Joe Biden is the presumptive nominee to run against President Donald Trump in November.
But what would a Biden presidency mean for the markets?
In this explainer, we’ll start with Biden’s policies, then get into political feasibility and then we’ll take a look at what the market is pricing in.
Biden on Taxes
On corporate taxes, Biden has said he wants to raise them to 28% from 21%. Before President Trump was elected, corporate taxes were at around 35%. They were slashed lower by the Tax Cuts and Jobs Act of 2017.
On individual taxes, Biden wants to raise taxes on wealthier households (those making $400,000 and up) to 40% from 37%.
Biden also proposes raising the long-term capital gains tax (taxes on realized gains on an investment of one-year or longer) to above 40%.
Biden on China-U.S. Relations
On trade, Biden is not necessarily for increased tariffs on China. However, he does want U.S. policy to be firm with China, especially to protect the US from stolen intellectual property and surveillance.
You read about some of the major economic changes Biden wants to implement, but the next question centers around the extent these policies can be enacted.
Will Congress be equally comprised of Democrats and Republicans? Or will one party dominate? If a Biden administration ends up needing to compromise with Republicans on legislation, maybe the taxes won’t increase by so much.
The market will price in what it perceives to be realistic by the fall of 2020, according to some experts. In June, realistic outcomes are still foggy.
Corporate taxes have a hard-and-fast impact on corporate earnings; earnings projections will go down if taxes are raised. The market will price that in fairly quickly.
Higher taxes on wealthy households may not be as much of a negative on consumer spend as, say, higher middle class taxes would be, but this still won’t be a positive.
Higher capital gains taxes might cause some financial market capital to flow into other geographies with less burdensome taxes, but that will be weighed against the strength of American corporations against those of other countries.
Any type of relaxation of tariffs on China will be positive for corporate costs and give companies more price flexibility for the end markets.
To see what the market is pricing in and how large the impact could be, watch the quick video above.
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