Equity performance under Trump and Biden

Candidate Donald Trump seeks to take all the credit for the recent good performance of the US stock market. When asked about it, he said: "They think I am going to be elected".

| 5 min read

When in office, he was very attentive to the state of the index. He saw it as a kind of scoreline or judgment on his presidency. He knew many of his supporters have stock market investments and wants them to do well. Trying to make America Great Again, according to his slogan, needed the endorsement of rising share prices to show it was real.

During his first term, the stock market did well – rising by around two-thirds and giving people a good double-figure-percentage annual return. This happened despite the plunge in equity valuations following Covid-19 lockdowns, which had never been part of the Trump business and equity market strategy. Mr Trump partly fought against lockdowns and some Republican states were also sceptical. He was extremely worried about the damage it did to his growth strategy.

Equities had recovered well by the end of his term in January 2017. The market under Joe Biden has gone up so far, despite a bad bear market in his second year. To date, the performance is down on that under Trump, though not bad in the way Trump prophesied from a Biden win. That is why candidate Trump is so ready to provide his own rationale for recent strength. He wants to own a rising index.

Tax policies compared

In office, Mr Trump pleased the markets with a strategy geared to growth with substantial tax cuts. Better-off individuals benefitted, leaving them with more money to spend on equities and other investments. Companies benefitted from falls in company tax, leaving them more money for buying back their shares, raising dividends or acquiring other companies. He slashed company profits tax from 35% to 21%, giving an immediate boost to company earnings of 21%. This raised company valuations as analysts used the new higher earnings figure net of tax to calculate a value for the shares based on a multiple of net earnings or profits.

President Biden has now announced that he wishes to raise taxes. He wants to take company profit tax up to 28% from the present 21%. This would depress company net profits by 9%. He wants to raise the top rate of income tax back up to 39.6% from 37%, cut scope to reduce tax for oil and gas business investment and cut the ability for high earners to use pension exemptions. The bulk of the extra tax would be imposed on the top 1% of income earners. The very wealthy would lose some scope to pay capital gains tax instead of income tax. Both very rich people and companies would face a minimum tax imposition.

The personal tax provisions of the Trump Tax Cuts and Jobs Act expire in 2025, so Mr Biden will get his way on those unless the Republicans have the votes to reimpose the tax cuts. The company tax provisions do not expire – so President Biden will need to find a Congress majority to raise the taxes he wishes.

Stock market reactions to policies

Stock markets liked the Trump tax cuts but did not like the president's unpredictable changes of attitude as he sought to negotiate better deals with allies and antagonists worldwide. They were concerned about his trade dispute with China. President Biden has carried on important parts of the dispute with China and intensified it over technology. Markets welcomed much of the content of the Inflation Reduction Act, which has offered tax breaks and subsidies for investing in the US.

The main Trump proposals to date are to leave his previous reforms and lower rates in place.

There are varying views of the impact of the planned Biden tax rises. The Tax Foundation, with its dislike of higher taxes, estimated a 1.3% loss of gross domestic product (GDP) when the full impact of the planned increases is felt – and a loss of 335,000 jobs. The American Enterprise Institute thinks it would only be a small negative impact on GDP. Whilst every income band would be worse off, it is only the top 1% who suffer a big hit to their net incomes. The Centre for American Progress is positive about the Biden package, arguing that it will reduce inequalities.

The main Trump proposals to date are to leave his previous reforms and lower rates in place. The table beneath gives a general outline of the Biden proposals, which will need checking by tax experts and against future possible translation into law.

Company Tax (President Biden proposals)

  • Increase the company profits tax rate from 21% to 28%
  • Increase the stock buyback tax from 1% to 4%
  • Increase taxes on oil and gas activities
  • Increase the global intangible low-taxed income (GILTI) tax rate from 10.5% to 21%
  • New undertaxed rule for companies to hit OECD minimum company tax level

Personal taxes (President Biden proposals)

  • New 20% minimum rate for billionaires to capture gains as well as income
  • Increase top income rate from 37% to 39.6%
  • Tax long-term capital gains and qualified dividends at ordinary income tax rate above $1 million of income
  • Limit retirement account contributions for high-income taxpayers with large individual retirement account (IRA) balances
  • Tighten rules for the estate tax

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Equity performance under Trump and Biden

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