Morning Notes — Next Week

Many sell-side strategists have recently warmed up to the Democrat sweep scenario based on expectations for massive fiscal spending.  But the initial market reaction to a Democrat-sweep might be cooler than anticipated because it’s the consensus view and eventually includes higher tax rates and regulatory headwinds.  In past editions, we’ve covered the headwinds from Biden’s proposed tax increases for individuals.  Biden’s proposal to raise the corporate income tax rate from 21% to 28% is another headwind, but there’s more.  The platform also includes the imposition of a 15% minimum corporate tax (‘minimum book tax’) for companies reporting net income over $100M.  Currently, there is no corporate minimum tax.  And the proposal also includes a minimum 21% ‘global intangible low-tax income’ (GILTI) rate on foreign profits, which is up from the current 10.5% rate.  While sell-side strategists are currently focused on the upside potential from massive spending, they would eventually include the economic drag from these proposals once this scenario becomes reality.