Proactive Thinker “Massive Crash Ahead After The Election” Response Article
By: Keith Mcbride
Tags: Economics, Stock Market, Politics, Investing, Finance

Proactive Thinker “Massive Crash Ahead After The Election” Response Article

You Definitely Shouldn’t Believe Everything You See on YouTube

Introduction

I was watching Proactive Thinker about two weeks ago and saw a very interesting video suggesting the Stock Market will crash after the election. I enjoy the videos on Proactive Thinker a lot and usually agree with his content. But I disagreed strongly with the first half of his video. So I’ve decided to write a response article, sharing my thoughts so we can all have a clearer picture of the matter. The video asserts that corporate taxes will increase during a Biden presidency, causing a sell-off on Wall Street.

Reality

The corporate tax rate is usually just a political talking point since corporations can usually afford the best accountants to make sure they pay the absolute minimum taxes.

The Largest Corporations Dodge Taxes

Most arguments ignore the substantial difference between the corporate tax rate and the effective tax rate. Treasury.gov defines the effective tax rate as “taxes actually remitted divided by book or financial statement income (rather than taxable income).” In fact, an article from CNBC.com notes that 91 Fortune 500 companies had an effective tax rate of 0% in 2018; the first year of President Trump’s Tax Cut and Reform Bill. Though the bill lowered corporate taxes to 21%, the average fortune 500 company paid 11.3% in taxes that year. Only 51 Fortune 500 companies paid tax rates above 21%. These tax cuts wound up costing the country $74 billion in lost revenue in 2018. This doesn’t make corporations into some kind of cartoon villain, but it's important to understand the facts behind what happened.

Corporations Rarely Pay the Corporate Tax Rate

The video goes on to state that Obama era corporate tax rates were 38%, which is largely accurate. The corporate tax rate under President Obama was 38.9%. However, that was not the effective corporate tax rate. The Department of the Treasury goes on to say that the effective corporate tax rate in 2007, was 26%, while by 2011 it was down to 20%.

What may frighten investors is that Biden has talked about introducing a minimum corporate tax rate of 15% on businesses that have over 500 employees and/or over $7 million in yearly revenue. This would eliminate the possibility of a 0% effective tax rate, which seems to frighten companies like Amazon, Netflix, and other extremely profitable companies that paid 0% in corporate taxes. I have a recent article explaining each candidate’s fiscal policies if anyone is interested.

Democrats Are Bad For Business?

Ironically, Democrat presidents have a track record of being better for business than Republican presidents and have for over 70 years. BusinessInsider.com points to a historical stock market study that shows the S&P 500 has posted an average annual return of 10.8% under Democratic presidents going back to 1947. The article shows that Republican presidents have an average annual return of 5.6% during that same time period. Even GDP growth was better under Democratic presidents. The article notes that GDP grew by an average of 3.6% under Democratic presidents, as compared to 2.6% under Republican presidents.

Conclusion

We all saw how the market responded to the possibility of a Biden victory last week. CNBC says the Dow went up 6.9%, the S&P 500 going up 7.3%, and the Nasdaq increasing 9%. Investors dislike uncertainty, but the likelihood of a new and more predictable president caused the market to rise in its biggest election week gain in 90 years. You might have missed the wave ff you were exclusively taking stock advice from your favorite YouTubers.

If you’re buying stock, always remember that time in the market is better than timing the market. Some of these stocks may be overvalued. However, many might not be. If you dollar cost average and use a buy and hold strategy, you’re sure to experience a great return on investment in the long run.