Commentary

Will Do-Nothing Congress Help US Economy Get Out of Starting Gate with Tax Reform?

Dan Celia
By Dan Celia | May 12, 2017 | 10:33 AM EDT

2017 Kentucky Derby (Youtube Screenshot)

Did you watch the Kentucky Derby last weekend? Especially when they loaded the field into the starting gate? The horses knew this was not a practice run or a warm-up. This was the real thing! They would finally get to go hard.

This is a picture of our economy—ready to run. As a matter of fact, this is an economy that has been waiting patiently as it warms up, aching to gallop like never before. 

While last week’s latest job numbers (211,000) were good, we need to see them around the 300,000 level. And before long, I think we will. My only disappointment in the recent jobs report was that the labor participation rate stayed the same. But that, too, is ready to break out. When it does, I believe we will see an economy starting to run on all cylinders as we break out of 1978-style rates and into the 21st century.

Record Growth Possible

Many Republican economists are predicting 4 percent GDP growth, possibly even this year. I do believe that we will see a massive paradigm shift in GDP, with new monies flowing into the picture and lower costs possibly coming. The latter will stem from elimination of the Obamacare mandate and reduction of regulatory burdens. 

But to see 3.5 to 4 percent GDP growth soon, we must see tax reform in the not-too-distant future as well. I think it’s safe to say that if we continue to hold back the horses in this economy, we can expect to see a dramatic loss of enthusiasm, at least for 2017.

This, of course, will bring reality into the markets, with the notion that the only way valuations of stocks begin to get in line is through a good, old-fashioned correction. Though that may be a short-term phenomenon, enthusiasm is likely to return when we finally get around to legislating tax reform.

My hope is that the president will encourage the legislative body to get to work and pass tax reform, retroactive to January 1. I still hold to my position that this is the No. 1 priority, not only for America but for the global markets, too.

Spurring Reform

On the heels of America’s tax reform, there is no doubt that global economies of the developed world will almost immediately begin to work on tax reform as well. It is unlikely these nations will get to the levels of America or Ireland, but we will certainly see sound economic development and growth throughout the global economy. 

At this point, however, I can’t imagine we will see tax reform this year—unless Congress gets to work almost immediately. Will a do-nothing Congress work throughout the summer on tax reform? Not likely. Then, when lawmakers return to Washington in September, they will face a debt ceiling crisis once again. That means we will face another possible shutdown of the federal government, zapping a lot of energy from an already-low-energy Congress.

None of this has become reality in the minds of those on Wall Street, but in just a short period of time, it will start taking shape. If I’m right about this—and I hope I’m not—I suspect we will witness a pullback from these all-time highs. That means, if not a technical correction in the market, we will see something close to it.

Staying Put in Stocks

Despite having said that, I will be encouraging the listeners to my national radio and television show to stay put. We are no longer being led by an administration that will likely go down as one of the most economically-inept administrations in the history of the country.

Instead, this is an administration that has surrounded itself with some of the best economic minds in the country. It is an administration that actually listens to what advisors say needs to happen to keep things on track. And, this administration will execute those plans because of its priority of making America great again—rather than working to ensure that America doesn’t dare look as exceptional as it has the potential to once again be.

This will not be a time to sell based on bad news, only to buy back once the news gets good again. It will be a time to sit tight as a long-term investor should and understand that this pullback will be healthy for the markets.

It will also be healthy for the economy, with the underlying fundamentals of getting stronger and more stable in the long-term. The “false positives” created in the past eight years will be gone as we turn our attention to the fundamentals of the economy driving the value of the markets. That will, indeed, be good news.

Dan Celia is president and CEO of Financial Issues Stewardship Ministries, Inc., and host of the nationally syndicated radio and television program “Financial Issues,” heard daily on more than 600 stations across the country and reaching millions of households on the National Religious Broadcasters Network, BizTV, Dove-TV and others. Visit www.financialissues.org.

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