A GMC Hummer EV truck at General Motors’ Factory Zero in Detroit.

Bill Pugliano/Getty Images

The sausage-making process in the halls of Congress is in high gear. At stake: the size, scope, and contents of Democrats’ budget reconciliation bill. For investors, the details of the corporate tax hikes may matter more than the final spending amounts.

This past week, a nearly 2,500-page draft of the bill was advanced by the House budget committee, totaling some $3.5 trillion in new spending and tax credits, offset by tax increases on corporations and the wealthy.

There’s almost no way the bill gets passed as it was written. Congressional moderates aren’t on board with that level of spending. Key Democratic Sen. Joe Manchin, of West Virginia, finds $1.5 trillion more palatable, while the Congressional Progressive Caucus members counter that they already scaled back their ambitions to reach the $3.5 trillion figure. For now, they’re at an impasse.

Wells Fargo Securities economists expect an eventual compromise, one that eventually lands somewhere in the middle, as compromises usually do. That would put the price tag at around $2 trillion to $2.5 trillion. That’s still a lot of money, but it will be distributed over the next decade and countered by higher taxes. Ultimately, the economic impact in any given year won’t be all that large. U.S. annual gross domestic product is about $23 trillion, after all—it takes a lot of new spending to move the needle.

“We suspect that with a package like this we would measure changes to our forecasts for economic growth and inflation over the next year or two in tenths of a percentage point, in contrast to the much larger changes we made to our forecast in the wake of the American Rescue Plan…earlier this year,” Wells Fargo’s Michael Pugliese writes.

Still, numerous industries would be affected by the combined impact of a budget reconciliation bill and the concurrent bipartisan infrastructure package, which brings another $550 billion in new spending into the mix. Those include electric-vehicle makers and companies that make batteries and build charging stations. Health insurers would see greater subsidies for insurance plans purchased through state marketplaces. Drugmakers and distributors would have to contend with drug-pricing reforms and allowing the government to negotiate costs. Once again, the spending is spread out over a decade and the details remain to be worked out.

Taxes, though, will hit almost immediately. The House Budget Committee’s draft has the top corporate tax rate increasing to 26.5% from 21%; lifts the top marginal income-tax rate to 39.6% from 37%; and bumps the long-term capital-gains tax rate to 25% from 20%. Other corporate and individual tax changes bring the total new tax revenue in the draft to some $2 trillion. A higher corporate tax rate alone would shave several dollars off forecast 2022 S&P 500 per-share earnings of $217. That’s bad news for an earnings-driven market already suffering under the weight of high expectations.

For investors wondering what the reconciliation bill will mean for the market, taxes are the place to start—and finish.

Write to Nicholas Jasinski at nicholas.jasinski@barrons.com