Big tech and health stocks lose the most of Biden’s potential tax hikes, says BlackRock

  • Large-cap tech and healthcare stocks could suffer the most if U.S. taxes rise or a global minimum tax is passed, BlackRock analysts wrote in a note.
  • The category with the largest market capitalization and the lowest effective rate was information technology, including Amazon and Microsoft.
  • Analysts have suggested investors consider small and mid-cap companies that are less exposed to international tax changes.
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Large-cap tech and healthcare stocks could suffer the most if U.S. taxes rise or a global minimum tax is passed, BlackRock analysts wrote in a note Monday.

The note looked at the effective tax rates for each sector of the S&P 500, comparing them to the relative market capitalization of the sector. The category with the highest market value and the lowest effective rate was information technology, including Amazon and Microsoft. Communications and healthcare also rank among the sectors with the lowest effective tax rates.

Graph of effective tax rate versus share of S&P 500 market capitalization

The ongoing tax negotiations at the OECD could be bad news for healthcare and IT companies, which disproportionately benefit from international profit-shifting programs, BlackRock analysts noted. OECD discussions focused on setting a global minimum rate that would prevent companies from using complex accounting tricks to reduce their tax liability.

Another potential problem could come with a hike in national taxes, as the Biden administration considers funding options for its bipartisan infrastructure package. Republicans have excluded a corporate tax increase for the time being. But a Democrats-only spending package that could include a higher corporate or capital gains rate remains possible.

Analysts have suggested investors consider small and mid-cap companies that are less exposed to international tax changes. They also pointed to ETFs and municipal bonds, which are tax-exempt, as options for dealing with higher taxes.


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