Buried in the tax bill are provisions that lower American corporate effective tax rate to just 10%! That's one of the lowest effective tax rates for corporations around the world...
That is achieved partially through ability to write off almost any business expenses in the first year instead of having to use amortization expenses over multiple years.
That by itself should stimulate businesses to invest in production in United States. But there is more, what is coming is robotics and AI driven production that will help American companies to be more than competitive with Chinese manufacturing.
If you think about it, that's kind of a genius move on the part of our current administration. You don't hear it in the news, but someone managed to push through these fundamental challenges to our corporate taxation.
Low tax rates, incentives to invest domestically into major capital expenditures, robotics and AI that make labor costs irrelevant, plus no transportation costs and tariffs. That is going to make production a real possibility in United States once again.
Of course this will not deliver on the election promises of bringing the production jobs back to America, unless you consider related information technology jobs as production jobs.
Chinese factories were built in 2000s and by now the are pretty much obsolete. Of course they will try to upgrade them to robotics and AI, but their cheap labor advantage will be gone for good.
Another interesting thing that is going on is related to the real estate market. While the news are full of doom and gloom stories about housing what I see in our local markets seems to indicate a potential turnaround.
In the Whidbey Island market that I have been tracking all of this year the inventory is down by a third and a lot of the homes have sold. I know that is just one market, but national surveys show record numbers of consumers wanting to buy the house and at the same time they are feeling that now is a terrible time to buy a house. That is how market bottoms look like...
And on top of all these fundamental factors we have a Federal Reserve that is poised to cut rates which will add fuel to the fire and could put economy into an overdrive. The markets and all asset prices are inevitably going to follow.
Maybe this is why despite the government shutdown crypto and markets are rising. The bad news are fully priced in and we are just starting to price in the scenario I have outlined.
So that is my optimistic Saturday vision for the future. And I have done another day of ten thousand steps 😀
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