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Americans Supporting Higher Taxes: ETFs to Gain

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A recent article on Yahoo Finance indicated that Americans aren’t optimistic about economic health, going by a recent survey conducted by Yahoo Finance and the Harris Poll. The gridlock and now the postponement in stimulus talks is making people more concerned "about the U.S. economy and about things like having a job, issues with the healthcare system, public safety so on and so forth."

However, Americans might be interested in paying up higher taxes to improve things, if additional funds are deployed in either government services or for paying down the national debt, the article noted.

Per the article, three-quarters of Americans support higher income taxes. Additionally, 68% favor the proposal if the money goes toward paying down the national debt, which is currently as high as about $27 trillion. Notably, the concept of tax hike goes with the Democratic candidate Joe Biden’s election agenda. He also possesses considerable chances of an election win.

Biden Wants Tax Hike

His winning means the partial rollback of President Trump’s Tax Cuts and Jobs Act. Notably, President Trump’s tax law lowered the corporate tax rate from 35% to 21%, starting 2018. Analysis by the Tax Foundation reveals that Biden’s plan is to hike the corporate tax rate to 28%.

Biden is also proposing to levy a minimum tax rate of 15% — a potentially damaging outcome for some major companies which pay little in taxes. As far as individual taxes are concerned, Biden’s proposals include a top individual tax rate of 39.6%, up from 37%. He would also expand the 12.4% Social Security payroll tax, per a Wall Street Journal article. Biden's tax plan is intended to generate more revenues needed to pay down the huge debt incurred to fight the recession.

Biden has proposed raising the top tax rate for capital gains for the highest earners to 39.6% from 23.8%, the largest real increase in capital gains rates in history. That rate would apply only to households with income exceeding $1 million, which make up the majority of capital-gains income.

ETFs to Gain

If Democrats win and taxes are raised, the below-mentioned ETF areas could gain in the medium term.

iShares National Muni Bond ETF (MUB - Free Report)

The low-rate environment is great for the fixed-income market. Moreover, muni bonds are known for yielding higher than treasuries. With the Democratic candidate having solid chances of winning, muni bonds may see great days ahead as these bonds are exempt from federal taxes, and most state and local taxes.

Biden would also repeal the $10,000 cap on the state and local tax deduction, a change from 2017 that increased taxes on high-income households, particularly in states such as New York, New Jersey and California.

iShares U.S. Consumer Services ETF (IYC - Free Report)

Biden proposes to maintain the tax cuts that Trump signed in 2017 for households making less than $400,000, including the larger standard deduction and child tax credit. Overall, benefits for the low-income group mean no tension for consumer stocks and ETFs.

SPDR S&P Homebuilders ETF (XHB - Free Report)

Biden would offer targeted tax credits for middle-income households, including proposals aimed at boosting retirement savings, child care and first-time home purchases. This should be beneficial for homebuilding ETFs like XHB.

First Trust RBA American Industrial Renaissance ETF (AIRR - Free Report)

While tax hike is a negative for Wall Street, Biden’s push for tax incentives will encourage domestic manufacturing. Biden proposed a $1.3-trillion infrastructure overhaul last year. The Democratic presidential candidate’s campaign aims to invest in restoring highways, roads and bridges, changing water pipes, building out rural broadband access, and updating schools among other works.

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