Goldman reprises Democratic tax-hike worry after stock surge

[SINGAPORE] Now that US stocks are solidly back in black, the economy is reopening and infection rates are down, strategists are reviving concerns about the Democratic party's policy platform.

"Presumptive Democratic nominee and former Vice-President Joe Biden has proposed partially reversing the 2017 TCJA," Goldman Sachs Group strategists led by David Kostin wrote in a June 5 note, referring to the Tax Cuts and Jobs Act. "If enacted, this tax reform would reduce our S&P 500 earnings estimate for 2021 by roughly US$20 per share, from US$170 to US$150."

With Mr Biden running ahead of President Donald Trump in polls, the discussion reprises narratives before the Covid-19 shock, when liberal former contenders Elizabeth Warren and Bernie Sanders were front-runners.

The Goldman strategists flagged that the electoral race is close, and the chances of any tax overhaul could evaporate. Enacting such legislation is fraught with difficulty even when a single party holds the White House and both houses of Congress, as the fight to approve Mr Trump's programme showed back in 2017.

It was the companies with the highest effective tax rates that saw the biggest share-price benefits - as might be expected - from Mr Trump's reductions, according to Goldman's calculations. The bank listed companies including Boeing, Charles Schwab, DaVita and Visa as among that group. Many such firms face the largest risk from a tax-law revamp, Goldman said.

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