Investment Perspectives

When could the economy see the impact of tax reforms?


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Tax Cuts May Help Boost Economic Growth in 2018

U.S. Congress passed a sweeping tax reform package late last year that lowered income tax rates for individuals and businesses. The impacts of tax reform are expected to be wide-ranging, including higher corporate earnings, more companies repatriating cash from overseas and greater take-home pay for individuals. But when will economic growth start to accelerate? The answer may be determined by when consumers start seeing lower rates work their way into paychecks. Looking back at the last tax cut in 2003, the IRS issued new tax-withholding guidance in June reflecting the lower rates, and third-quarter economic growth surged. When might we see a similar surge this time around? Individuals and businesses should begin to see their tax withholding rates fall and post-tax income rise at some point during the first quarter of this year; economic growth may pick up soon thereafter. Investors may be able to take advantage by identifying what companies could stand to benefit from higher corporate and individual post-tax income, as well as stronger U.S. economic growth.

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