Corporate Taxes and the Election

This is Brad Barrie, Chief Investment Officer and Portfolio Manager with Dynamic Wealth Group.  Welcome to this market and economic update. In this video, we’ll discuss how corporate taxes have historically impacted markets and the economy. This is top of mind for many investors right now as the presidential debate season kicks off. However, it can also be a heated topic since tax policy is intertwined with strongly held political views.

Many investors may wonder about the impact each candidate’s tax policies will have on the broader stock market and economy. The most recent major change to tax policy occurred in 2017 with the Tax Cuts and Jobs Act which cut the corporate tax rate to 21%. This puts the U.S. in the middle of the pack among peer countries.

This is relevant right now because the former and current presidents’ tax policies could not be more different. While their exact platforms are not yet clear, President Trump has proposed cutting this further to 20% while President Biden has discussed raising it to 28%. Over the next few minutes, we’ll discuss each of these proposals and how they might impact markets.

First, this chart shows the highest marginal corporate and individual tax rates since 1913. As you can see, both have fluctuated significantly over time. The top bracket corporate tax rate peaked at 52.8% in the late 1960s, but has broadly declined since then.

Most recently, corporate tax rates have come into focus ahead of the presidential election as proposals for corporate tax policy diverge. Proponents of cutting the corporate tax rate argue that lower taxes give companies long-term incentives to invest in boosting productivity, allowing them to hire more workers and pay them more. They also point out that low corporate taxes incentivize businesses to stay in the U.S., helping to maintain global competitiveness.

On the other hand, those in favor of raising corporate taxes argue it is a simple way to raise needed revenues and make the tax system more progressive which will help to reduce income inequality. They cite research showing that gains from corporate tax cuts benefit business owners most of all.

Unfortunately, there is no simple answer as to which view is correct. In theory, corporate taxes are really taxes on shareholders, workers, customers, and other stakeholders. What we do know is that corporations have performed well across many different tax regimes, since companies tend to adapt quickly and adjust their strategies.

Next, this chart shows the breakdown of federal tax receipts since 1950.

As you can see, individual income taxes, shown at the bottom, have been an important and slightly increasing share of government receipts since 1950.

On the other hand, the share of revenue derived from corporate taxes has declined dramatically over the same period from around 35% at the end of World War II to just 9.4% today.

Social insurance (which is paid by both individuals and corporations) have helped to make up the difference, rising to 36.4% from 11%, as other taxes including excise taxes have declined in importance as a source of government funding.

Thus, this chart highlights the fact that corporate taxes have fallen in importance when it comes to overall tax revenues. While other taxes have helped to make up for lower corporate tax receipts, high spending means that the deficit is continuing to grow. Many investors and economists are concerned by the levels of government spending, but unfortunately there does not seem to be a clear path in Washington to improve the debt and deficit.

The last chart shows the growth of the S&P 500 over both Democratic and Republican presidencies. It shows that despite differences in policies, the stock market has grown under both parties across a variety of policy platforms and tax regimes.

It’s important to keep in mind that though elections can affect economic policies and have a real impact on companies and individuals, how this impacts broader financial markets is not often as straightforward. History shows that markets have done well in a variety of political configurations under both Democrats and Republicans and, conversely, that poor market conditions often have little to do with politics.  As we have discussed before the markets are literally impacted by endless variables.

So, it’s important for investors to not overreact to individual tax policy changes or political outcomes when it comes to the performance of the market. However, these changes are very important when it comes to tax and estate planning. As always, it’s important to consult a trusted advisor to understand the impact of upcoming tax changes.

We’ve only scratched the surface on this important topic, but I hope you found these insights valuable.   If you are a financial advisor and would like more information on our Multi-Dimensional Approach towards asset management, please visit our website, or reach out directly by emailing us at:  If you are an individual investor, we are happy to address any questions you may have and put you in touch with a qualified advisor if so desired.   Until next time, take care everyone, and make smart, logical & fact-based financial decisions.


Clearnomics and Dynamic Wealth Group, LLC are not affiliated entities.  No part of this should be taken as investment advice.  Consult your financial advisor for specific investment recommendations tailored to your specific situation. 

Dynamic Wealth Group (“Dynamic”) is an SEC registered investment adviser. SEC registration does not constitute an endorsement of Dynamic by the SEC, nor does it indicate that Dynamic has attained a particular level of skill or ability. This material prepared by Dynamic is for informational purposes only. It is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy, or investment product. Opinions expressed by Dynamic are based on economic or market conditions at the time this material was written. Economies and markets fluctuate. Actual economic or market events may turn out differently than anticipated. Facts presented have been obtained from sources believed to be reliable. Dynamic, however, cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source.

Dynamic does not provide tax or legal advice, and nothing contained in these materials should be taken as tax or legal advice.

Any reference to an index is included for illustrative purposes only, as an index is not a security in which an investment can be made. Indices are unmanaged vehicles that serve as market indicators and do not account for the deduction of management fees and/or transaction costs generally associated with investable products. Past performance is no guarantee of future results. Actual returns may be lower.

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