Taxes

Goldman: Tax Hikes Already Priced Into The Market

Written by SK Ashby

President Biden is traveling to Pennsylvania next week where he will formally unveil the "Build Back Better" infrastructure spending proposal that could be as large as $4 trillion and partially funded by tax hikes.

Republicans and shouty business network personalities are going to cry blood murder about the taxes and will claim it'll kill jobs, but those who would know better say that won't be the case.

Analysts at JP Morgan and Goldman Sachs -- the two largest investment banks in the world -- say passing Biden's proposal would only temporarily devalue stocks because the spending associated with the proposal is a much bigger deal. They say the overall scope of the proposal is already being priced into the market.

Stocks are pricing in the good news around infrastructure and showing “little concern about tax hikes,” Goldman Sachs Group Inc. strategists led by David Kostin wrote in a note Friday.

Higher corporate taxes are likely to cut S&P 500 earnings by 3% in 2022, the Goldman strategists said, while a JPMorgan Chase & Co. team led by John Normand said they will be a “drag on earnings growth and buybacks.” [...]

Normand’s team also pointed to how recent stimulus steps and the reopening of economies should lead to “extraordinary growth and profits momentum.” Capital gains taxes increases in 1987 and 1993 had only a “modest” intra-month impact with a drawdown of less than 5%, according to JPMorgan.

I suppose some people would say it's bad that higher taxes may reduce the incentive that companies have to buy back their own stocks, but I would call that a feature; not a bug.

Reducing corporate buybacks would only return them to amounts previously seen before Trump and the Republican party cut taxes in 2017. Ultra rich corporate executives and shareholders used those tax cuts to make themselves even richer and none of that additional wealth trickled down to average employees or public coffers. Mega-mergers and buybacks actually resulted in job losses after Republicans cut taxes.

Considering the explosion of economic activity and growth we're likely going to see on the other side of the pandemic, there's literally no better time to increase taxes on rich people who are going to benefit the most from all of that spending. The richest people in the world are going to be even more obscenely rich a year from now.