President Donald Trump's signature tax cuts are set to end starting 2021, and Corporate America must prepare for an increase in levies, as it's unlikely Congress will extend the stimulus, according to Morgan Stanley.

The fading of the tax breaks, which helped lift company earnings and share values last year, will start to affect decision-making and investments before they expire, strategists including Michael Zezas said in a March 27 report.

While some investors are counting on the government to extend the provisions because of political pressures and risks to the economy, Morgan Stanley says it advises against relying on this outcome for three reasons:

  • Popular opinion favors raising taxes, particularly on corporates, not cutting them.
  • Extending tax breaks would require a series of politically and fiscally costly votes, which Morgan Stanley estimates would cost about $700 billion to $800 billion over 10 years.
  • If Democrats take power in 2020, their proposals envision higher levies.

Companies in technology, healthcare, and industrials are most exposed to the combination of expiring U.S. provisions as well as global tax reforms related to digital activity from France, the U.K., and others that may hit U.S. multinationals this year, Morgan Stanley said.

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