Commentary: Clinton's tax test is still to come

Getting the facts, rather than the fear, of Clintonomics has done little to calm Wall Street's nerves. Having climbed 36 points in the morning, the stock market quickly reversed as investors decided that higher taxes and a big fiscal boost were not, on reflection, such a welcome prescription.

British companies were much more relaxed. With the exception of drug companies - still anxiously awaiting Hillary Clinton's healthcare proposals - those with US earnings believe the package will, if anything, do them good.

Of the dollars 30bn spending programme, dollars 16bn will go on the infrastructure - including dollars 3bn on roads and dollars 1bn on transport. That represents 0.25 per cent of US gross domestic product and will mean infrastructure spending roughly doubles.

Small wonder that UK companies like Hanson - whose Grove crane subsidiary should also benefit from the dollars 15bn investment incentive programme - and Blue Circle, whose US operations are heavily geared to public works, were smiling yesterday.

The key question is whether tax increases - which will not take effect until next July - will dent consumer spending. While some of Britain's large US earners fear it will, others believe it could help, if it is seen as part of a package of measures designed to stimulate the economy.

On the corporate side, the main reaction was relief. The dollars 45bn that Mr Clinton was threatening to recoup from foreign companies through an attack on transfer pricing has turned into just dollars 3.8bn over six years.

Many British companies pay only minimal US taxes, so a doubling of the number of auditors assigned to foreign companies is a worry. But an extra 2 per cent on the corporate tax rate is more of an irritant than a reason to re-examine investment decisions. With recovery under way, earnings in any case should rise faster than the tax rate.

Some of the tax changes are encouraging investment; RTZ said that one of the attractions of yesterday's purchase of a US coal producer was that coal will benefit at the expense of oil from the energy tax proposals.

James Capel, the broker, says the package will boost growth this year from about 3 to 3.5 per cent but, because of the spending cuts, the impact next year will be slightly adverse. But US presidents have a poor record of forcing through tax increases and spending cuts. That test has yet to come.