Goldman Sachs: the probability of raising corporate tax in the United States is still high, but the implementation path may be gradual.

Due to the obstruction of key lawmakers, the Democratic Party is in chaos, and the fate of Biden's trillions of stimulus package is increasingly uncertain. According to media reports, the White House is considering abandoning plans to raise corporate and top personal tax rates.

Democratic Senator Wyden said recently that he is still promoting all options, including raising corporate taxes. Us President Joe Biden recently said he did not think he would vote on an increase in corporate tax right away.

Goldman Sachs believes that the market generally expects a big change in the near future: the likelihood of a rise in US corporate tax this year is expected to fall from an average of about 70 per cent last week to about 63 per cent now; the chances of raising corporate tax to more than 24.5 per cent are expected to fall even further-to 22 per cent.

Alex Phillips (Alec Phillips), chief political economist at Goldman Sachs, points out that since the beginning of 2021, Goldman has been expecting Congress to raise corporate tax from 21% to 25% next year and increase tax revenue by about $400 billion over a decade. Phillips still believes that higher corporate taxes are possible; in fact, higher corporate taxes have long been one of Goldman's biggest reasons to be bearish on U. S. stocks.

Last month, the House ways and means Committee passed 66 amendments and approved a tax reform package to advance the legislative process of the better Reconstruction Act ((Build Back Better Act, the $3.5 trillion budget resolution). Among them, the tax reform proposal is an important part of the better Reconstruction Act.

The ruling philosophy of the Democratic Party is different from that of the Republican Party. Biden has completely abandoned the trickle-down economics pursued by the Trump administration, and does not believe that tax cuts for the rich will enable people at the bottom to gain more jobs and income. He advocates reducing poverty, increasing employment and alleviating social conflicts by raising taxes on the rich and large companies. This is the starting point of the Biden administration's proposed $3.5 trillion budget framework. But the Democrats' plan to raise taxes was blocked by Republicans.

Goldman Sachs: taxes may be increased gradually

Goldman Sachs believes that if the tax increase proposal is considered, the proposal by the House ways and means Committee to pay for the Reconstruction better Act will generate nearly $3,000bn in budgetary spending increases-slightly more than $2.2 trillion in tax increases. The gap will be covered by about $700 billion in cuts in Medicare drug spending over the next decade.

Goldman Sachs said the proposed tax increase would add $1,000bn to US income every 10 years: an increase in the corporate tax rate to 26.5 per cent, which would raise an additional $540 billion within 10 years, an increase to 39.6 per cent of the personal tax rate would raise an additional $170 billion over 10 years, and a 25 per cent capital gains tax would raise an additional $123 billion over 10 years. A 3 per cent surtax is imposed on people earning more than $5 million, with a tax increase of $127 billion every 10 years.

Goldman Sachs said that assuming the final version of the spending package could be reduced to about $2tn-the current market consensus, there would theoretically be room to reduce some of the tax increases and still have enough savings to cope with the bill's increased spending.

Goldman Sachs said it was not clear whether congressional Democrats would support all of these provisions. Drug pricing reforms are likely to be included in the final bill, but Goldman Sachs estimates that the effects of these reforms may now be less than half the $700 billion cut expected, the proposed estate tax reform seems unlikely, and it is unclear whether there will be enough support to abolish the deduction for tax transfer to corporate income tax (pass-through income).

At the same time, Goldman Sachs warned that other elements could also be included in the bill. Overall, Phillips concludes that all these changes are complex, and "once lawmakers look at all these alternatives, it is not surprising that they are back to (at least) the path of gradually raising corporate tax rates."