President Donald Trump promised to use his tax reform overhaul to help middle-income Americans and aside from a tax cut, middle class earners could see financial benefit through fuller pension plans.
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The path to more stable pension plans begins with the cut to the corporate tax rate, which is expected to be reduced from the current 35% level to 20%. That substantial tax break for corporations, alongside a cut in the capital gains tax, will raise equity prices, here’s why:
“Equity prices are the present value of expected, future after-tax profits,” Chris Edwards, director of tax policy studies at Cato and editor of www.DownsizingGovernment.org, told FOX Business. “Capital gains taxes and corporate taxes directly reduce after-tax returns, so if you cut the corporate tax rate you directly raise the value of equities.”
And higher stock market prices lead to fuller, more stable pension plans with higher funding levels.
The popular retirement tools have suffered shortfalls in recent years, even at the United States’ largest corporations. According to a report from S&P Dow Jones Indices released last month, companies belonging to the S&P 500 had pension dues of $2 trillion in 2016, but only $1.6 trillion set aside for issues. That funding gap was 6.1% worse than 2015, according to the study, which said accommodative low interest rates could cause funding levels to suffer further in 2017.
A White House official said workers would “see a benefit in pensions plans” as equity portfolios got a lift and confirmed helping middle income Americans is “exactly what [they’re] trying to achieve.”