Democrats’ plan to raise taxes dangerous for stock market

President Trump’s 2017 tax cuts sparked a massive rally on Wall Street, gains that money managers say may be imperiled if Democrats gain enough power in 2020 elections.

Left wing presidential candidates including front-runner Sen. Elizabeth Warren, D-Mass., and contenders Sen. Bernie Sanders, I-Vt., Mayor Pete Buttigieg and former Vice President Joe Biden have all called for rolling back Trump’s corporate tax cuts, something Goldman Sachs says would take a bite out of the stock market and the U.S. economy.

A Republican-controlled Congress passed the Tax Cuts and Jobs Act, which reduced the top corporate tax rate from 35 percent to 21 percent and lowered personal income taxes for the majority of Americans, at the end of 2017. The S&P 500 has gained 13.2 percent since the bill became law, and the U.S. economy grew at a high-water mark of 4.2 percent in the second quarter of 2018, its strongest since the third quarter of 2014, before slowing to 1.9 percent growth a year later.

“From an earnings perspective, we estimate that every 1 percentage point change in the effective corporate tax rate would lead to a roughly 1 percent change in S&P 500 earnings per share,” wrote Goldman’s New York-based portfolio strategy research team led by David Kostin.

“For example, if the 2017 corporate tax cut is entirely reversed, our baseline 2021 earnings-per-share estimate of $185 would be reduced by 11 percent to $164.” Those earnings influence company share prices, helping drive the index’s value.

Fox Business

The research team added that a rollback would shave 0.5 percentage points off of U.S. gross domestic product.

But they say there’s a 70 percent chance of a divided government, making it unlikely “sweeping” legislation or reforms pass through both houses of Congress.

Goldman isn’t alone in suggesting that a Democrat winning the 2020 election might be a disaster for the markets and the economy. A chorus of billionaire fund managers have specifically warned about the damage a Warren or Sanders presidency would do to the stock market.

Hedge fund managers Leon Cooperman and Paul Tudor Jones say the stock market would drop by 25 percent in the event of a Warren presidency. The senator championed the creation of the Consumer Financial Protection Bureau, wildly unpopular with U.S. lenders, and has maintained a famously rocky relationship with Wall Street.

How much Warren could accomplish, however, would depend on her party’s fortunes in Congressional elections. While Democrats regained control of the House of Representatives in 2018, Republicans still control the Senate.

Gundlach says the stock market would be “falling rapidly” if investors thought Warren had a chance of winning the election. And even though Democrats are talking about rolling back Trump’s tax cuts, the administration is setting its sights on taking them a step further.

“The president would love to see another round of lower taxes to help middle-income workers and wage earners, give them as much disposable income as possible,” Larry Kudlow, director of the National Economic Council, told FOX Business’ Stuart Varney on “Varney & Co.,” adding that something will be announced during the campaign.

Fox Business

One response

  1. Demorat’s Don’t Know Their A$$ From A Hole In the Ground When It Come’s To Money! They Want Free Everything But, In Retrospect, Free Everything Will Brake Our Country! No Money, No Money, No Money, For Nothing Then!

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