While a blue wave probably implies the greatest amount of spending, it almost certainly will result in the greatest increase in the tax burden.
It's natural for people to focus on how any change in taxes will impact them personally; that's just human nature. But the Biden plan as currently articulated could also result in a hefty increase in corporates' tax burden, both from payroll levies on high earners and income taxes.
It's hard to know exactly what the increased tax bill might look like without specific legislation to examine, but on the face of it a number of proposals (increasing the statutory corporate tax rate to 28%, doubling the rate on GILTI off-shoring, introducing a sort of corporate alternative minimum tax) would represent a particular threat to large-cap stocks.
Whether that is a good thing or not is an exercise left to the reader. What we can say, however, is the corporations have enjoyed a disproportionately favorable tax treatment over the past dozen years since the GFC. In 2019, federal personal income tax receipts were approximately $1.7 trillion, some 48% higher than they were in 2007. Corporations, on the other hand, paid $230 billion last year — 38% less than they did in 2007. Small wonder equities have done so well since the nadir of the crisis.
It remains to be seen how all of this will play out. In a sense, the composition of Congress will be just as important in dictating policy moving forward as the occupant of the White House. Perhaps investors will choose to look on the bright side of life and take equity markets higher no matter what the outcome of next week's election.
It's natural for people to focus on how any change in taxes will impact them personally; that's just human nature. But the Biden plan as currently articulated could also result in a hefty increase in corporates' tax burden, both from payroll levies on high earners and income taxes.
It's hard to know exactly what the increased tax bill might look like without specific legislation to examine, but on the face of it a number of proposals (increasing the statutory corporate tax rate to 28%, doubling the rate on GILTI off-shoring, introducing a sort of corporate alternative minimum tax) would represent a particular threat to large-cap stocks.
Whether that is a good thing or not is an exercise left to the reader. What we can say, however, is the corporations have enjoyed a disproportionately favorable tax treatment over the past dozen years since the GFC. In 2019, federal personal income tax receipts were approximately $1.7 trillion, some 48% higher than they were in 2007. Corporations, on the other hand, paid $230 billion last year — 38% less than they did in 2007. Small wonder equities have done so well since the nadir of the crisis.
It remains to be seen how all of this will play out. In a sense, the composition of Congress will be just as important in dictating policy moving forward as the occupant of the White House. Perhaps investors will choose to look on the bright side of life and take equity markets higher no matter what the outcome of next week's election.