Hike

Dems propose $2.9T tax hike for high earners and big businesses to pay for Biden’s $3.5T agenda

Tuesday, September 14, 2021 by Robinhood Snacks | Disclosures

A taxing weekend… House Democrats proposed a plan to raise up to $2.9T in tax dollars over the next 10 years, the biggest tax hike in decades. The goal: pay for Biden’s ambitious $3.5T plan to expand America’s social safety net and combat climate change. Lawmakers plan to vote this week on the proposals. Whose taxes would be affected:

  • Individuals who make $400K+ per year and married couples that make $450K+ would pay higher taxes on income and capital gains — nearly 40% on income vs. the current 37%.
  • Corporations that make more than $5M in income/year would pay a 26.5% tax rate, up from 21%.
  • Small businesses that make less than $400K/year would pay lower taxes (18%).

9 am hike up Capitol Hill… Expect some sweat. Democrats don’t need Republican support to pass the plan — but they’ll need just about every Dem vote. Progressives are committed to the plan, even though the tax hikes aren’t as high as Biden's original pitch. But some moderates like Joe Manchin aren’t sold.

  • Pros: The plan could raise trillions of dollars to rebuild America's aging infrastructure, fight climate change, invest in public housing, and expand public education.
  • Cons: It could stifle economic growth — think: reduced corporate hiring and investment. The US could also lose corporate investment activity to countries with lower tax rates.
THE TAKEAWAY

Higher corporate taxes = lower corporate profits… which could mean falling stock prices, at least in the short term. Stocks soared in 2017 when ex-President Trump cut corporate taxes, making companies more profitable overnight. Biden’s tax increase would partially roll back those cuts, reducing the cash companies keep as profit. Since stock prices often reflect investors’ expectations of future returns — think: dividends, cash flow, rising prices — lower profits could mean lower expectations.