As the November presidential election approaches, U.S. Vice President and Democratic presidential candidate Kamala Harris has proposed significant changes to corporate taxation. Analysts at Goldman Sachs have assessed the potential impact of her tax plan on corporate earnings.
Harris’ Tax Proposal
Harris has proposed raising the corporate tax rate from the current 21% to 28%. She has emphasized her commitment to ensuring that “big corporations pay their fair share” if she wins the election against Republican candidate Donald Trump.
Projected Impact on S&P 500 Earnings
Goldman Sachs projects that an increase to a 28% corporate tax rate could lead to a 5% decrease in earnings for companies listed on the S&P 500 index. Additionally, incorporating taxes on foreign income and raising the alternative minimum tax rate from 15% to 21% could reduce earnings by up to 8%, according to the analysis.
Trump’s Proposed Tax Relief
In contrast, Trump’s proposal to lower the federal statutory domestic corporate tax rate from 21% to 15% is expected to “arithmetically” boost S&P 500 earnings by approximately 4%. This proposed cut could provide a notable advantage to companies within the index.
Current Tax Rates and Earnings Projections
Goldman Sachs noted that the current U.S. statutory corporate tax rate on domestic income is 26%, while the effective tax rate for the average S&P 500 company is 19%. The analysis estimates that each 1 percentage point change in the U.S. statutory domestic tax rate would affect S&P 500 earnings per share (EPS) by slightly less than 1%, or about $2 in EPS.
Harris’ Impact on the Democratic Campaign
Harris’ ascension as the leading Democratic candidate has revitalized the party’s campaign, which had previously been uncertain about Joe Biden’s chances. Recent polling data suggests that Harris has gained ground, surpassing Trump in some national opinion surveys after a period of Trump leading Biden.
Conclusion
The proposed changes in corporate taxation by Kamala Harris and Donald Trump represent significant shifts in economic policy with potential implications for S&P 500 earnings. As the election draws closer, the impact of these proposals on corporate profitability and the broader political landscape will become increasingly clear.
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