Investors needn’t worry about corporate tax hike: BCA research by Investing.com

Investing.com — Investors can take comfort in the stability of corporate tax rates despite the possibility of a Democratic victory in the upcoming US presidential election, according to analysts at BCA Research.

The BCA signals that changes to corporate taxes are unlikely given the anticipated political environment. With a likely divided Congress, any major change in tax policy will face strong obstacles, providing comfort to investors worried about the impact of potential tax increases on their portfolios.

The 2024 US election is shaping up to be a closely contested race. According to BCA Research projections, Democrats have a slight advantage in retaining the presidency. At the same time, Republicans are expected to win the majority in the Senate.

This split in Congress is crucial because it suggests substantial legislative changes, including significant increases in corporate taxes, are unlikely. The expected gridlock will likely prevent any major tax reform from moving forward.

“While we expect volatility in stocks around the election, investors need not worry about the corporate tax hike,” analysts at BCA Research said.

This is primarily due to projected Republican control of the Senate, which would serve as a check against Democratic attempts to implement higher corporate taxes. Without Senate approval, passing significant tax legislation would be a formidable challenge for Democrats.

In addition, the likelihood of significant changes in fiscal policy is reduced by the prospect of legislative gridlock. Even if a Democratic president is elected, a divided Congress is expected to block any bold tax reform proposals.

This lock-in acts as a hedge against major tax changes, including substantial changes in corporate tax rates.

From an economic point of view, BCA Research points out that the current economic slowdown does not support significant fiscal changes. Implementing higher taxes could worsen existing economic challenges, making such measures less likely to gain political traction.

“Investors should de-risk and overweight defensive and low-beta assets ahead of the election,” analysts said.

Although the chance of substantial corporate tax increases is low, equity markets could still experience near-term volatility due to election uncertainty. However, the likelihood of a major market decline driven by fiscal policy changes remains minimal.