HOUSE OVERSIGHT 014718 • VAT is revenue neutral — would raise enough revenue to cut corporate tax rate to 15%, even 10% possibly • While consumption taxes like VAT can hit the poor (Democrats hate them), there is room for carve-outs on groceries, etc. There will be pushback from Republicans who hate lack of visibility of VAT as well. Only person who can pass this is Trump. • Under BAT, the working class is arguably hit even worse than under VAT o BAT would cause prices to go up at WMT and TGT (most of Trump's supporters shop there) o Retailers would raise prices but exporters won't lower prices o 5% VAT will result in a smaller average rise in prices (not entirely passed through), so less disruptive — would need USD to strengthen only 3-4% • Where does this leave us? Only Trump can cut through the logjam. • Woo prefers Europe over US right now. European equities are climbing a wall of worry • Getting positive on energy • Buy the dip in May (-6 weeks). But own early-May or mid-May equity puts now. • Other anecdotes o Regardless of your political preference, he thinks we all need Trump to succeed or the economy will get Bernie Sanders or worse. o Tillerson vs Kerry — Woo thinks Tillerson is actually working and getting things done, as opposed to Kerry who just cared about the Nobel. • Thus sees zero risk of a trade war with China • NAFTA is really more about China, not Mexico - and will ultimately benefit Mexico. Renegotiating NAFTA will remove the ability for Chinese exports to come in tariff-free through Mexico. o Mnuchin and Cohn really know what they're doing and Woo thinks they will get there on VAT/ tax reform • Cases for tax reform 1. US marginal tax rate = 35 % = highest among OECD = diminished returns to investment 4 solution = decrease marginal tax rate 2. US taxed on global income vs. territorial like other major economies. Issue because 1) US companies hold over $2t in capital overseas and 2) US companies acquiring smaller foreig