Hi, I'm Phil Orlando, Chief Equity Strategist at Federated Hermes.
What could Biden's tax plans mean for markets?
We believe that President Biden's tax plans could represent a potential headwind for both the markets and the economy. On the corporate side, President Biden is proposing to raise the federal rate from 21% to 28%, which would be 32% statutory. That would represent 10 points above the global OECD average at 22%. And that would make the United States again, the highest corporate tax rate in the world. That could reintroduce the inversion problem that we thought we had solved under the Trump administration. Companies could offshore jobs, manufacturing, intellectual property. They could even think about redomiciling the company again overseas. For example, going to Ireland, with a very attractive 12% tax rate. On the personal side, President Biden is proposing to increase the capital gains tax rate from 20% currently up to 43 and a half percent. That could represent an opportunity to spark a significant sell off in technology stocks, for example, which have appreciated very nicely at a much lower capital gains rate. We do not believe the higher rate would generate the sort of revenues that the Biden administration is looking for. And it would certainly discourage the investing and risk taking that we need in the US financial markets.
Disclosure: Views are as of April 27, 2021 and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector. The Global Organisation for Economic Co-operation and Development (OECD) average is the mean of the data values for all OECD countries for which data are available or can be estimated. The OECD average can be used to see how a country compares on a given indicator with a typical OECD country. Past performance is no guarantee of future results. Federated Advisory Services Company, 21-40216 (5/21)