{"id":9484,"date":"2021-04-08T15:22:40","date_gmt":"2021-04-08T15:22:40","guid":{"rendered":"https:\/\/zackspcg.com\/blog\/?p=9484"},"modified":"2022-02-26T13:05:52","modified_gmt":"2022-02-26T13:05:52","slug":"how-will-the-proposed-corporate-tax-hike-affect-markets","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/how-will-the-proposed-corporate-tax-hike-affect-markets\/","title":{"rendered":"How Will the Proposed Corporate Tax Hike Affect Markets?"},"content":{"rendered":"\n<p><em>Kenneth H. from Albany,\nNY asks: <\/em>Good Morning Mitch, I would like to hear your thoughts on the tax\nproposals associated with the infrastructure bill. Do you think higher\ncorporate taxes will affect corporate earnings, and therefore the markets?<\/p>\n\n\n\n<p><strong>Mitch\u2019s Response:<\/strong><\/p>\n\n\n\n<p>Thanks for writing, Kenneth. The first thing I\u2019d like to\nnote is that the recently announced $2.3 trillion infrastructure proposal is\njust that \u2013 a proposal. I think it is important for investors to remember that\nit is not advisable, in my view, to make portfolio adjustments based on tax increases\nthat <em>may <\/em>happen. I think the best\npractice is to respond to what politicians do, not what they say. <\/p>\n\n\n\n<p>That being said, the initial proposal laid out by the Biden\nadministration seeks to raise the corporate tax rate from the current 21% up to\n28%. A key takeaway here is that the conversation for corporate taxes is now\ncentering around 28%, versus the previous 35% level. This is an important\ntakeaway \u2013 prior to the 2017 Tax Cut and Jobs Act, the corporate tax rate hovered\nabove 30% for well over 50 years, so resetting the tax conversation down to 28%\nis important here.<sup>1<\/sup><\/p>\n\n\n\n<p>____________________________________________________________________________<\/p>\n\n\n\n<p><strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-volatility-guide?source=website&amp;medium=blog&amp;term=mitchsmailbox_blog_2021_04_08&amp;content=volatility_guide\">4 Tips to Help You Manage Market Volatility <\/a><\/strong><\/p>\n\n\n\n<p>The\npending infrastructure bill is raising many questions from investors. But\nconcerns about how high corporate taxes could affect earnings and the market\nshouldn\u2019t be a reason to fall into emotional decision marking. When the market\nfluctuates, it\u2019s better to be prepared for any outcome. The best approach is\nfinding a strategy that could help you steer through any financial change. &nbsp;<\/p>\n\n\n\n<p>The\nreal challenge is not in finding a way to eliminate volatility\u2014it is developing\na mental approach to dealing with it. Our guide, \u201cHelping You Manage Market\nVolatility,\u201d will provide you with insights and tips to do just that. Get\nanswers to questions like:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Market downturns can and will occur, but what should you do?<\/li><li>How can diversification help you manage volatility without compromising your returns?<\/li><li>When volatility is too much for you to handle, how can a money manager help?<\/li><li>Can volatility actually be an opportunity?<\/li><\/ul>\n\n\n\n<p>If you have $500,000 or more to invest and want to get answers to the questions above, click on the link below to download this guide today!<br> \u00a0<br><strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-volatility-guide?source=website&amp;medium=blog&amp;term=mitchsmailbox_blog_2021_04_08&amp;content=volatility_guide\">Download Zacks Volatility Guide, \u201cHelping You Manage Market Volatility.\u201d<\/a><sup><a href=\"https:\/\/go.steadyinvestor.com\/arrow-volatility-guide?source=website&amp;medium=blog&amp;term=mitchsmailbox_blog_2021_04_08&amp;content=volatility_guide\">2<\/a><\/sup><\/strong><\/p>\n\n\n\n<p>____________________________________________________________________________<\/p>\n\n\n\n<p>As for corporate earnings and the markets, raising corporate\ntaxes up to 28% will almost certainly impact earnings, but I\u2019m not sure the\nimpact will be as large as most skeptics think. <\/p>\n\n\n\n<p>I think we\u2019d see a reduction in after-tax corporate return\non invested capital (ROIC) by less than 1%, and we would also see a slight move\nlower on the U.S. equity earnings yield \u2013 maybe moving it closer to the rate on\nrisk-free Treasuries. This may spur some volatility, but I do not see a good\nreason why U.S. corporations would stop delivering accelerating earnings over\ntime. <\/p>\n\n\n\n<p>At the end of the day, I am not saying\nraising taxes is a good thing for earnings and profits. But marginal shifts in\nthe tax rate are also not powerful enough to make or break a business cycle, in\nmy view. Here\u2019s an analogy to consider: if an umpire declares in the 7<sup>th<\/sup>\ninning that home runs no longer count as runs, the competing teams will adjust\ntheir game plans and score runs in other ways. Businesses do the same with\nchanges to the tax code, and the business cycle carries on. Remember, too, that\none of the best growth decades in U.S. history (the 1990s) happened with the\ncorporate tax rate at 35%. Innovative, profit-seeking businesses find a way. <\/p>\n\n\n\n<p>In my view, taxes alone may not be powerful enough to drive\nlong-term market performance. The stock market is affected by too many other\nfactors: interest rates, corporate earnings, inflation, economic growth,\nexpected profits, and so on. Taxes matter, of course, but marginal changes to\nthe tax code have not stifled economic growth and\/or pulled stocks permanently\nlower in the process.<\/p>\n\n\n\n<p>Even still, the bill is very far from becoming law, and even\nmoderate Democrats have reservations. I think it is important at this stage to\nwatch the evolution of the bill closely before making too many assumptions\nabout what will become law. As we have seen many times in the past, there is\nplenty of political posturing and \u2018negotiating\u2019 that will need to happen in the\ncoming weeks and months before we see any clarity on what actually may become\nlaw. &nbsp;<\/p>\n\n\n\n<p>In times\nof uncertainty, I recommend aligning your allocation with your long-term goals\nand finding a strategy that helps you navigate through volatility. To give insight\ninto some ways you can do this, check out our guide, \u201cHelping You Manage Market\nVolatility.\u201d<sup>3<\/sup>&nbsp;It will provide you with insights and tips to do\njust that. Get answers to questions like:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Market downturns can and will occur, but what should you do?<\/li><li>How can diversification help you manage volatility without compromising your returns?<\/li><li>When volatility is too much for you to handle, how can a money manager help?<\/li><li>Can volatility actually be an opportunity?<\/li><\/ul>\n\n\n\n<p>If you\nhave $500,000 or more to invest and want to get answers to the questions above,\nclick on the link below to download this guide today!<\/p>\n","protected":false},"excerpt":{"rendered":"<p>The proposed infrastructure bill could mean higher corporate taxes\u2014Mitch says let&#8217;s wait and see what actually passes <\/p>\n","protected":false},"author":3,"featured_media":7436,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[66,71],"tags":[],"class_list":["post-9484","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-mitchs-mailbox","category-private-client-group"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/9484","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=9484"}],"version-history":[{"count":1,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/9484\/revisions"}],"predecessor-version":[{"id":10418,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/9484\/revisions\/10418"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=9484"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=9484"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=9484"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}