Will U.S. Corporate Tax Rates Rise?

Includes: DIA, QQQ, SPY
by: Keith Woolcock

The enclosed link will take you to the latest fund letter from Paolo Pellegrini's new fund. Pellegrini was John Paulson's right hand man when he did his greatest ever trade. marketfolly.com. There is lots of good meat in this letter. In particular, it makes a convincing case for US corporate taxes needing to rise. US corporate is the only sector of the economy that is increasing its cash holding, yet capex and employment continue to be light. Therefore, hitting this sector with higher taxes could play to the larger electorate while helping to plug a fiscal whole. At least, that is the argument that will be used.

As Hewlett Packard's results made clear, corporates are not spending a lot on new computers, growth is still coming from consumers and emerging markets. A rise in taxes has not been factored into US equity valuations yet. While this will cause a lot of weeping and wailing and talk about big government and the US has a problem - its companies wont invest, its banks wont lend and servicing the national debt is becoming onerous. Furthermore, I think US corporate profits as a proportion of GDP have been trending higher for some time. Meanwhile, the organisation that represents US civil engineers now rates the nation's infrastructure a D to D-.

As a reading of Robert Reich's excellent book, Super Capitalism illustrates, in the 1950s, something of a golden age for American capitalism, corporate and personal tax rates were considerably higher than they are today to no particularly bad effect

Author's Disclosure: No Stocks held

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