By Herbert Lash
NEW YORK (Reuters) -Investors hailed U.S. President Joe Biden’s offer on Thursday to scrap his proposed 28% corporate tax hike as a move in the right direction and embraced the idea of a compromise that could allow an infrastructure and tax package to move through Congress.
Biden offered to set a minimum tax rate that companies should pay at 15%, two sources familiar with the matter said, in what would be a major concession by the Democratic president as he works to hammer out a deal with Republicans.
In return, Republicans would have to agree to at least $1 trillion in new infrastructure spending, versus the president’s original proposal for a $2.25 trillion package.
“To set those rates at 15%, I think it would be great for the market,” said Gary Bradshaw, portfolio manager at Hodges Capital Management in Dallas.
Raising the global minimum rate on U.S. companies’ foreign income to 21% from 10.5% and the corporate tax rate to 28% from 21%, among other Biden tax proposals, would slash earnings per share by about 7.6% next year, Morgan Stanley said on Monday.
Headlines on Biden’s proposal led the S&P 500 to trim losses by about half of 1%, though the market still closed lower.
Investors would welcome a compromise that allows the infrastructure and tax package to pass in Congress, said Rick Meckler, a partner at Cherry Lane Investments in New Vernon, New Jersey.
“The alternative is the potential for a much more extreme package voted on only by Democrats,” Meckler said.
Rob Sechan, managing partner and co-founder at Newedge Wealth in New York, said anything that is less than the expected 28% tax hike will help the market.
“The tax structure now has gone from headwind to a tailwind,” he said.
A 28% corporate tax rate would have a huge impact on earnings, although the probability of a compromise is unlikely, said Thomas Hayes, chairman and managing member at hedge fund Great Hill Capital LLC in New York.
“There’s a higher probability that Democrats push through whatever …they want,” Hayes said.
(Reporting by Herbert Lash, additional reporting by Caroline Valetkevitch and Lewis Krauskopf in New York, and Shashank Nayar in Bengaluru; editing by Richard Pullin)