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Higher Taxes Beget Lower Wages and Higher Prices

#Biden #corporate #tax

When Mr. Biden says ‘I would increase the corporate income tax,’ he actually is going to increase The People’s water utility bill, electricity bill, Nat Gas bill, food and energy bills.“– Paul Ebeling

Investors have focused on bond yields that has pressured share prices a bit, though the US benchmark indexes are very close to their record highs.

Nevertheless, some analysts and investors worry that at least a partial rollback of the corporate tax cuts that fueled stock gains during The Trump Era could eventually drag on stocks.

It is an issue,” said the chief market strategist at Prudential Financial. “It is going to be talked about as it becomes a reality. But the market’s focus right now is clearly on getting to the other side of this pandemic.”

The S&P 500 has gained more than 4% YTD, with Mr. Biden’s newly passed $1.9-T VirusCasedemic aid/relief/stimulus plan providing new fuel for the economy and the stock market.

The pace of the economic recovery will remain in investors’ focus this wk, along with the rise in US bond yields that has pressured tech and growth shares and supported bank and other value stocks.

During his presidential campaign, Mr. Biden pledged to raise the corporate tax rate to 28% from 21%, a proposal supported by Treasury Secretary Janet ‘Schoolmarm’ Yellen. We and most other investment strategists see extra strong GOP to such a plan.

The Biden administration is working on how to fund a his ambitious infrastructure package, so far there is no plan just talk. But 1 thing is for sure, Mr. Biden et al believe the American corporations and People have too much money and they want to take it away.

An increase in corporate taxes will bite into company profits, which are expected to soar this yr as business rebounds from the VirusCasedemic.

What the Biden administration does not understand is that any business tax increases are always passed through to consumers, thus acting as an additive to inflation. As we all know, the Trump Administration successfully used lower taxes to stimulate one of the greatest economic recoveries ever experienced in the World. They then realized that the U.S. had the highest top corporate tax rate at least among advanced economies. 

What the President Trump’s administration smartly recognized was that when compared with nations in the OECD — the Organization for Economic Cooperation and Development, a group of highly developed countries — the U.S. had the highest top corporate tax rate in the world.

The top corporate tax rate in the U.S., a combination of federal and state and local taxes, was nearly 39 percent this year. That’s well above most other OECD nations. We also learned that higher taxes typically drive businesses overseas which acts as a depressant to employment which is something that our economy does not need now.

So, where did taxes originate? 

According to “A World History of Tax Rebellions,” the earliest tax was the corvee in 594 B.C. China. It required peasants to pay overlords for the land they farmed in labor when they couldn’t pay land tax with money.

Taxing the land led to taxing what the land produced. Egyptian art suggests the pharaohs taxed grain around 2390 B.C., while written records indicate China taxed it in 408 B.C.

By the 14th Century, when the word “tax” entered the English lexicon, England taxed property based on a person’s ability to pay.

A corporate income tax was enacted in 1894 in the United States, but a key aspect of it was shortly held unconstitutional. In 1909, Congress enacted an excise tax on corporations based on income. After ratification of the Sixteenth amendment to the U.S. Constitution, this became the corporate provisions of a federal corporate income tax.

To me, while taxes are important to pay for government services, history dictates  that such actions often act as a depressant to economic growth or conversely, increased corporate employment growth which was so evident in the results of the Trump era.

Concerning to me is that in  recent Goldman Sachs analysts predicted that Biden’s plan would reduce 2021 S&P 500 earnings by about 12% per share. Without question, this would have a negative effect on our stock markets, reducing corporate earnings which is a key measurement to stock pricing and thus capital liquidity which is necessary to sustain corporate growth. 

What is more critical to me is the control of unnecessary government pork-barrel spending which is causing our spiraling national debt for our children to inherit,” says LTN economist Bruce WD Barren.

Have a healthy weekend, Keep the Faith!

Paul Ebeling
Paul A. Ebeling, a polymath, excels, in diverse fields of knowledge Including Pattern Recognition Analysis in Equities, Commodities and Foreign Exchange, and he is the author of "The Red Roadmaster's Technical Report on the US Major Market Indices, a highly regarded, weekly financial market commentary. He is a philosopher, issuing insights on a wide range of subjects to over a million cohorts. An international audience of opinion makers, business leaders, and global organizations recognize Ebeling as an expert.   

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