Tax Increases Are Not Always A Headwind For Stocks

In the years of tax increases, the S&P 500 Index generated better returns versus years in which tax cuts were instituted. Additionally, GDP growth was stronger in the years where tax hikes were instituted, as well.

S&P 500 returns in periods of tax hikes and tax cuts

Much can be debated on whether tax cuts or tax increases are a good policy decision. In the current environment though, with the economy exiting a recession and a large amount of pent up demand needing to be satisfied, the economy and stock market may be able to shake off this potential tax headwind if the increase is not too onerous.

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