Oaktree Capital’s Howard Marks is throwing cold water on tax reform

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Howard Marks
Howard
Marks


Bloomberg
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  • Many companies have welcomed the new tax law by
    announcing bonuses, wage hikes, and hiring.
  • Oaktree Capital founder Howard Marks threw cold water
    on the GOP tax reform in a new memo, questioning its long-term
    benefits and capacity to create new jobs. 
  • “So call it a gift to the corporate sector if you want,
    but I think it’s unlikely to be much of a job-creator or
    long-term boon for the American middle class,” Marks
    wrote. 

Many corporate execs are excited about the prospects of the
recently
passed GOP tax law
, the highlight of which is a tax cut on
businesses from 35% to 21%.

Numerous companies
have announced employee bonuses,
 wage
hikes
, and
new jobs
in the wake of a forthcoming tax windfall.

But Howard Marks, the billionaire founder
of hedge fund Oaktree Capital, isn’t buying by the shiny new
legislation.

In a new
memo released this week
, Marks threw cold water on the tax
reform, questioning its long-term benefits, especially in light
of how it was sold to the public.

While he isn’t impressed with the changes at the individual tax
level — saying “it’s not much of a reform” — much of his
critique is leveled at the corporate changes within the tax
overhaul. 

“We’ve seen a number of companies give raises or bonuses
following the enactment of the tax law, but I doubt it was done
out of generosity,” Marks wrote.

He says there’s every reason to believe that most of the
corporate tax benefit will be used to “enhance credit ratings,
fatten dividend payments, and finance stock buybacks.”

All of that is fine and well, but those weren’t the rationales
Republicans gave for passing the tax plan, according to Marks.

“Instead, it was billed as a job-creator,” he wrote. “With
unemployment already below average, many CEOs tell me they’re
hamstrung by a scarcity of qualified workers. So who will fill
the new jobs if corporations expand in the US? And if workers
aren’t available, will new plants (and jobs) really be created?”

Marks agrees that there are short-term rewards to the plan, such
as a boost to the economy and corporate profits, as well as
larger paychecks for most Americans. But there are some likely
consequences and “meaningful hidden risks” as
well, including higher national debt, higher interest rates, and
higher inflation.

“So call it a gift to the corporate sector if you want, but I
think it’s unlikely to be much of a job-creator or long-term boon
for the American middle class,” Marks wrote. 

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