Software Sales Growth Slowed In 2020

The current investment theme is the economy reopening and higher inflation. The next theme will be higher corporate taxes and more infrastructure spending. This theme will probably be longer lasting. It could also increase inflation. Specifically, the new taxation plan calls for multinational corporations to pay taxes to national governments as part of a deal on a global minimum tax.

This is important because currently countries are in a race to the bottom to attract companies. This new plan will end tax havens. Countries won’t be competing against each other anymore. This will hurt the big tech companies with headquarters abroad. Apple’s European HQ is in Ireland because of its low tax rate. America wants the global minimum corporate tax rate to be 21%. America had previously objected to this idea because it was seen as hurting its big tech giants. If America leads on this issue, it has a better chance of happening. Biden’s goal is to raise $2.5 trillion to pay for $2 trillion in infrastructure spending. 

As you can see from the chart on the left, America’s government investment has been running below its 1990s trend since 2010. Real government investment is $1.25 trillion below its trend. That’s despite America’s ballooning deficits which are funding social safety nets like Medicare, Medicaid, and Social Security. If interest rates were to rise on inflation fears, America’s deficits would explode further. That’s why Biden wants to pay for his plan via tax hikes on corporations. It’s much tougher to get a spending plan passed when tax hikes are attached. The good news is most people in Congress support infrastructure spending. The chart on the right shows the causes of the deviation from the investment trend. We think Biden will focus on housing & community service, public order & safety, and general public service the most. 

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