With the recent assassination attempt on Donald Trump in Pennsylvania, the chances of his winning the presidential elections surged to 70%. According to Polymarket, as quoted on Forbes, President Biden’s re-election odds dropped to 16%.
However, per USA Today, the odds of President Biden resuming office for the second time improved after his national address about the attempt on Trump's life.
With both presidential candidates proposing distinct tax plans, investors must strategically navigate the landscape to capitalize on areas poised to benefit from the changes.
Trump and Tax Cuts
According to Tax Foundation, Trump proposed to curb corporate income tax rates from 21% to 20%, introduce a 60% tariff on all imports from China, and make TCJA’s individual and estate tax cuts permanent. Additionally, Trump plans to tax large private university endowments and consider replacing the income tax with tariffs.
Per Financial Express, Trump’s previous presidency witnessed the corporate tax rate fall to 21% from 28%. He plans to further decrease it to 15% if re-elected this year, potentially cutting the U.S. corporate tax rate by nearly half.
With proposed corporate tax deductions and increased universal baseline tariff on all U.S. imports, investors can benefit from expanding their portfolio exposure to the following ETF sectors.
Small-Cap ETFs
With reductions in corporate tax rates, U.S. small-cap companies, which primarily conduct business domestically, tend to gain more than large-cap companies. They can benefit substantially from even a little boost in cash flow. Increasing tariffs on Chinese imports can also benefit small-cap companies.
Investors can consider Vanguard Small Cap Growth ETF VBK, iShares S&P Small-Cap 600 Growth ETF IJT, SPDR S&P 600 Small Cap Growth ETF SLYG and Invesco Dorsey Wright SmallCap Momentum ETF DWAS.
Consumer Discretionary ETFs
Reductions in taxes will also leave consumers with more discretionary incomes. Making TCJA’s individual and estate tax cuts permanent, coupled with replacing personal income taxes with increased tariffs puts more money into Americans' pockets.
Funds like Consumer Discretionary Select Sector SPDR Fund XLY, Vanguard Consumer Discretionary ETF VCR, First Trust Consumer Discretionary AlphaDEX Fund FXD and Fidelity MSCI Consumer Discretionary Index ETF FDIS can be considered.
Dividend ETFs
Reductions in the tax rates will leave corporations with extra cash to benefit shareholders, which could lead to increased dividends. U.S. companies with a strong history of dividend growth are most likely to do this. Investors can benefit by investing in funds with exposure to companies that have a record of increasing dividends over time.
Investors can take a look at Vanguard Dividend Appreciation ETF VIG, Schwab US Dividend Equity ETF SCHD, Vanguard High Dividend Yield Index ETF VYM and Shares Core Dividend Growth ETF DGRO.
Biden and Tax Increases
In proposing the budget for fiscal year 2024, President Biden plans to increase tax rates on corporate, individual and capital gains income, broadening tax bases to include more types of income. Per Tax Foundations, Biden also proposes increasing tariffs on Chinese imports, reflecting concerns over heavy reliance on Chinese goods and sharing similar views with Trump on the matter.
Investors can profit from increasing exposure of their portfolio to the following ETF sectors in light of the projected hikes in corporate taxation and increased tariffs on Chinese imports.
Clean Energy ETFs
President Biden has maintained his emphasis on achieving net-zero emissions by 2050, prioritizing the fight against climate change. He proposes to raise taxes on the fossil fuel industry, with companies in clean energy, electric vehicles and green infrastructure standing to benefit.
iShares Global Clean Energy ETF ICLN, First Trust NASDAQ Clean Edge Green Energy Index Fund QCLN, ALPS Clean Energy ETF ACES and Invesco Solar ETF TAN are some options to consider.
Consumer Staples ETFs
Proposals to increase individual taxes and net investment income tax will leave consumers with reduced discretionary income, increasing their consumption of more essential products.
Consumer Staples Select Sector SPDR Fund XLP, Vanguard Consumer Staples ETF VDC, iShares U.S. Consumer Staples ETF IYK and Fidelity MSCI Consumer Staples Index ETF FSTA can be considered.
Infrastructure and Industrial ETFs
President Biden plans to maintain Section 301 tariffs on $360 billion of Chinese goods, with additional tariffs on $18 billion of steel, aluminum and other imports. Additionally, President Biden proposed to extend tariffs on steel and aluminum to imports from Mexico.
Investors can consider stocks of companies that provide products and services for the construction of roads, bridges and other infrastructure projects.
Investors can consider iShares U.S. Infrastructure ETF IFRA, Invesco Building & Construction ETF PKB, First Trust RBA American Industrial Renaissance ETF AIRR and First Trust NASDAQ Clean Edge Smart Grid Infrastructure ETF GRID.
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Get it free >>Consumer Staples Select Sector SPDR ETF (XLP): ETF Research Reports
Invesco Solar ETF (TAN): ETF Research Reports
iShares S&P Small-Cap 600 Growth ETF (IJT): ETF Research Reports
Invesco Building & Construction ETF (PKB): ETF Research Reports
Consumer Discretionary Select Sector SPDR ETF (XLY): ETF Research Reports
iShares Global Clean Energy ETF (ICLN): ETF Research Reports
Vanguard Dividend Appreciation ETF (VIG): ETF Research Reports
Vanguard Consumer Discretionary ETF (VCR): ETF Research Reports
Vanguard Consumer Staples ETF (VDC): ETF Research Reports
iShares U.S. Consumer Staples ETF (IYK): ETF Research Reports
First Trust NASDAQ Clean Edge Green Energy ETF (QCLN): ETF Research Reports
First Trust RBA American Industrial Renaissance ETF (AIRR): ETF Research Reports
Fidelity MSCI Consumer Discretionary Index ETF (FDIS): ETF Research Reports
Fidelity MSCI Consumer Staples Index ETF (FSTA): ETF Research Reports
First Trust Consumer Discretionary AlphaDEX ETF (FXD): ETF Research Reports
Vanguard High Dividend Yield ETF (VYM): ETF Research Reports
Invesco Dorsey Wright SmallCap Momentum ETF (DWAS): ETF Research Reports
iShares Core Dividend Growth ETF (DGRO): ETF Research Reports
Vanguard Small-Cap Growth ETF (VBK): ETF Research Reports
SPDR S&P 600 Small Cap Growth ETF (SLYG): ETF Research Reports
Schwab U.S. Dividend Equity ETF (SCHD): ETF Research Reports
First Trust NASDAQ Clean Edge Smart Grid Infrastructure ETF (GRID): ETF Research Reports
iShares U.S. Infrastructure ETF (IFRA): ETF Research Reports
ALPS Clean Energy ETF (ACES): ETF Research Reports
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
