The stock market will survive Biden

Yahoo Finance2021-04-30

Most of President Biden’s big proposals are now on the table, and stock market investors have concluded everything will be okay.They won’t necessarily say that. Big battles are underway over raising ...

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Comments

cweida
2021-05-01
cweida
Hopefully so
CM_clement
2021-04-30
CM_clement
[齜牙]
MinLee
2021-04-30
MinLee
??????????
kevinlaisq
2021-04-30
kevinlaisq
Comment and like
- CaseyChang:
  Good one
Xestar
2021-04-30
Xestar
?????
- kevinlaisq:
  why?
- Xestar:
  i just started new here just posting with the others psps
Check7mate7
2021-04-30
Check7mate7
Bump
- Huathk:
  Gd
- Huathk:
  Gd

Leave a comment

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Big battles are underway over raising the corporate tax rate, the capital gains tax rate for millionaires and the top income tax bracket. CEOs and some economists insist higher taxes on business activity and investing will depress both, with some workers ultimately losing out because of slower job growth or weaker income gains. They may even turn out to be right. But the evidence now suggests none of this will harm stocks.The clearest sign of this is the market itself. The day after Biden unveiled his American Family Plan—and the tax hikes he wants to pay for nearly $2 trillion in social-welfare spending—the S&P 500 and NASDAQ stock indexes hit record highs. They weren’t necessarily cheering for Biden’s plans, and were mostly driven upward by earnings news. But that’s good: Markets functioning normally, without political interference messing things up.Three factors are reassuring investors. First, Congress is unlikely to pass the exact tax hikes Biden is asking for. Biden wants to raise the corporate tax rate from 21% to 28%, but Congress will probably only go as far as 25%. The corporate rate used to be 35%, and stocks still went up most of the time, so a 25% rate seems relatively benign.Biden is calling for a raising the capital gains rate from 23.8% to 43.4% for investors earning more than $1 million. He won’t get that either, with a more likely outcome being a top rate of 28% to 30%. Congress probably will raise the top income tax rate from 37% to 39.6%, as Biden wants, but this would only affect about 1% of taxpayers.Even the smaller tax hikes would cut into corporate profits and reduce the return on investing, so wouldn’t that hurt stock values? Maybe a little, but all the spending Biden wants to do would probably have a stimulative effect, more than offsetting the contracting effect of tax hikes. Infrastructure build-outs in particular tend to have a positive return in the long term, since they make the economy more efficient and productive. Businesses benefit the most.Moody’s Analytics analyzed the Biden infrastructure plan and forecast it would boost GDP growth by 1.5 percentage points by 2024. There would be 2.4 million additional jobs. By the end of the decade, productivity growth—the key to boosting living standards—would be stronger. Other studies find a smaller or even negative economic impact from Biden’s plans, but changes would be so distant the market doesn’t seem to care. And that would be if all the Biden tax hikes went into account, not a Biden-lite package watered down by Congress.A third reason investors aren’t worried about the Biden tax hikes is they wouldn’t necessarily change the incentive for investors to buy stocks. While the capital gains tax hike would, in fact, lower returns to wealthy American investors, only about 30% of publicly owned stock is held by taxable entities, such as individuals subject to the capital gains tax. And less than that is owned by investors with incomes of $1 million or more. The rest is held foreign investors or by institutions such as retirement plans and life insurance companies, and none of those would be subject to Biden’s capital gains tax hike. So the portion of tax subject to the higher capital gains tax would be small.Some of those investors probably would sell before the higher rates went into effect, to lock in the gain at a lower tax rate (provided Congress doesn’t make this tax hike retroactive). Some analysts think this would trigger a market correction. But Leonard Burman of the Tax Policy Center argues that any price dip would be a buying opportunity for all the other stock-market investors, who would gobble up shares at a temporary discount, promptly ending any selloff. And if capital gains tax rates are higher, another argument goes, it gives more incentive for people in the market to hold onto their investments.There’s a fourth factor unrelated to Biden, which is the Federal Reserve. The Fed’s easy-money policy has probably goosed stocks more than anything else, one huge reason for the remarkable 83% run-up in stocks since the market bottomed out last year. The Fed says it will keep the party going at least into 2022, and then tighten up only gradually. The Fed isn’t doing this for Biden, but the Fed backstop probably gives Biden more margin for error.None of this guarantees stocks will avoid a correction or even stay positive for the rest of the year. But it strongly suggests there won’t be a plunging stock market screaming at Biden to stop raising taxes. Others might scream, but without the market’s endorsement.","kind":"news","is_publish_news":true,"is_publish_highlight":true,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":101177240,"gmtCreate":1619870347780,"gmtModify":1704335920640,"author":{"id":"3575329601771279","authorId":"3575329601771279","name":"cweida","avatar":"https://static.tigerbbs.com/b4cca1fdd58d7739662f062d01a402cf","vip":1,"crmLevel":5,"crmLevelSwitch":1,"authorIdStr":"3575329601771279","idStr":"3575329601771279"},"htmlText":"Hopefully so","listText":"Hopefully so","text":"Hopefully 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just started new here just posting with the others <u>psps</u>","text":"i just started new here just posting with the others <u>psps</u>","html":"i just started new here just posting with the others 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