Claims

Factual · Economics and markets

“For example, when Trump administration cut corporate taxes, that pushed stocks up because after taxes you get more so you pay more for your stocks.”

Ray Dalio, Bridgewater founder, interviewee · 16 August 2019 · CNBC Transcript: Ray Dalio, Founder, Bridgewater Associates - Part I (CNBC)

The Trump administration cut corporate taxes, which pushed stock prices up.

Mostly true True in substance, wrong in a detail.

The second judge said resolved true; the verdict shown is the first judge's.

What would count as true or false

True: the 2017 Tax Cuts and Jobs Act cut the federal corporate tax rate (35% to 21%), and economic research or market analysis broadly attributes a meaningful part of the subsequent rise in stock prices to the cut, e.g. through higher after-tax earnings. Such work could include Fed or academic studies, or earnings analyses attributing EPS gains and index moves to the tax cut. Mostly true: the cut happened and is generally found to have lifted stocks, but the effect was modest or short-lived. Mixed: research is genuinely split on whether the cut raised stock prices. Mostly false: the cut happened, but the evidence does not establish that it pushed stocks up, and the claim states as established a causal link that is unproven or weak. False: no corporate tax cut occurred, or evidence shows the tax cut did not raise stock prices or lowered them.

Evidence

1. Why Has the Stock Market Risen So Much Since the U.S. Presidential Election? Board of Governors of the Federal Reserve System (International Finance Discussion Papers 1235) · August 2018

   “Given that the tax package has now become law, the econometric estimates suggest its contribution to the increase in prices since the election ranges from 2 to 6%.”

2. Why Has the Stock Market Risen So Much Since the U.S. Presidential Election? Board of Governors of the Federal Reserve System (International Finance Discussion Papers 1235) · August 2018

   “With respect to stock prices, this second effect is likely to dominate.”

3. Unequal Rewards to Firms: Stock Market Responses to the Trump Election and the 2017 Corporate Tax Reform Alexander F. Wagner, Richard J. Zeckhauser and Alexandre Ziegler (AEA Papers and Proceedings, forthcoming) · 21 January 2018

   “These results cannot prove a causal impact of the prospect for or enactment of tax cuts on the market development between Trump’s election and end-2017.”

4. Goldman says boost from tax cut 'behind us' so buy these companies that can grow on their own CNBC · 18 March 2019

   “"Lower tax rates accounted for two thirds of the improvement in ROE but fundamentals were strong even excluding tax reform," Kostin said.”

Reasoning

A Federal Reserve staff study (E1) estimates that the tax package's contribution to the increase in stock prices since the election ranges from 2 to 6%. It also says that, for stock prices, a "second effect" is likely to dominate (E2), though the quoted passage does not say what that effect is. Goldman analysis (E4) credits lower tax rates with two-thirds of the improvement in return on equity, but also says the boost is now "behind us". An academic study (E3) says its results cannot prove that the prospect or enactment of tax cuts caused the market rise between the election and end-2017. Taken together, Fed research estimates a modest positive contribution of the tax package to stock prices (E1), and one study says causation cannot be proven (E3), so the claim is mostly true.

Cite this claim

Ray Dalio, “The Trump administration cut corporate taxes, which pushed stock prices up.” (said 16 August 2019). Verdict: mostly true. Reliability API, claim c_6a22a522bda2, method 0.1.0+c876030c. https://epistacklabs.com/claims/c_6a22a522bda2