US President Joe Biden has proposed an increase in corporate taxes to fund his social spending package. Additionally, he has proposed an increase in personal capital gains tax to 25 percent from 20 percent. While the increased corporate taxes will surely impact the earnings of companies, the question on every retail investor's mind is: Will it impact me?

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It could unravel in two ways, said Viraj Nanda, CEO at Globalise, adding that a further surge is expected in the markets, while investors will also be affected by the development.

“If the social spending package planned puts more cash in the hands of the public, markets could rise. Similar to the one during COVID-19 when retail trading activity increased as people received their stimulus cheques. The rise in corporate taxes is also expected to drive higher inflation and if valuation levels stay constant, there could be a market correction."

What changes can investors expect?

As part of the plan revealed, the corporate tax rate has been proposed to increase from 21 percent to 26.5 percent. US companies’ foreign income would also be taxed at a minimum rate of 16.6 percent, compared to 10 percent now. But both these rates are lesser than what Biden originally planned — 28 percent for corporate and 21 percent for their foreign income.

As expected, market reaction was sombre to the news of increased taxes.

Nanda said more corrections are likely if the Biden administration's proposal goes through.

“However, this version of amendments to the tax rate has likely already been priced. Any further negotiations on the tax rate will only lead to a reduction and thus a positive outcome for the markets."

On increase in personal capital gains tax, Nanda said that Indian investors are not taxed on their capital gains in the US, so there shouldn’t be any direct impact on them.

However, he added that there might be some short-term pullbacks as a result of this announcement, which has likely already been priced in, but the longer-term market trajectory will continue to be positive.

Do investors need to make any changes to their portfolios?

Long-term investors won't be impacted majorly and should avoid making drastic changes to their portfolios, Nanda said.

“With concerns about inflation rising, gold and other commodities could become safe havens and perform well as an asset class. Given inflation impacts fixed cash flows more, remaining in equities could be beneficial in the face of mild inflation."

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