Trump’s Bold Tax Plan – Good or Bad for Gold?

Trump and Tax Plan
Once again, Donald Trump has embroiled himself in controversy that strikes at the heart of Americans. His plan is to slash taxes, but not just for the rich, as his critics had anticipated. The President has put forth a proposal that will profoundly affect many individuals as well as almost all corporations. He has boldly suggested his proposal will stimulate GDP growth to the tune of a whopping four percent.
 
Also, Trump is looking to create millions of jobs, simplify what has become an onerous tax code, provide tax relief to American families (primarily middle-income families), and lower the business tax rate to one of the lowest in the world (it’s currently one of the highest).
 
At a White House press briefing on Wednesday, April 26, Treasury Secretary Steve Mnuchin and National Economic Council Chair Gary Cohn announced President Trump’s tax reform plan. In broad strokes, here is the President’s plan.
 
• For individuals, it will reduce the number of tax brackets from seven to three and cut the marginal tax rate from 39.6 to 35 percent.
 
• Double the standard deduction, and eliminate almost all tax breaks except for home ownership and charitable deductions.
 
• Abolish the Alternative Minimum Tax, the Obamacare tax on investment income, and the estate tax.
 
• For businesses, the plan proposes to cut the corporate tax rate to 15 percent.
 
Needless to say, a comprehensive tax plan like this will draw its share of critics and supporters. The publisher Time, for instance, applauds the reduction of the nation’s tax burden by about $12 trillion over ten years. They reason too that the ambitious reduction of the corporate tax rate will boost America’s competitiveness.
 
On the other hand, the Tax Policy Center bemoans that the President’s plan will add trillions to our national debt over the next ten years. TPC blogger Howard Gleckman writes, “This is not reform. It is, rather, an enormous tax cut.”
 
How will the Trump tax plan, if enacted, affect gold? Will it drive the price of the yellow metal up? Or will it cause it to decline?
 
There seems little doubt that the stock market will soar, provided Congress clears the president’s proposal with minimum modification. Given a strong reduction in taxes, American corporations could grab at an opportunity to develop and grow. We’d soon see the results spelled out in a Dow Jones Industrial Average (DJIA) that could well fly up from its present level of almost 21,000 to 30,000 in the not-too-distant future.
 
Such market activity suggests investors were then becoming less risk averse and were moving from safe-haven assets like gold in favor of paper assets like stocks. At that point, of course, we could easily see a move down in gold.
 
This would be for only a small window of time. As Marc Faber, publisher of the Gloom, Boom & Doom Report, has continually pointed out, asset prices have been “grossly inflated.”
 
While we’ve seen some dramatic corrections in the stock market in the last year, the rapidly rising prices of equities fueled by an enormous federal deficit unleashed by President Trump’s tax plan are a natural invitation to a precipitous rush to gold as a safe haven.
 
For all of the changes we now face, you can be certain of one thing. Gold will continue to provide protection and security for retirement accounts in a wavering stock market.
 
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