Morgan Stanley CEO Gives Trump's Corporate Tax Plan A Thumbs-Up

The Trump administration has unveiled its proposed tax changes which introduces a path toward a tax rate in the 20 percent range.

The Expert

Morgan Stanley MS's chairman and CEO James Gorman.

The Thesis

Many countries have a tax rate in the 15-25 percent range, which by default puts the U.S. at a disadvantage with the current 35 percent tax rate, Gorman said in a CNBC interview. The higher rate gives companies a financial incentive to do things "you would not normally do in terms of shifting revenues offshore" as has been the case over the past few years.

But if the tax code is revised and corporations pay a tax rate "anywhere in the 20s" then it would be a "very positive" development that stimulates the economy, Gorman said. A tax revision is also unlikely to result in overheated inflation given the "incredibly low" rate of inflation in the U.S., he said.

"The worry has been that it hasn't heated up enough," Gorman said. "At some point, it kicks. You can't have unemployment approaching 4 percent and not have wage pressure. At some point, wage pressure kicks in."

Republican Opposition

Despite support from Wall Street, Trump's tax plan needs support from his own party. U.S. Sen. Ron Johnson, a Republican from Wisconsin, has become the first member of his party to openly oppose the bill.

The senator argues the tax plan does not provide "fair treatment," especially for small businesses. His main concern surrounds the pass-through rate in which profits and losses of small businesses "pass through" to their owners, who are then taxed at the individual rate.

"We can't leave anybody behind, which is why they came up with the 25 rate for pass through," the former small business owner told CNBC. "The problem is, neither the House or the Senate version really honored that commitment to pass-through businesses, which I argue are a huge engine of economic growth."

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