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U.S. post-election tax policies add significant uncertainty to market valuations: Berman

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While it’s too close to call and likely will remain that way, who wins the U.S. presidential election may have a big impact on market valuations.

Larry BermanYung-Yu Ma, chief investment officer of BMO Wealth Management, joins BNN Bloomberg to share insight into checking volatility ahead of US elections.

Last week, Joe Biden and Kamala Harris rallied with union workers in Pittsburgh against the purchase of U.S. Steel by Japan’s Nippon Steel. Donald Trump will no doubt try to leverage the assignation attempt, Harris’ anti-fracking history and green agenda in Pennsylvania for whatever that might be worth.

But tax policy is in the hands of the U.S. Congress. The difference between a clean-sweep election and a divided government also could be stark. More stimulative fiscal policies produced by one-party rule could produce faster near-term growth but with higher inflation, bloated deficits and fewer U.S. Federal Reserve rate cuts than under a divided government.

Further, recent U.S. Supreme Court decisions should restrain the regulatory state to a significant degree. UBS strategists say those rulings “will likely curtail the ability of executive branch agencies to interpret federal statutes.” The Trump tax cuts are set to expire at the end of 2025. They would cost $4 trillion to extend over the next decade, according to the Committee for a Responsible Federal Budget. Unless revenue from new tariffs helps shrink the fiscal gap, the tax cut extension could balloon the already unwieldy budget deficit beyond seven per cent of GDP.

Wharton finds that GDP would be 1.3 per cent smaller in 2034 than under current policies, amid less investment in productive capital. It also sees wider deficits due to $2.2 trillion in tax benefits for moderate-income families. Moody’s says the effective corporate tax rate would jump from around 12 per cent to above 19 per cent. That would put the U.S. near the top among market-based OECD countries.

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