Argument: Corporate tax reform is accretive to US equity market valuations (SPY)(DIA)(QQQ) at all top rate reduction levels (though not on a 1-to-1 basis due to increased corporate capital costs), assuming the tax deductibility of interest is maintained.
If interest's tax deductibility is abolished from the corporate tax code, then the top rate will need to be reduced down to 26%-27% in order for the average corporation to reach a breakeven point from the change.
Overview
The value of a business is the amount of cash that you can extract from it over its life discounted back to the present. The equity is the residual value remaining after all creditors/debtholders have been paid, and can be calculated as: net income (i.e., earnings) + depreciation and amortization expense (given its non-cash in nature) + changes in working capital - capital expenditures + (debt raised - debt paid)
If taxes are…
