What to expect from US tax reform

With US tax reform close to becoming law, what's at stake for financial markets?


The US tax reform package, a hot topic since President Trump was elected, is finally on the verge of becoming law. While it will take time for a clear picture to emerge, the reforms certainly have the potential for a market impact later in 2018.

Here’s an overview from Nordea Markets analysts Jan von Gerich, Anders Svendsen and Martin Enlund:

The bulk of the reform centres on cutting corporate and individual tax rates.

  • It cuts the corporate tax rate from 35% to 21%, effective 2018.
  • It cuts income tax, including the top marginal rate, with cuts set to expire in 2025.
  • It also moves from a worldwide to a territorial system for taxing international income, where foreign income is exempted from US tax and previously untaxed earnings held abroad can be brought back, or “repatriated”, to the US for a one-time tax.

Expect a modest boost to US growth, with risks on the upside.

  • We expect a growth boost of 0.25% in 2018 and 2019.
  • The boost to corporate investments could easily end up being bigger, as could foreign interest in investing in the US.

The tax reform puts upward pressure on inflation in the years to come.

The immediate impact on the Fed will be limited but could add pressure for faster policy tightening.

Tax reform favours higher bond yields in several ways, but current short positioning makes near-term sell-offs less likely.

The reforms also support a stronger USD, with the potential for significant repatriation of earnings currently held abroad.


For the full analysis, visit Research on e-Markets.