Yahoo Finance’s Myles Udland breaks down why corporate taxes might not trigger headwinds for the stock market.

Video Transcript

MYLES UDLAND: Brian Sozzi, Sam Roe comes back from vacation and immediately attacks you, talking about corporate taxes likely not spelling doom for the bull run, going through a lot of the thought that Wall Street strategists have right now. And what I thought was interesting, at least in the work that Sam was citing, Sozzi, is that strategists think this kind of risk either is or will be priced into the market before we actually get the passage of any tax legislation.

BRIAN SOZZI: I can take the hits, Myles. I can take the hits. But yeah, [INAUDIBLE], listen, a tons of good points in the Morning Brief newsletter, as always. But and this is one we talked about last week a bit, too. If the economy is coming roaring back, you'll see a good top line momentum. You're seeing corporate profits starting to come back.

And I think the reason why you're seeing stocks continue to touch at record highs is because maybe the market is realizing corporate America, one, could handle higher tax rates, and then, two, maybe the tax rates-- the Biden administration has proposed 28%-- maybe that gets down-- pushed down to 25%. He does sound like-- he has sounded like someone who is willing to negotiate just a bit, Julie. But again, I would say over time, higher taxes are not necessarily good for stocks.

JULIE HYMAN: I mean, I don't think there's any maybe about it. It's not going to be 28%. There's just no scenario in which that is a realistic scenario and can get through. So is it 25%? Is it 24%? Who knows? I mean, if you look at the numbers that are cited in the Morning Brief for what effect this could have, Bank of America, just to give one example, their base case is S&P 500 rising 32% this year to 185. That comes down, what, to 162, I think, if I'm reading this right, as a result of taxes, but still represents pretty robust growth.

You know, it's funny, of course, as you say, Myles, that Sam Roe comes out attacking Brian Sozzi and his stance on taxes. I feel seen, of course. I feel validated because I've come out on the other side of this. But indeed, it makes the most sense to raise taxes at a time of robust growth because it's when companies can most readily navigate it. And as we have seen, GDP estimates keep going up. Earnings estimates keep going up. So those numbers that the Street is looking for will likely go higher taxes, notwithstanding.

MYLES UDLAND: Well, and I think, you know, Julie, it really brings-- and that's a great point. It brings together a lot of the fiscal and monetary policy conversation we've had, which is, do you want to run policy, to use it in wonky terms, pro-cyclically or countercyclically, right? So do you try to create the conditions-- you try to accentuate how the cycle is behaving? Or do you try to counteract it with whatever policy actions you want to take?

And I think in a situation where the economy is growing, the government is spending more money to keep that growth going, the logical follow-on would be, this is the time at which we raise taxes on corporations, on the highest earners. And then in the next downturn, you have the space to counteract the downturn by cutting some of those tax burdens on individuals or on corporations.

In a time like this where the economy is growing, do you want to raise wages now, as there is, obviously, huge demand for labor out there? I think that's going to be a major story as we get into the summer. And so these are all the questions that I think at a higher level are being asked and answered in their way by official policy. And I would say that right now, there's a lot more pro-cyclicality, I think, on the growth side of the equation as we look towards what some policy goals are.