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A Behavioral Approach to Investing

Using Scientifically Engineered Models

Corporations plan to use tax cuts on........

Republicans and Donald Trump are celebrating getting one of their key campaign promises accomplished before Christmas. They have sold the “Tax Cuts & Jobs Act” to the public by claiming it will spur mass corporate spending and job creation. Unfortunately, they are using flawed economic logic, not including the proper incentives in the bill, & have not asked America’s executives what they would do if corporate taxes are cut.

 

Bank of America Merrill Lynch did ask 302 executives from large businesses and their answer should worry Republicans that sold this bill to Americans as a way to jump start economic growth & creating more jobs. According to BAML, 65% plan to use their savings to pay down debt.

In addition, corporations will use the money to buy back shares, buy other companies, & pay dividends. All of those things are excellent (short-term) for the stock market. None of those things will create jobs. In fact mergers & acquisitions will likely lead to fewer jobs. Corporate Finance 101 says you should invest your money where you see the most benefit. The fact corporations see little reason to invest in new projects (only 35% plan to use the savings for capital expenditures) is a massive slap in the face to the Republicans that believed they were doing the right thing by allowing corporations to keep more of their money.

 

As I’ve said many times, I’m all for corporations and individuals keeping more of their money. The issue I have is the way the Republicans have gone about this. They’ve pulled the wool over all of our eyes. They’ve even lost Fox Business News anchor Trish Regan, once a strong defender of the President (click here for her take on the bill). They could have done so much better for ALL Americans, but instead decided to push through a bill that is likely to provide few long-term benefits while pushing our future significantly closer to the fiscal cliff.

 

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New Kent, VA
Jeff joined SEM in October 1998. Outside of SEM, Jeff is part of the worship team at LifePointe Community Church where he plays the keyboard and bass guitar. He also leads a small group Bible study.