What Biden needs to remember about taxes if he beats Trump in the presidential election

If Joe Biden is elected president he would have a lot on his hands in the first year of his presidency, chief among them what to do on the tax front in the wake of President Trump’s large tax cuts for corporations.

Former Federal Reserve governor Randall Kroszner says a president Biden must stay focused on a tax structure that encourages growth for the U.S. economy — which would still be recovering from the depths of the COVID-19 pandemic — rather than err too much on the side of wealth distribution.

“So I think that’s crucial [growth]. The objective is growth and some good balanced sustainable growth. That should be the key rather than narrowly trying to redistribute from this group to that group,” said Kroszner on how he would advise Biden on taxes. Kroszner is also a former member of the President’s Economic Council of Advisors from 2001 to 2003.

Kroszner, speaking on Yahoo Finance’s The First Trade, added, “I want to provide sustainable growth. And that should be the crucial guiding principle whether it’s Democrats or Republicans. You can do other redistribution policies, but in terms of deciding taxes, you want to think regenerating growth after this enormous shock.”

El candidato presidencial demócrata Joe Biden pronuncia un discurso el viernes 5 de junio de 2020 durante un acto en Dover, Delaware. (AP Foto/Susan Walsh)

Biden’s proposed tax overhaul is already leading to some concerns on its impact to stock prices. The former vice president has proposed reversing half of the president’s tax cut, lifting the statutory rate to 28%. Credit Suisse chief U.S. equity strategist Jonathan Golub estimates this change would increase the effective tax rate by 4% to 5%, and cut $9 off estimated S&P 500 earnings per share.

Goldman Sachs projected this week Biden’s tax plan would lead it to reduce its 2021 earnings estimate by 12%.

“For many clients, the most important equity market implication is the potential for higher corporate tax rates,” cautioned Goldman Sachs strategist David Kostin in a note on Monday.

Not everyone on the Street is growing worried about the Biden tax plan. But, they are few in number.

“Many have postulated that less favorable tax policy following a Biden win/Blue sweep (Biden win with Democrats taking both houses of Congress) would act as a catalyst for stocks to decline,” says Golub. “We are less concerned given our confidence that other Democratic policies will remain supportive of the economy, and the limited downside to profits from a half reversal.”

Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, SmartNews, LinkedIn, YouTube, and reddit.

Source Article