Goldman Sachs analysts have warned that U.S. Vice President Kamala Harris’ proposed corporate tax hike could lead to a 5% reduction in earnings for companies listed on the S&P 500 index. Harris, who is also a Democratic presidential candidate, has suggested increasing the corporate tax rate from 21% to 28% ahead of the November elections. Her goal is to ensure that large corporations pay their “fair share” of taxes if she wins against Republican candidate Donald Trump.
Potential Earnings Reduction
According to Goldman Sachs, if Harris’ plan is implemented, the S&P 500 companies could see their earnings decline by approximately 5%. Additionally, if foreign income taxation is increased and the alternative minimum tax rate is raised from 15% to 21%, the impact on earnings could be as high as 8%.
Trump’s Tax Relief Proposal
In contrast, Trump’s proposal to reduce the federal statutory domestic corporate tax rate from 21% to 15% is expected to increase S&P 500 earnings by about 4%. Goldman Sachs noted that while the current U.S. statutory corporate tax rate on domestic income is 26%, the average effective tax rate for S&P 500 companies is 19%.
Effects on Earnings Per Share
Goldman Sachs estimates that each 1 percentage point change in the U.S. statutory domestic tax rate would slightly alter S&P 500 earnings per share (EPS) by less than 1%, which equates to roughly $2 per S&P 500 EPS.
Political Landscape
Harris’ rise to the top of the Democratic ticket has injected new energy into a campaign that was previously uncertain about Joe Biden’s prospects. Recent polls show that while Trump initially had a lead over Biden, Harris has gained ground and is now ahead of the Republican candidate in some national opinion polls.
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