Credit Suisse Is Unfazed by Prospect of Biden Tax Hikes
Credit Suisse Is Unfazed by Prospect of Biden Tax Hikes
(Bloomberg) -- A Democratic sweep in November ushering in higher tax rates probably wouldn’t be as bad for the U.S. equity market as some investors fear, according to Credit Suisse.
If Joe Biden wins the presidency and Democrats take control of both houses of Congress, they would implement policies supporting the economy, which would limit the potential for stock declines from unwinding Donald Trump’s corporate tax cuts, Credit Suisse Chief U.S. Equity Strategist Jonathan Golub said.
“Many have postulated that less favorable tax policy following a Biden win/Blue sweep ... would act as a catalyst for stocks to decline,” Golub said in a note. However, higher tax rates would be a “headwind not an impediment,” he said.
Many investors presume that Biden would raise corporate taxes and increase the regulatory regime if he’s elected. In May, House Democrats proposed a $3 trillion virus relief bill, combining aid to state and local governments with direct cash payments, expanded unemployment insurance and food stamp spending.
The stock market appears to be signaling that a second Trump term might not be necessary for continued gains in the market. His re-election odds have stopped moving in tandem with stock prices after the U.S. protests against police brutality and racism. While he has fallen in the polls, the S&P 500 has pared back nearly all of its losses since the coronavirus roiled markets earlier this year.
Read more: Stock Market May Have Decoupled From Trump: Wall Street Votes
Golub estimates that reversing half of the Trump tax cut as per a Biden proposal would increase effective tax rates by 4% to 5%, shaving $9 off 2021 earnings-per-share. He used the 2017-2018 experience as a guide in formulating his estimate
Earlier this week, Goldman Sachs strategists led by David Kostin said Biden’s partial reversal of the Tax Cuts and Jobs Act would reduce the firm’s S&P 500 earnings estimate for 2021 by roughly $20 per share, from $170 to $150.
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