introduced, Exchange rate fluctuations re-limit live, even theninterest rateParity on the RMB exchange rate pressure, there will not be too much devaluation losses. Yang Wei said that there may be more overseas-funded enterprises going to sea, but not too violent and will not have much impact on monetary policy. The key issue currently facing monetary policy is still the domestic bond market is also limited.

  inLetter Securities assessment of the United States tax reform: capital backlash will support the short-term dollar strong and strong US stocks

  CITIC SecuritiesAnalysis, Trump tax bill was finally passed by the Senate, which is the largest tax reform in the United States for more than 30 years, but also the first victory of Trump's economic stimulus after taking office, in line with market expectations. Tax reform bill finally passed, the short-term impact on capital flows may be more significant, good dollar and US stocks.

The dollar index will be at least six months relatively strong. On the one hand, the tax reform on economic stimulus, most of the capital flow may occur in 2018, pushing up economic growth expectations, inflation expectations, the Fed is likely to accelerate the pace of austerity; the other hand, the European Central Bank cut QE in 2018 at least six months after the start of In the face of the vacuum of monetary policy in the period of time, the interest rate hike expected by the ECB will not emerge until the end of 2018. It should be noted that the weakening of the U.S. dollar is one of the major factors causing the global risky assets to rise sharply in 2017, while the U.S. dollar may be relatively strong in 2018 (at least the first half of the year), together with the expected impact on the economy and inflation after the introduction of the tax reform in the first quarter Positive boost, then the Fed in the first half of 2018 may pass partial hawkish monetary policy stance to the market, resulting in some pressure on mid-term asset prices. In the short term, the passage of tax reform will help to boost market confidence. The drop in corporate tax will help increase EPS and offset the current valuation pressure on US stocks. The return of funds may also stimulate enterprises to increase their investment, dividends and repurchases, etc., which will benefit the US stocks.

  Security Strategy Comments US tax reform proposals concerned about the China core concept stocks (list)

Essence Securities analysts believe that the bill will further promote the United States economic recovery and boost the global economy is conducive to China's exports are expected to increase. China has previously proposed a supply-side reform focusing on "three cuts, one reduction and one fill-up", and we believe that in addition to the "lowering costs", in addition to the housing rental costs currently under consideration, corporate financeinterest rateAnd other enterprises to pay the future will be further implemented.

In the current position, investors have reason to be more positive and optimistic about the market. Structurally, the fundamentals of the supply side of cyclical stocks (limited capacity, low inventories, strong spot prices) have not changed, and the demand is expected to have some transaction value in the short term after being repaired. Based on the medium-term perspective of the New Year's Eve , We are more optimistic about technology stocks.

In the investment strategy, the proposed configuration attentionInsurance, Aviation, electronics, communications, chemicals and so on. Topics focus on semiconductors, smart manufacturing, Xiong, Hainan and so on. Worth the direction of the medium-term concern: "China's core" (SMIC,Purple country core,Zhongke dawn,Long TechnologyEtc.), artificial intelligence (IETF fly,NavInfoEtc.), 5G / Internet of Things (ZTE,Yi Tong centuryEtc.), smart manufacturing (Yellow River whirlwind,Huichuan TechnologyEtc.), military and civilian integration (Reiter shares,Silver Electrical daysand many more.

                (Original title: US tax reform shot fired "spillover" war)

                (Editor: DF010)

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