50% Off! Beat the market in 2025 with InvestingProCLAIM SALE

Is Harris' tax plan going to hurt US corporate profits? - report

Published 10/09/2024, 13:18
© Reuters
US500
-

Investing.com -- Wall Street is bracing for a potential impact on corporate earnings and the stock market if Democratic presidential candidate Kamala Harris wins the November election and follows through on her proposed tax increases, Reuters reported on Tuesday. 

With tax policy emerging as a concern for investors, it is at the forefront of discussions leading up to the Nov. 5 vote. Republican candidate Donald Trump and Harris are in a tight race, with many investors and wealth advisers preparing for possible tax changes.

Tax policy has become a major concern for investors, as per Yung-Yu Ma, Chief Investment Officer at BMO U.S. Wealth Management. 

The brokerage has been fielding numerous questions from clients nationwide regarding potential tax hikes, as Ma emphasized that tax policy is a key issue in the upcoming election, the report added.

Of particular interest to Wall Street are corporate earnings and capital gains taxes. During his presidency, Trump reduced the corporate tax rate from 35% to 21% and has recently suggested lowering it further to 15% for companies producing goods in the U.S. Harris, in contrast, has outlined a plan to raise the corporate tax rate to 28%, ensuring that large corporations "pay their fair share."

Goldman Sachs estimated that Harris' proposed tax hike could reduce S&P 500 company earnings by 5%, while Trump's plan could boost them by around 4%. 

Ma added that higher taxes would likely lead to lower corporate profits and stock valuations, potentially triggering a market pullback.

Any changes to tax policy, however, would still require congressional approval. Trump's campaign has criticized Harris' tax plan as a massive tax hike that would add to the national debt, while Harris' camp, represented by senior policy advisor Brian Nelson, countered that Trump's proposals would disproportionately benefit billionaires and large corporations.

Investors are also concerned about the potential rise in capital gains taxes. Harris has proposed raising the capital gains tax rate to 28% for those earning over $1 million, which is less than the 39.6% rate proposed by President Joe Biden. 

Trump has not suggested changes to the current maximum 20% capital gains rate. 

While some analysts, such as Brian Gardner of Stifel, caution that capital gains tax hikes have often underperformed in revenue generation, such increases could still negatively affect market sentiment, the report added.

From a broader economic perspective, a Trump presidency is seen as potentially fueling inflation and increasing the federal budget deficit, leading to more Treasury debt issuance. 

Goldman Sachs has predicted that the overall economy would benefit more under a Democratic administration, due to new government spending and expanded tax credits for the middle class.

However, next year could see slower economic growth under a Trump administration due to higher tariffs and stricter immigration policies.

As portions of the 2018 Tax Cuts and Jobs Act are set to expire next year, questions about individual taxes loom large. 

Trump has proposed extending those cuts, while Harris has said she would maintain them only for households earning less than $400,000 annually. 

This impending tax law expiration is already a major concern for investors, according to Nicole Webb, Senior Vice President at Wealth Enhancement, the report added.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers
© 2007-2024 - Fusion Media Limited. All Rights Reserved.