Former President Donald Trump is once again drawing attention with his attempt to cut federal corporate taxes. The Republican Party’s 2024 presidential candidate is proposing lowering it from 21% to 15%, which has sparked much debate. Some see it as the key to boosting the US economy and stock market. Others, however, aren’t so sure.
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Supporters of Trump’s plan point to past economic gains when taxes were cut. According to the Tax Foundation, cutting the corporate tax to 15% could increase U.S. GDP by 0.4% and create about 93,000 full-time jobs.
This is music to the ears of those who believe that lower taxes will make the US more attractive to business. A more competitive environment, they say, could spur business growth, boost profits and ultimately benefit shareholders as stock prices rise.
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Proponents also think the cut could prompt companies to pour more money into share buybacks, further inflating stock prices. But the critics have their doubts. A major concern is the potential impact on federal revenues. As CNN points out, Trump’s proposal could increase the national debt by between $1.5 trillion and $15.2 trillion.
Even if we include economic growth, the revenue loss would still be as much as $460 billion. As the U.S. grapples with a rising federal deficit — expected to reach 202.6% of GDP by 2065 — some worry that these tax cuts could tie the government’s hands in funding vital programs.
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Another question hanging in the air is whether corporate tax cuts reliably lead to a stock market boom?
Trump has significantly boosted corporate America by lowering the corporate tax rate from 35% to 21%. This legislation, along with a strong economy, led to record-breaking corporate profits. Many managers decided to reward shareholders instead of investing in growth or hiring.
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Data from the S&P Dow Jones Indices shows that companies within the S&P 500 repurchased as much as $189 billion worth of shares in the first quarter alone. This figure broke the previous record set in 2007. Technology giant Apple (AAPL) led the charge, setting a record by buying back $22.8 billion of its own stock – the largest share buyback by any company in a quarter of US history .
Vice President Kamala Harris, representing the Biden administration, has proposed raising the corporate tax rate to 28%. Wall Street is concerned that Harris’ tax plan could negatively impact US corporate profits, with Yung-Yu Ma, chief investment officer of BMO US Wealth Management, warning that higher taxes would likely result in lower corporate profits and lower stock valuations. “What you essentially have is the likelihood of a significant pullback in the stock market due to higher taxes,” Ma said.
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