Impact Of Tax Hikes On Stock Market

This time it’s across the board improvements in food & drink, services, and retail. With the weakness in meme stocks and the reopening of the economy, retail investors are taking whatever money they have left in the market and using it on the real economy. The data on small call buying supports the point that some retail traders have already left the market. Now that their virality is gone, these meme stocks have nothing left to stand on.

Corporate Tax Hikes Coming

If the Biden administration was fully on board with MMT, we would expect large stimuli without tax increases. However, this administration still believes deficits are a problem, so it plans to raise taxes in tandem with the potential $3 trillion infrastructure plan. An infrastructure plan was promised in the last administration, but nothing came of it. This time, something should happen because the Democrats have full control of the government and it’s popular.

This tax increase could be a disaster for corporate earnings if the full brunt of the plan is enacted. 2022 EPS could drop from an estimated $203 to $185. We think in the long run there will be a secular trend towards tax hikes in order to fight inequality. We’re not supporting such policy. We’re merely following the political winds and looking at the long term trends. As you can see from the chart below, corporate tax receipts as a share of US GDP have plummeted. This isn’t sustainable. Even if the current Goldman forecast of a $6 hit to EPS occurs rather than the $18 hit, this is just the beginning of higher taxes. 

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Disclaimer: The content in this article is for general informational and entertainment purposes only and should not be construed as financial advice. You agree that any decision you make will be ...

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