As Wall Street watches the debate over President Joe Biden’s flagship infrastructure, climate and social spending plans in Washington, it has one major question: Will corporations pay more in tax to fund the programs?
This week, investors could get an answer, as Democrats race to finalize a package and get it over to Biden before he leaves on a trip to Europe.
What’s happening: The Biden administration wanted to raise the corporate tax rate to 28% from 21%, while Democrats in the House had pitched a 26.5% rate. Yet lawmakers have indicated they’re pivoting away from corporate tax hikes due to opposition from Arizona Sen. Kyrsten Sinema, a crucial swing vote.
Biden said last week that Sinema “says she won’t raise a single penny in taxes on the corporate side and on wealthy people,” a major obstacle to fulfilling his pledge to fully pay for the package.
That’s spurred a search for alternative funding options. On Sunday, House Speaker Nancy Pelosi told CNN’s Jake Tapper that the legislation will “probably have a wealth tax,” though that would provide “only 10%” of what’s needed.
Treasury Secretary Janet Yellen told Tapper that Democrats are considering a new tax “on liquid assets held by extremely wealthy individuals.” She said it would target unrealized capital gains, which are an “extraordinarily large part” of how the rich amass wealth.
This policy would compel billionaires to pay an annual tax on assets like stocks, bonds and real estate that have appreciated but haven’t been sold.
Nothing is set in stone. But the apparent move away from corporate tax increases could feed the recent stock market rally. The Dow hit an all-time high on Friday after the S&P 500 notched a new record on Thursday.
In a note to clients last month, Goldman Sachs warned that potential changes to the corporate tax code could hit profits in 2022. The investment bank said that if a 25% rate took effect, along with changes to how foreign income is taxed, it would reduce S&P 500 earnings by 5%.
“Good news for stocks if rates do not go up next year,” Nicholas Colas, cofounder of DataTrek Research, said in a research note Monday.
It’s not over until it’s over, though. Goldman’s Alec Phillips said last Thursday that he thinks Democrats could circle back to raising the corporate tax rate — at least a little.
“Once lawmakers look through all of these alternatives, it would not be surprising to see them return to the idea of at least incrementally raising corporate tax rates, after all,” he said, noting that if the size of the package shrinks, the hikes could be less dramatic.
That leaves Wall Street in wait-and-see mode.
“The message to markets is that it remains too fluid to know for certain,” said Isaac Boltansky, BTIG’s director of policy research.
Huge document dump hangs over Facebook’s results
Facebook has endured its share of public relations nightmares over the years. But weathering its current crisis could be the biggest challenge in the company’s 17-year history.
The latest: On Friday, a consortium of 17 US news organizations began publishing a series of stories — collectively called “The Facebook Papers.”
Coverage by CNN, which is part of the consortium, includes stories on how coordinated groups on Facebook sow discord and violence, including on Jan. 6, as well as Facebook’s challenges moderating content in some non-English-speaking countries and how human traffickers have used its platforms to exploit people.
Pressure builds: The reporting follows a month of intense scrutiny. The Wall Street Journal previously published a series based on tens of thousands of pages of internal Facebook documents leaked by whistleblower Frances Haugen. (The consortium’s work is based on many of the same materials.)
That’s amplifying the voices calling for change at the company. US lawmakers have asked CEO Mark Zuckerberg to testify before Congress. Haugen will testify Monday before the UK Parliament, generating a batch of fresh headlines. And another former Facebook employee has anonymously filed a complaint against the company to the SEC.
Facebook has repeatedly tried to discredit Haugen, and said her testimony and reports on the documents mischaracterize its actions and efforts.
“At the heart of these stories is a premise which is false,” a Facebook spokesperson said in a statement to CNN. “Yes, we’re a business and we make profit, but the idea that we do so at the expense of people’s safety or wellbeing misunderstands where our own commercial interests lie.”
Still, the revelations will hang over the company’s latest earnings release, due after markets close on Monday.
Investor insight: Facebook’s shares dropped 5% on Friday. Investors are also worried that changes to Apple’s privacy policies are hurting the company’s business. Last week, Snap disclosed that the hit to its revenue from the shift had been much worse than expected.
Even Saudi Aramco has set a net zero target
Want a sign of the direction of travel for the energy industry? Even the world’s top oil exporter is setting targets to reduce its emissions.
Over the weekend, Saudi Arabia’s Crown Prince Mohammed bin Salman announced that the country would strive for zero-net emissions by 2060. Saudi Aramco, the state oil giant, said it would target net zero emissions from its operations by 2050.
Step back: Aramco’s commitment, which comes days ahead of international climate talks in Glasgow, puts it in front of ExxonMobil. The US oil behemoth hasn’t set a long-term target for reducing emissions, and is instead focusing on short-term efforts to mitigate its climate impact and investments in carbon capture technology.
But it doesn’t go as far as European energy majors like Shell, which has said its oil production has peaked. Aramco is working to increase output capacity from 12 million barrels per day to 13 million barrels per day.
Aramco’s pledge also does not include a commitment to reduce emissions from end users of its oil and gas products, which is where the lion’s share are generated.
Why it matters: Commitments from Saudi Arabia, which holds 17% of the world’s known petroleum reserves, are especially important to meeting global emissions goals.
A United Nations report published last week found that 15 major fossil fuel-generating countries — including Saudi Arabia — will produce roughly 110% more coal, oil, and gas in 2030 than what would be necessary to limit warming to 1.5 degrees Celsius and avoid the worst effects of climate change.
Kimberly-Clark and Restaurants Brands report results before US markets open. Facebook and Universal Health follow after the close.
Coming tomorrow: 3M, Hasbro, Alphabet, Microsoft, Robinhood, Visa and Twitter report earnings.
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