Stocks just got hit with a double-whammy of hawkishness as Fed's Kaplan threatened to withdraw accommodation as the pandemic ends and Treasury's Yellen unveiled a plan to grab back $2.5 trillion in taxes from corporations.

Just a week after his last warning sank stocks, Federal Reserve Bank of Dallas President Robert Kaplan is at it again.

Last week he opined that:

“I’m concerned about excess risk-taking and if that excess risk-taking goes too far, whether it creates excesses and imbalances, that could ultimately create challenges,”

This week he reiterated that fear and went further as stocks began to slip around 1115ET when Fed's Kaplan warned:

"I do worry about excesses and imbalances," adding that "failing to communicate Fed exit could stoke risk-taking."

(Click on image to enlarge)

Stocks, most notably Small Caps, accelerated their losses as Kaplan went to say that The Fed "should withdraw some accommodation once the pandemic is over."

So now we know - Powell is the 'good cop' and Kaplan is the 'bad cop'?

(Click on image to enlarge)

Losses were extended as Treasury Secretary Janet Yellen unveiled a detailed sales pitch for the Biden administration's proposed new corporate-tax code, a plan that she said would be fairer to all Americans, remove incentives for companies to shift investments and profit abroad, and raise more money for critical needs at home.

Treasury said the changes, over a decade, would bring back about $2 trillion in corporate profits into the U.S. tax net, with about $700 billion in federal revenue streaming in from ending incentives to shift profits overseas.

“Our tax revenues are already at their lowest levels in generations, and as they continue to drop lower we will have less money to invest in roads, bridges, broadband and R&D,” Yellen told reporters during a phone briefing.

“By choosing to compete on taxes, we’ve neglected to compete on the skill of our workers and the strength of our infrastructure. It’s a self-defeating competition, which is why we’re proposing this ‘Made in America’ tax plan. It changes the game we play.”

The plan would also repeal provisions put in place during the Trump administration that the Biden administration says have failed to curb profit shifting and corporate inversions, which involve an American company merging with a foreign firm and becoming its subsidiary, effectively moving its headquarters abroad for tax purposes. It would replace them with tougher anti-inversion rules and stronger penalties for so-called profit stripping.

The report also points to research showing corporations put more of their savings from the Trump tax cuts into share buybacks and dividend distributions than into new investments.

Biden’s plan also calls for eliminating all subsidies specifically for oil and gas embedded in the tax code, including deductions for drilling costs. The Treasury Department estimates that would raise about $35 billion in the coming decade.

As we detailed previously, Goldman's Kostin notes that the relative winners and losers of the next fiscal package will depend on the specific provisions. For example, traditional infrastructure investment would benefit industrial and construction materials companies, while green investment would expand the winners to include renewable energy companies. With regard to corporate tax reform, increases to the domestic statutory rate would primarily affect companies with high domestic business exposure and effective rates close to the statutory rate, which were the primary beneficiaries of the 2017 tax cuts. In sector terms, this includes Financials, Industrials, and Consumer firms. In contrast, proposals like a minimum tax rate on foreign earnings pose the greatest risk to low-tax “growth” sectors like Info Tech and Health Care and would have a much smaller impact on domestic-facing sectors

(Click on image to enlarge)

The tax proposals already face sharp opposition from Republican lawmakers and pushback from some moderate Democrats.