No. of Recommendations: 18
As for Berkshire's value, the corporate tax rate (almost certain to go to 15%, I would say), will probably give us another 6 points of earnings. But then there is also the issue of trade policies. While I am quite dubious of the advantages of widespread tariff barriers, there are a few companies who would benefit, and they would be companies based in the US that have a heavy exposure to manufacturing. I can't think of many companies that fit that bill better than Berkshire, with its railroad, its utilities, its oil and gas investments, and its manufacturing sector (Lubrizol, Precision Castparts, Marmon, CTB, etc.) I even wonder if today's 5% gain in Berkshire's share value is ENOUGH.
That seems a little too chipper in my view. I agree down is more likely than up in the short term for corporate tax rates, but future tax rates are still somewhat unknowable, as is the size of any change.
For one thing, most of the value of any stock come from earnings past the ten year mark. Do we have any new information or guesses about those?
I'm more concerned about the argument lacking the tempering you'd get from a pinch of Ricardian equivalence: If some taxes are cut, other things move. Bond yields rise, for example, which worsens the federal budget, which requires some tax or other to be raised, either sooner or (by a lot more) later. In this case, the "push down here (corporate tax)" is apparently going to be accompanied by the "pop up there (taxes on imports)". Every person and company in the US buys a lot of imported stuff, and will therefore not be able to buy the same amount of stuff for the same money. Some will have been close to the line and will go bust. If, as would seem reasonable, tariffs cause inflation to rise and aggregate consumer purchasing power to fall, that is not good for businesses like ours. What one hand takes, another takes away...to some meaningful extent. Maybe less, but maybe more.
Other things being unchanged, does the prospect of a lower corporate tax rate mean a higher value for a share of Berkshire? I imagine so. But I imagine it's not nearly as big as it might at first appear. Other things are far from unchanged.
Jim
