This week’s theme is: Biden’s tax plan impact on investors 

Today, I’m talking about the anticipated impact of Biden’s tax plan on investors. We’ve talked about some of the changes to capital gains, taxes on inherited wealth, and the funky proposal that I don’t like to the 401k and IRA deduction rules. Some of these changes won’t have a direct impact on you, but the key to remember with tax law changes is that it modifies behavior. It has an impact on decisions business owners make, corporations...it has an impact on corporate profitability and that trickles down to stock price impacts and on your portfolio. 

So whether you agree with the tax changes or not, it’s probably not a good idea to cheer “tax the rich” because it does often have an indirect impact on the middle and working classes as well. 

What is the impact on tax increases for investors? Here’s the breakdown of the impact: 

Savita Subramanian at Bank of America Securities estimates that the Biden tax plan would reduce S&P 500 earnings by 7% under the current plan, mostly stemming from higher corporate taxes. Growth-oriented sectors would be hit the hardest:

S&P 500: tax hit (estimated S&P 500 earnings impact based on Biden’s proposals )

• Technology - down 9.2%
• Health care - down 8.4%
• Communication services - down 8.2%
• Consumer discretionary - down 7.5%
• Financials - down 6.5%

The Tax Foundation determined that the Biden tax proposal would raise $3.3 trillion over the next decade. Much of that 3.3 trillion would come from raising the corporate income tax rate - which I already discussed above.

It remains to be seen if the hits to the bottom line will impact stock prices - especially in the industries I mentioned above. Robust growth would be required to offset those hits to earnings. If growth doesn’t offset the tax hit, then you may see some companies and sectors struggle in your portfolio. 

That’s it for today. Thanks for listening. My name is Ashley Micciche and this is the One Minute Retirement Tip. 

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