Corporate Tax Proposals: Trump versus Harris
The corporate tax code is a significant talking point in the current political climate, with Donald Trump and Kamala Harris proposing contrasting changes. Both proposals could substantially impact corporate profits and share prices. However, it's important to remember that these are campaign promises, and their actual implementation can be influenced by various factors including the ability to get the bills through Congress.
Predicting the Outcome
Predicting the winner of the presidential race is a difficult task. Even if one could accurately predict the winner, it would still be challenging to determine which legislation they would prioritize and which bills would successfully pass through Congress.
Markets frequently adjust to unknown scenarios. In certain cases, stock prices may fluctuate dramatically as the likelihood of an event occurring changes. Given that corporate taxes may be the most significant short-term political factor affecting stock prices, it's crucial to understand what both candidates propose. This understanding allows us to stay a step ahead of the market handicappers.
Additionally, considering the recent history of Donald Trump’s 2017 corporate tax cuts, it's useful to identify which companies are best positioned to benefit from or be penalized by changes to the tax code.
Understanding the Current Corporate Tax Code
The Federal corporate tax rate and the effective tax rate companies have paid since World War II can be charted for better understanding. Trump’s 2017 Tax Cuts and Jobs Act (TCJA) reduced tax rates from 35% to 21%. The only other significant cut in America’s history of corporate taxes was in 1986, when President Reagan reduced them from 46% to 34%.
Like personal taxes, corporations have many loopholes. Therefore, the effective tax rate can vary widely by company. Evaluating how tax rates affect corporate bottom lines in the aggregate is important but can be critical at a company level.
The Proposals of Trump and Harris
Trump’s current tax proposal calls for a tax reduction for corporations from 21% to 15%. However, this reduction would only apply to companies that manufacture their products in America. Companies that outsource, offshore, or replace American workers would not be eligible.
Harris’s proposal, on the other hand, is more straightforward. She supports raising the corporate tax rate to 28% for all companies. In addition, she would like to increase the corporate stock buyback tax from 1% to 4%.
Analyzing the S&P 500 Companies
With some background on the candidates' proposals, we can now evaluate the constituents of the S&P 500 to assess the impact of the Trump tax cut. This analysis helps gauge which stocks are most at risk of tax hikes or could benefit from further tax reductions.
Utilities were the apparent biggest beneficiary of tax cuts. On the other hand, real estate companies didn't see a significant cut as these companies tend to pay very little taxes. The rest of the sectors tended to gravitate around the average.
Implications of the Harris Plan
Companies that saw an improvement of at least 20% to their bottom lines due to the 2017 change in the tax code may be at most risk if Harris’s tax plan to boost rates to 28% passes. Those with effective tax rates closer to 28% may be the least affected.
Implications of the Trump Plan
Conversely, those with the highest effective taxes and domestic production capabilities may benefit the most. In addition to the potential tax cut, any changes to the bonus depreciation roll-off schedule should also be considered.
Summary
Assessing the stock market and individual stocks from a political perspective, it appears a Trump victory may provide investors with more potential upside, based solely on their respective tax cut proposals. However, it's important to consider that higher corporate profits due to lower tax rates have been a significant factor driving the market significantly higher since 2017.
Bottom Line
The corporate tax code is a complex issue with far-reaching implications for businesses and the economy. The proposals put forth by Trump and Harris offer two distinct paths, each with its own potential benefits and drawbacks. As an informed reader, what are your thoughts on these proposals? Do you think one plan is more beneficial than the other? Share this article with your friends and join the conversation. Don't forget to sign up for the Daily Briefing, which is available every day at 6pm.
Corporate Tax Proposals: Trump versus Harris
The corporate tax code is a significant talking point in the current political climate, with Donald Trump and Kamala Harris proposing contrasting changes. Both proposals could substantially impact corporate profits and share prices. However, it's important to remember that these are campaign promises, and their actual implementation can be influenced by various factors including the ability to get the bills through Congress.
Predicting the Outcome
Predicting the winner of the presidential race is a difficult task. Even if one could accurately predict the winner, it would still be challenging to determine which legislation they would prioritize and which bills would successfully pass through Congress.
Markets frequently adjust to unknown scenarios. In certain cases, stock prices may fluctuate dramatically as the likelihood of an event occurring changes. Given that corporate taxes may be the most significant short-term political factor affecting stock prices, it's crucial to understand what both candidates propose. This understanding allows us to stay a step ahead of the market handicappers.
Additionally, considering the recent history of Donald Trump’s 2017 corporate tax cuts, it's useful to identify which companies are best positioned to benefit from or be penalized by changes to the tax code.
Understanding the Current Corporate Tax Code
The Federal corporate tax rate and the effective tax rate companies have paid since World War II can be charted for better understanding. Trump’s 2017 Tax Cuts and Jobs Act (TCJA) reduced tax rates from 35% to 21%. The only other significant cut in America’s history of corporate taxes was in 1986, when President Reagan reduced them from 46% to 34%.
Like personal taxes, corporations have many loopholes. Therefore, the effective tax rate can vary widely by company. Evaluating how tax rates affect corporate bottom lines in the aggregate is important but can be critical at a company level.
The Proposals of Trump and Harris
Trump’s current tax proposal calls for a tax reduction for corporations from 21% to 15%. However, this reduction would only apply to companies that manufacture their products in America. Companies that outsource, offshore, or replace American workers would not be eligible.
Harris’s proposal, on the other hand, is more straightforward. She supports raising the corporate tax rate to 28% for all companies. In addition, she would like to increase the corporate stock buyback tax from 1% to 4%.
Analyzing the S&P 500 Companies
With some background on the candidates' proposals, we can now evaluate the constituents of the S&P 500 to assess the impact of the Trump tax cut. This analysis helps gauge which stocks are most at risk of tax hikes or could benefit from further tax reductions.
Utilities were the apparent biggest beneficiary of tax cuts. On the other hand, real estate companies didn't see a significant cut as these companies tend to pay very little taxes. The rest of the sectors tended to gravitate around the average.
Implications of the Harris Plan
Companies that saw an improvement of at least 20% to their bottom lines due to the 2017 change in the tax code may be at most risk if Harris’s tax plan to boost rates to 28% passes. Those with effective tax rates closer to 28% may be the least affected.
Implications of the Trump Plan
Conversely, those with the highest effective taxes and domestic production capabilities may benefit the most. In addition to the potential tax cut, any changes to the bonus depreciation roll-off schedule should also be considered.
Summary
Assessing the stock market and individual stocks from a political perspective, it appears a Trump victory may provide investors with more potential upside, based solely on their respective tax cut proposals. However, it's important to consider that higher corporate profits due to lower tax rates have been a significant factor driving the market significantly higher since 2017.
Bottom Line
The corporate tax code is a complex issue with far-reaching implications for businesses and the economy. The proposals put forth by Trump and Harris offer two distinct paths, each with its own potential benefits and drawbacks. As an informed reader, what are your thoughts on these proposals? Do you think one plan is more beneficial than the other? Share this article with your friends and join the conversation. Don't forget to sign up for the Daily Briefing, which is available every day at 6pm.
