Taxes Take Center Stage
U.S. legislators are considering significant tax reform, including lower corporate tax rates. From an investor’s perspective, lower corporate tax rates should benefit companies whose earnings are primarily domestic and taxed near the current marginal rate (35%).
What Wells Fargo Investment Institute Is Watching
- Corporate tax rates: If these are lowered, U.S. companies could be more competitive globally.
- Individual tax rates: If these are lowered, households and consumers could have more cash to spend, potentially benefiting consumer goods and services companies. Housing could be negatively affected if the mortgage deduction is less than the new standard deduction for many taxpayers.
- Repatriation of overseas profits: This may benefit shareholders of multinational companies that have large overseas assets.
S&P 500 Companies: Foreign Earnings Held Overseas By Sector
Multinational companies have been able to shelter their international earnings from domestic taxation by holding assets overseas. Some U.S. policymakers have proposed offering incentives to encourage corporations to repatriate overseas profits.
Source: Strategas as of 9/19/2017. Unremitted foreign earnings obtained from the 10-K report of each S&P 500® Index company.