Biden tax hike will make US-based multinationals less competitive and impact equity values: Eric Cantor

Moelis & Company (MC) vice chairman and former GOP House Majority Leader Eric Cantor said his executive clients are concerned about what a higher corporate tax rate under the Biden administration would mean for the competitiveness of American business.

"I don't think there is any question that decision makers at both large-cap, mid-cap as well as some of the investors in the emerging growth arenas are looking at what is going to happen on the tax plan in Washington. If you set aside the philosophical viewpoint as to maybe what should or should not be done in terms of their view of what is quote unquote fair, I do think that an increase in taxes is going to make us in the country and make America-based multinationals less competitive and obviously, it may very well impact equity values," Cantor said on Yahoo Finance Live. "I think there is certainly a concern about this."

President Biden officially unveiled his $2.3 trillion infrastructure plan several months ago.

Coined the "American Jobs Plan," Biden's proposal aims to invest $621 billion into transportation infrastructure, including the repair of roads, bridges, transit and rail. More than $300 billion will be spent to replace lead water pipes and upgrade sewers, invest in broadband access and improve the power grid.

While Biden has recently shown a willingness to come down on his asking price for the package to $1.7 trillion to strike a deal with skeptical Republicans, what hasn't budged is his view on corporate taxes.

Biden's infrastructure plan is still seen as being mostly paid for by lifting the corporate tax rate to 28% from 21%. Republicans have pitched a $1 trillion infrastructure plan of their own that won't be funded by increases in the corporate tax rate (among other tax hikes the Biden administration has proposed).

"Well, I think that an honest look at corporate America will tell you that they can do more to pay their fair share. Look, remember we are calling for a tax rate of 28%. For most of my lifetime that rate stood at 35% and American companies were perfectly competitive, extremely competitive. So if we can handle 35%, I am pretty sure we could handle 28%," U.S. Transportation Secretary Peter Buttigieg told Yahoo Finance Presents on Biden's tax proposal.

But to Cantor's point, Wall Street strategists are already predicting a big profit hit to corporate America in 2022 should taxes head higher. The wildcard here is how investors would react to any tax hike becoming law.

“Legislation will be heavily negotiated during the summer, passed in autumn, but only take effect starting in 2022. In the unlikely event that tax reform does not occur, our 2022 S&P 500 annual EPS growth rate would be 12% (to $203). Our current published estimate of $197 assumes taxes rise and reflects a 9% growth rate. However, full adoption of the Biden proposal would cut growth to just 5% ($190),” Goldman Sachs chief U.S. equity strategist David Kostin wrote in a recent client note.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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