LPL Research strategists Jeff Buchbinder and Barry Gilbert discuss key policy developments to watch in Washington, D.C., including the $3.5 trillion infrastructure spending proposal currently working its way through Congress, significant proposed tax increases, and the upcoming debt ceiling deadline. LPL Research expects little market disruption from these events, though the tax increases are a potential source of volatility.
Proposed tax increases on corporations and upper-income individuals may likely end up below levels proposed by House Democrats. We think the corporate rate may land at 25% (up from the current 21%), the top individual rate might go from 37% to 39.6%, and the top capital gains rate could be lifted from 20% to 25%. Capital gains tax hikes could come as soon as next month.
These and other proposed tax increases may get the total revenue raised to over $1 trillion, offsetting perhaps half of the total infrastructure spending we are likely to see. Breakpoint income levels on the individual side will be important to watch.
Corporate tax increases could lower S&P 500 Index companies’ earnings per share next year by about $10 (the LPL Research forecast is currently $218). LPL Research believes stock market fundamentals are strong enough to enable stocks to continue higher the rest of this year, though volatility may rise as taxes are raised.
Finally, the strategists provide timely evidence that high inflation is transitory and assess the impact of the Delta variant on Main Street via the LPL Research Beige Book Barometer.
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This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth in the podcast may not develop as predicted and are subject to change.
References to markets, asset classes, and sectors are generally regarding the corresponding market index. All indexes are unmanaged and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
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All index data is from FactSet.
All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
This Research material was prepared by LPL Financial, LLC.
For Public Use — Tracking # 1-05190412 (09/22)