What do we know about the US presidential candidates’ economic proposals and their implications for investors?
We are just two weeks away from the US presidential election, and the polls are extremely tight. While most observers are likely tired of hearing about and talking about this election, it remains important for the global economy.
It is also significant for markets, as the two candidates’ policy proposals differ quite a bit on taxes, trade and regulation.
What can we make of their stated positions, what are the chances of them becoming policy, and what might their impact be?
Taxes
There are two elements of the tax proposals to consider: personal and corporate.
On personal taxes, the differences are important as the US consumer – a major engine for the economy – could be materially affected.
Donald Trump says he wants to extend the personal tax cuts passed in 2017, which are due to expire at the end of 2025, and thus, would be a major tax increase for all Americans.
Those cuts came in the form of higher standard deductions, a lower top marginal rate, more generous child tax credits and lower estate taxes.
While vice-president Kamala Harris has not been explicit, the Joe Biden administration previously suggested extending many of the 2017 cuts, but only for those earning less than $400,000 a year.
Harris has also said she wants to expand housing tax credits. Perhaps the most eye-catching difference on personal taxes is Harris’s “billionaire minimum tax” – a Biden plan to tax unrealised capital gains on wealth exceeding $100mn.
There are also clear differences on corporate taxes.
Harris would look to raise the corporate rate from 21 per cent to 28 per cent – again, this is a proposal floated earlier by President Biden.
Trump has proposed lowering it to 15 per cent, at least for companies that manufacture their products in the US.
A cut or a hike of these proportions would be a big deal; a 1 percentage-point change in the corporate tax rate could add or subtract just under 1 per cent of S&P 500 Index earnings.
Thus, a 5 percentage-point move up or down could move 2025 S&P 500 earnings from the current consensus of +15 per cent to either +10 per cent or +20 per cent, all else being equal.
Trade and regulation
The differences on trade and business regulation are stark, and, importantly, driven more by executive branch administrative action and not necessarily subject to congressional approvals.
Harris looks likely to retain much of the Biden administration’s approach, which has been specifically targeted against China’s growing dominance of global supply chains.
Allies of the US tend to get a lighter touch, but there are modest barriers around specific technologies and sectors.
Trump’s proposals are more broad-based and protectionist. Earlier this month we knew about proposals to impose 60 per cent tariffs on all goods from China and 10 per cent on all other imports; at the Economic Club of Chicago last week, he raised the rhetoric, particularly on autos.
