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Infrastructure & Reconciliation-It's The Prospect of New Taxes That Worries Market Watchers

Barron’s October 1, 2021, 7:34AM |THE TRADER|”For the Stock Market, Taxes Trump Stimulus” By Nicholas Jasinski

Most worry or pontificate about “the size, scope, and contents of Democrats’ budget reconciliation bill…[but]...for investors, the details of corporate tax hikes may matter more than the final spending amounts.”

The current draft reconciliation bill calls for “$3.5 trillion in new spending and tax credits, offset by tax increases on corporations and the wealthy” (See chart above from the Tax Policy Center). It is probable the final amount will be less than $3.5 trillion to be spent over the next decade and “countered by higher taxes” but likely higher than $1.5 trillion mentioned by some Congressional moderates. With an American GDP at $23 trillion either amount won’t have much impact possibly 0.2%

Regardless this, along with “the concurrent bipartisan infrastructure package” which adds $350 billion, will affect various industries, especially those making EVs and “companies making batteries” and “charging stations.” Health insurance companies would “see greater subsidies for insurance plans purchased through state marketplaces.” Drug makers are “likely to contend with “drug-pricing reforms.” that would impact them over a decade.

“Taxes, though, will hit almost immediately.” The top corporate could move to 26.5% from 21% and the top marginal tax rate could move from 20% to 25%. These changes are designed to bring in $2 trillion. The change in the corporate rate “would shave several dollars off the 2022 S&P500 per share earnings forecast of $217. That’s unwelcomed news to an already struggling market.


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