Analyzing the Democrats' Tax Plan, Walmart Gets Duped and Apple's Event Underwhelms
Welcome to "This Week In The Market," where I break down the biggest, weirdest news stories that affect your finances. This week, we have a new tax plan, a weird story out of Walmart and Apple's new iPhone unveiling. Let's go!
Tax The Rich 2: Electric Bugaloo
So, before I start, let me preface it by saying this: I'm not a political blog. Politics are a divisive mine-field and not one I'm willing to wade into. I'm going to state the facts of the proposal, the current status, and how this may affect your wallet moving forward. Please don't @ me.
The Headline: House Democrats unveiled their new tax plan in order to fund the $3.5 trillion spending plan proposed earlier this summer. Headline parts of the plan include upping the corporate tax rate from 21% to 26.5%, rolling back Trump-era cuts, as well as increases in capital gains taxes and income taxes on those making over $400,000 per year. There is also the controversial tax on tobacco and e-cigarettes, as well as eliminating the "wash rule" loophole for cryptocurrency investors.
The BFD: The $3.5 trillion bill doesn't come for free. Someone has to pay for it, and we all knew who that would be. President Biden's administration dropped their plan via an 18 page summary distributed via the Ways and Means committee. It pretty effectively highlights (in legal speak) the avenues Democrats want to take to pay for the infrastructure improvements. Republicans, shockingly, aren't feeling it. Let's cover some of the bigger points.
First up, increases in the corporate tax rate and taxes for "wealthy" Americans. This was always on the table for the Biden administration and was part of his initial campaign promises.
The tax rates are increasing 2.6% for those making over $400,000 per year, and corporations will pay an additional 5.5% on average. These are expected to bring in about $170 billion in extra tax revenue over the next decade, with language included to potentially raise the rates again in 2026. This was the least surprising part about this proposal. The "super-wealthy" and corporations are consistently in the cross-hairs of Democrats and Republicans alike. They're very much in the scope of far-left Representative Alexandra Ocasio-Cortez, who decided to throw a little gasoline on the fire with her statement dress at this week's Met Gala.
What was somehow more surprising than all of this is the tobacco tax, which was a little out of left field.
Biden's mantra, both as a candidate and then as President, has been "those making less than $400,000 per year will not see taxes raised a cent." Turns out, that's sort of true. If you smoke, you're now surprisingly in the government's eye-line for tax hikes, including e-cigarettes if you want to look like that douche bad guy from every 80's movie. Regardless, this proposal will effectively double the taxes on tobacco in the U.S, with senior policy analyst at the Tax Foundation Ulrik Boesen calculating this will amount to about $400 per year if you smoke a pack a day, via CNBC. The taxes levied here also will directly target lower income households, with the largest density of smokers residing below the poverty line. Finally, the Biden Administration could be looking to raise funds from a rapidly dwindling sect of the population. With the FDA's proposed ban on menthol cigarettes, studies estimate this could remove nearly 1 million smokers from the market, sharply dropping the amount of potential tax revenue. This is a head-scratcher.
Finally, listen up if you own Bitcoin, this one's a doozy. For the past few years, cryptocurrency has been essentially the wild west of finance. Since tokens like Bitcoin and Ethereum haven't been considered "securities," there was no rule against selling them at a loss to lower your capital gains tax, before buying them back up at a lower price. With stocks, you can't do this. It's called "the wash rule" and there is a 30 day window in which you cannot purchase shares of a company you just sold at a loss without incurring a penalty. Well goodbye crypto washing! The new proposal looks to close this millennial loophole to generate revenue on crypto sales. So Bitcoin is frowned upon, but taxed anyway? Got it. Makes sense...?
So why now are they proposing these tax hikes? A couple of reasons:
To pay for the aforementioned infrastructure plan
After the landslide recall election victory by Governor Gavin Newsome in California this week, Senator Diane Feinstein's seat looks set to be recycled by a Democrat after her upcoming retirement, maintaining the majority vote in the Senate and keeping control of both branches
There is one name, however, that is throwing a wrench in the plan. If you're a regular reader of this blog, you know who is coming: Joe Manchin. For those unfamiliar, Manchin is a moderate democrat who hangs his hat on being pretty fiscally responsible. He was the main voice of dissent in un-targeting the last round of stimulus checks, and he is now in the driver's seat with the passing of the infrastructure plan and tax hikes. Reason being, this is a party-line vote. No Republican is going to touch this bill, leading to Manchin now being the most powerful person in Washington. So he's enthusiastic about the bill, right? Uhhhhhh.....
How Can This Make Me Rich?: It kind of can't. Tax hikes are one of those weird, necessary evils in which we pay to live in a society. I guess stop smoking and hope your crypto doesn't go down?
Walmart's Weird Week
I promise I'm not just a crypto channel, but we have to talk about the Walmart debacle from this week.
On Monday, press release wire service GlobeNewswire sent out a press release indicating that Walmart had partnered with Litecoin to begin accepting crypto payments at their locations and online. After the official Litecoin Twitter account retweeted the release, seemingly confirming and endorsing the news, Litecoin's price exploded to the tune of 20% on the news. But then something weird happened: Walmart immediately issued their own release, stating that the press release was fake. The GlobeNewswire's parent company, Intrado, had to issue a statement to "disregard" the original press release, sending Litecoin on a violent down-slope. The coin eventually finished the day down about 2.2%, with Litecoin issuing a statement throwing their social media manager under the bus for the retweet. All parties then removed all of the press releases and statements to pretend like it never happened.
Stock of the Week
This week marked the much-anticipated Apple Event, their annual showcase where they unveil the new versions of those things you need to sell a kidney for. And this year, like they laziest guy at the New Year's party, their resolution was "maintain what we did last year and try to be a little better."
The highlights of the event include:
A refreshed iPhone 13 with the new A15 chip, bigger battery and the same creepy camera look
The Apple Watch Series 7 with a bigger screen, slightly different design with rounded corners and a bigger battery
A new iPad Mini that is for some reason twice as expensive as the bigger version, of which a new one was also announced. Both contain bigger batteries
An expansion of their "Fitness Plus" service that's officially starting to make Peleton sweat
The theme of this show was really taking what works and improving it slightly. Every product they announced on Tuesday contains some version of a bigger battery, which seemed to be a chief complaint of the previous generation. And I mentioned that Fitness Plus was making Peleton sweat. I wasn't kidding. Shares of Peleton were down 2% immediately following the news during the Event.
Critically, Apple is not adjusting prices. The phones now come with more storage than the last generation, but are the same price. Same goes for the watch, and the iPad is actually cheaper now. This is likely to carry forward Apple's sales momentum. Look for the new products to start shipping September 24,
Thanks for checking out the Friday edition of the blog! Don't forget to check back tomorrow for the next company deep dive, and Monday when I get into the mystery of The Maldives. Have a great weekend!