While the presidential race looks like a “tossup,” it is highly likely the Democrats will hang onto the House of Representative and it is starting to look like the Democrats could win back the Senate also, which could result in major changes to tax law, including a higher corporate tax rate, according to Jeremy Siegel, professor of finance at Wharton and WisdomTree senior investment strategy advisor.
The November election, now six months away, “looks extremely competitive,” Siegel said Monday, during his weekly conference call on the state of the markets. “In the betting markets, for the presidency it is now virtually a dead heat between” Donald Trump and Joe Biden, with “maybe a tiny advantage [for] the Democrat,” with 52 to 48 odds. And that has been the case for a while, he noted.
However, “what has changed significantly and does give me some concern” is the odds increasingly looking better for Democrats in the Senate races, he said. There are, after all, “several very strong Democratic challengers to what were considered to be relatively safe Republican seats,” he told listeners. Only 2-3 months ago, the odds in the betting markets were 70 to 30 that Republicans would hold onto Senate control, but that has “now sunk all the way down, almost to even money,” with “probably a tiny, slight edge [for] the Republicans,” he said. Despite that slight Republican edge, 52 to 48, if you look at polling for all the Senate races, the Democrats could win control of the Senate also, he added.
Siegel considers the Senate to be a “bulwark to protect against” the other branches of government, he said, adding he considers Democratic Senate control to be a “negative for equity prices.” However, the impact on equity prices wouldn’t be “devastating” – maybe reducing them 5-10% — and investors shouldn’t start selling everything if the trend continues, he said.
What instead “concerns me the most” if the Democrats control all of Congress, is that “my feeling is we’re going to basically repeal and rewrite the corporate tax cut that the Republicans put in place shortly” after Trump’s victory as president, he said, referring to the sweeping tax overhaul enacted in 2017.
“Not everything will be undone, but a lot will be undone and that will increase taxes on corporations,” he predicted. On the plus side, he pointed out, “Biden is not a far-left candidate” and the result will likely not be “radical” changes, he predicted.