FX.co ★ Future changes in the US tax system

While the euro and the British pound are standing in one place or barely moving in a side channel - in anticipation of important decisions that may be made closer to the middle of this week, the American president continues to fulfill his election promises. At the moment, we are talking about raising taxes in the United States, which Biden spoke about during the presidential election race.

The media reported that President Joe Biden plans to take up the issue of raising federal taxes to help finance his long-term economic program, designed as a continuation of his bill to combat the pandemic. The last time such significant changes were made to the US Tax Code was in 1993.

Unlike the $ 1.9 trillion stimulus program to combat COVID-19, the next initiative, which is expected to be even larger, will not rely solely on government debt as a source of funding. Let me remind you that the American president recently said that he will work on the development of infrastructure and will make every effort to stabilize the labor market. Serious financial investments are planned for the construction of roads and bridges. However, Republicans expressed clear disagreement with Biden's plans in the part that the financing of any of these programs will occur at the expense of the growth of new debts and the increase in the debt burden. According to Speaker Nancy Pelosi, the construction of roads, bridges, water systems, and other things - should always be a bipartisan decision. Now that the Democrats are talking about raising taxes in the United States, it will be much easier to implement a powerful new plan to support the American economy. How they plan to push new changes to the tax code through Congress is another matter. In all likelihood, the more active promotion of these initiatives will begin only in April, as in the coming weeks, the Biden administration will direct efforts to promote a bill for higher rates of vaccination of the population in the fight against COVID-19.

"The tax increase will be one of the components of the new program of growth and development of the American economy," said Treasury Secretary Janet Yellen. In her opinion, the new costs will not occur due to the growth of the debt burden. The new bill will also include the repeal of those tax breaks that were lobbied by former US President Donald Trump in 2017. The benefits only benefited corporations and rich people.

The following proposals are currently being planned:

• Increase in the corporate tax rate from 21% to 28%
• Cancellation of tax benefits for several companies with different forms of ownership
• An increase in the income tax rate for individuals earning more than $ 400,000
• Expanding inheritance tax
• A higher tax rate for individuals whose annual income was at least $ 1 million per year
• The report of the tax policy center indicates that such actions in the next 10 years will bring from 2 to 4 trillion dollars

The graph shows income as a percentage of GDP. It can be seen that the indicator has been decreasing all the time since 2015. The general trend of falling incomes has been observed since the 2000s. At the same time, costs continue to either increase or remain at the same level. Tax cuts under Trump have led to a sharp decline in revenue. Biden plans to change the situation.

As for today's fundamental data, only the report on the growth of wholesale prices in Germany attracted attention. According to Destatis, wholesale prices rose 2.3% year-on-year in February 2021, after remaining unchanged in January. This was the fastest growth since December 2018. The annual growth was mainly due to the increase in prices for wholesale sales of ore, metals, and metal semi-finished products. Every month, wholesale prices rose 1.4% after rising 2.1% in January.

The technical picture of EURUSD remained completely unchanged. Problems for buyers remain in the resistance area of 1.1940, beyond which it is not yet possible to get out. Only a breakdown of this area will lead to a new wave of strengthening of risky assets to the level of 1.1990 and open a direct road to the area of 1.2050. The resistance of 1.2110 is even higher. It will be possible to talk about the return of pressure on the euro only after the bears push through the support of 1.1895, which will lead to a breakdown of the lower limit of the current ascending channel from March 8 this year. Only after that, we can expect an immediate sell-off of EURUSD to the minimum of 1.1840, which will open the possibility of a return to the base area of the 18th figure.

The British pound continues to trade in a sideways channel, as data on house prices in the UK did not make significant changes in the balance of power. According to the Rightmove report, consumer demand hit record levels, and home prices rose 0.8% month-on-month in March after rising 0.5% in February. The number of potential buyers interested in every available property during the month was a record-breaking 34% jump. As noted in Rightmove, the demand was driven by delayed demand due to the effect of blocking the economy and additional stimulus measures from the government. It is expected that the seasonal spring factor will also lead to an increase in demand and sales in the housing market. On an annualized basis, home price growth slowed by 2.7% in March from 3% in the previous month.

As for the technical picture of the GBPUSD pair, only going beyond the large resistance of 1.3945 will lead to a new large wave of growth of the trading instrument in the area of the highs of 1.4000 and 1.4060. The pressure on the pound will return immediately after the bears manage to break below the support of 1.3860, which will lead to a larger sell-off of GBPUSD already in the area of the lows of 1.3780 and 1.3690.