US tax cuts on the way; and the market effect? - Nomura

Analysts at Nomura explained that they continue to expect a US tax package, made up primarily of simple tax cuts to individuals, to pass in early 2018. 

Key Quotes:

"We remain pessimistic that serious reform will be passed and that Republicans will be able to raise enough revenue to permanently cover the costs of significantly lowering the corporate tax rate."

"Substantial tax reform, which includes closing loopholes and creating winners and losers, has not occurred since 1986. Further, Republicans have only slim majorities in both the House and Senate, requiring near-unanimous approval of any bill within a diverse party."

"We continue to hold that the Republicans will pass a tax bill in Q1 2018 that will reduce revenue/cut taxes by $1trn over 10 years. However, we remain pessimistic that the Republicans will be able to agree to raise the revenue needed to significantly reduce and reform business taxes."

"If a personal tax cut of $1trn was passed in Q1 2018, our simulations suggest that 10yr Treasury yields would increase by 7bp; real GDP growth would increase by 12bp but would then fade over time; finally, the Federal Reserve’s response would be fairly muted with the target federal funds rate increasing by 12bp after 5 years."