This element in the Republican tax plan would be a 'very powerful' force for stocks, says top Invesco market watcher

If the Republican tax plan passes basically intact, investment firm Invesco recently predicted it'll satisfy Wall Street and drive stocks higher.

Moreover, there's one particular element in the proposal which could have the biggest positive impact: A permanent 20 percent corporate tax rate, a deep cut from the current 35 percent level.

Invesco's global strategist Kristina Hooper believes the odds are high the new figure will stick.

"I give this a more than 50 percent chance of surviving. To me, this is the centerpiece of the legislation," Hooper said recently on CNBC's "Futures Now."

It's been more than 30 years since the tax code has undergone major changes. According to Hooper, stocks could rally another five percent over the next several months if the bill is passed with a corporate tax rate 15 percent lower than the current level.

"If we could just get those corporate tax cuts, I think that would be very powerful," she added.

It appears the Street is behind much of the plan. The Dow hit its 58th all-time intraday high just hours after the GOP tax plan was unveiled. Hooper said small cap stocks, retail and financials as areas which could see the biggest benefits from the plan.

Can the GOP hold the 20 percent line?

However, that doesn't mean the gains would be across the board.

There are certain parts of the market which could run into some trouble. Hooper warns high-debt companies, home builders and even homeowners could become under pressure.

"If this goes through, we're going to see a reset in home prices in high tax states because the cost of owning a home there is going to go up significantly," noted Hooper.

Before that has a chance to happen, the Republican tax bill still faces obstacles. It needs to pass through both houses of Congress before it ends up on President Donald Trump's desk. Along the way, the bill could start to look vastly different than its current form.

"We don't know what exactly this tax bill will look like when it finally makes it through over all this bartering and negotiating that will happen in the coming weeks," Hooper said.

Experts in the beltway are split over whether the lower corporate tax rate will be expendable.

Jared Bernstein, senior fellow at the non-partisan Center on Budget and Policy Priorities, believes the legislation will see a lot of changes over the next few months — and that includes whether 20 percent corporate tax rate figure stay.

"I suspect it will not," said Bernstein, who was Vice-President Joe Biden's former chief economist and economic adviser. "I think at the end of the year there will be a cut, but not of this magnitude... The bill has real hurdles."

Bernstein notes that the business tax cuts would contribute to the lion's share of the fiscal deficit, and lawmakers from both sides of the aisle will argue against it.

Yet Douglas Holtz-Eakin, a former economic advisor to Arizona Republican Senator John McCain, is optimistic.

Holtz-Eakin, who is also the former director of the Congressional Budget Office, put a 95-percent probability that the core of the Republican tax plan will be approved.

"I think the 20 percent number will stick," Holtz-Eakin said, despite the "enormous amount of sound and fury surrounding the bill."

Vote
Vote to see results
Total Votes:

Not a Scientific Survey. Results may not total 100% due to rounding.

Videos

Host Bio & Watch Now

Trader Bios