March 03, 1998

Tax Reform: The House is expected to pass a bill this June or July sunsetting the entire tax code, effective on January 1, 2002. The Senate may go along. The purpose of this move is to force Clinton, or his successor, to negotiate the terms of an overhaul of the tax code under the pressure of an explicit deadline. The uncertainty created by this tax vacuum may cause major sectoral adjustments in the financial markets. The handiwork of industry lobbyists now litters the Code. Under tax overhaul, these special interests provisions will disappear. The tax burden on many industries will rise, but, for others, it will fall. Expect equity and fixed income valuations to adjust when the markets see through the implications.

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