Corporate tax hikes are coming. What this means for investors.

Artwork by Elias Stein


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Washington is preparing to increase the tax burden on companies, but the stock market does not seem to worry about it.

The Cut Inflation Act, which was approved by Congress last week, imposes a minimum tax of 15% on companies that have made at least $1 billion in average adjusted operating profits over the past three years. It also includes a 1% tax on share redemptions.

The new minimum rate may sound scary, but it’s not. According

Citigroup
,

a slight majority of companies in the


S&P500

had an average operating income high enough to pay the 15% tax, but all but 50 of them already pay an effective tax rate of 15% or more.

These 50 companies recently contributed about 15% of the overall earnings per share of the S&P 500. Taxing them at 15% would reduce the index’s total earnings per share by about 0.4%,

Town

estimates.

The redemption tax would not present much of a burden either. In 2021, S&P 500 companies repurchased shares worth about $620 billion more than they issued. A 1% tax on this net buyout would amount to $6.2 billion, or 0.35% of the $1.76 trillion in total revenue that index companies generated last year.

After all the talk in recent years about raising corporate taxes, new tax policies so far seem like small beans. The market accepts. The S&P 500 closed up 3.3% for the week, helped by a drop in the consumer price index in July.

Investors still need to be cautious. Individual companies, especially those selected in the utilities and technology sectors, could be hit quite hard.

US inflation eases

The consumer price index remained stable in July compared to the previous month, thanks to the drop in energy prices. Inflation slowed to an annual rate of 8.5%. Stocks and bonds rose on the news. The tech-heavy Nasdaq, after recently making a comeback, entered a new bull market on Wednesday. On Thursday, producer prices fell more than expected in July, suggesting that inflation may have peaked. Stocks were mixed. During the week, the


Dow Jones Industrial Average

increased by 2.92%, to 33,761.05; the S&P 500 rose 3.26% to 4280.15; and the


Nasdaq Compound

gained 3.08%, to 13,047.19.

Last week

The pace of gains

Crypto trading platform

Coinbase Global

posted a bigger-than-expected second-quarter loss on depressed digital asset prices;


Soft Bank

posted its biggest ever quarterly loss on plummeting tech valuations;

waltz disney

saw a 26% jump in revenue, driven in part by its theme park business;

Wynn Resorts

had a mixed quarter, driven by ongoing shutdowns in Macau; Wendy’s blamed rising raw material and labor costs for its missed sales.

Biden signs the flea law

President Joe Biden has signed a $280 billion technology spending bill, including $52.7 billion to expand chip manufacturing.

Micron Technology

said it would spend $40 billion on chip manufacturing in the United States, creating up to 40,000 jobs by the end of the decade.

Inflation Reduction Act passed

On Friday, the House approved the Democrats’ health, climate and tax package. The Senate passed it on August 7. It now falls to President Biden.

Hedge fund monitoring

The Securities and Exchange Commission wants to make sure hedge funds and other private investment advisers aren’t hiding any issues that could rock the financial system. Regulators are proposing changes to a confidential reporting form that assesses these risks.

New Chinese virus

Researchers in China have identified 35 people carrying a new virus that likely spread from animals to humans. The discovery of the virus – which is unrelated to the coronavirus – comes as the country battles its worst Covid outbreak in weeks. The results were reported in the New England Journal of Medicine by international researchers. The number of confirmed monkeypox cases continues to rise in the United States.

carlyle

The CEO leaves

Carlyle CEO Kewsong Lee took over, just months before his five-year contract expired. Lee and Carlyle said the decision was mutual but did not reveal a specific reason for the early release. The departure of a second leader, Nathan Urquhart, was announced a few days later… Elon Musk sold nearly eight million shares of

You’re here

worth about $6.9 billion. The CEO moves took place over three days… Peloton Interactive is cutting nearly 800 jobs, closing stores and raising prices as part of a strategic overhaul.

Write to Jacob Sonenshine at [email protected]

Robert D. Coleman