News
Trump tax cuts not a guaranteed shock to markets: Wall Street pros
The path to taxes is a critical issue for the markets in this upcoming presidential election.
Evidence of this was on display in the bond market last week. Treasury yields soared, driven by concerns about larger deficits, as investors began to price in the potential implications of a second Donald Trump presidency after the presidency of President Joe Biden debate performance below expectations.
“It’s one of the most important policy issues of the last decade,” Greg Valliere of AGF Investments told me.
And here’s why: Several provisions of the 2017 Tax Cuts and Jobs Act, which reduced the corporate tax rate from 35% to 21% and lowered personal tax rates, are set to expire next year.
President BidenThe budget proposal, released earlier this year, called for imposing a minimum tax rate of 25 percent on the wealthiest Americans, as well as raising the top income tax rate to 39.6 percent for those earning more than $400,000 a year.
For corporations, President Biden has proposed raising the corporate tax rate to 28%, while a Republican victory could cut the rate to as low as 15%.
Remember, enthusiasm for the tax cuts contributed to a stock market rally in 2017, and the thinking on Wall Street is that another Trump presidency would make it more likely that those tax cuts would be extended.
But as we’ve seen market action this week, that may not necessarily be a promising outlook for investors, professionals warn.
Truist’s Keith Lerner told me that an extension of the tax cuts is not necessarily good news for markets, emphasizing the importance of not ignoring bond watchdogs as investors assess the risk of higher debt.
“There is always the potential that the bond market will look negatively at the possibility of lower taxes or extension of current policy or increased spending by candidates,” Lerner says.
Republican presidential candidate former President Donald Trump speaks during a presidential debate with President Joe Biden, Thursday, June 27, 2024, in Atlanta. (AP Photo/Gerald Herbert) (ASSOCIATED PRESS)
For those preparing their investment playbooks, UBS Chief Investment Officer Solita Marcelli notes that enthusiasm around lower taxes and looser regulation could be tempered by the impacts of higher tariffs.
In a note to clients, Marcelli wrote that as a result, “interest rates and the dollar would likely rise initially.”
But remember, it’s still early, and the market may be jumping the gun in assuming that a Republican victory will guarantee tax cuts.
Valliere thinks both sides of the aisle are “getting scared” about extending tax cutsas more Republican lawmakers worry about the deteriorating fiscal outlook.
The Congressional Budget Office (CBO) estimates that extending the Tax Cuts and Jobs Act would add $4.6 trillion to the deficit over the next decade, $1.1 trillion more than previously estimated. The U.S. federal debt currently totals more than $34 trillion, and the government is expected to spend nearly $900 billion on interest payments in 2024.
The story continues
Seana Smith is an anchor at Yahoo Finance. Follow Smith on Twitter @SeanaNSmith. Tips on deals, mergers, activist situations or anything else? Email me at seanasmith@yahooinc.com.
There’s nowhere to hide abroad from the volatility of the U.S. election, Bradesco’s head of equity strategy Ben Laidler tells Yahoo Finance’s executive editor Brian Sozzi in your Initial bid podcast. Listen below.
This embedded content is not available in your region.
Three times a week, Sozzi hosts insight-packed, market-focused conversations and chats with the biggest names in business. Initial bid. Find more episodes on our video center. Watch on your preferred streaming service. Or listen and subscribe at Apple Podcasts, Spotifyor wherever you find your favorite podcasts.
Click here for an in-depth look at the latest stock market news and events that move stock prices
Read the latest financial and business news from Yahoo Finance