Wall Street strategists are openly fretting about the outside chance of a blue wave this November. The impact on stocks will be “generally negative” if the party known for more sweeping regulations and higher taxes controls the presidency and both chambers of Congress.
That’s according to Rosenberg Research, a Toronto-based investing firm specializing in analyzing global financial markets. (Fox Business)
Potential legislation would include raising the capital gains tax for the highest earners and increasing the corporate tax rate in an effort to pay for at least some of the $6 trillion of proposed spending over the next 10 years.
A bigger tax burden would reduce the number of resources allocated to the economy and hamper after-tax earnings for U.S. corporations.
Rosenberg pointed to a Congressional Budget Office report that said the economic benefits of President Trump’s Tax Cuts and Jobs Act have not yet been fully felt, and that they would likely never be fully realized in the event of a “tax revision.” Such measures would subtract about 1.51 percent from U.S. gross domestic product over the long run, the Tax Foundation said.
Taxes paid relative to before-tax corporate earnings were about 10.5 percent last year, and that number could reasonably rise to 14.6 percent, according to Rosenberg, implying a “one-time drag” of 4.1 percent on after-tax earnings.