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Tax proposals outlined by the 2024 U.S. presidential candidates could have a substantial impact on S&P 500 earnings, according to analysis from Goldman Sachs.
Goldman strategists including Ben Snider estimate that corporate earnings could move by 5%-10% depending on which tax policies are enacted, with Donald Trump's proposed tax cuts likely to raise profits and Kamala Harris' tax hikes expected to dampen them.
Goldman's analysis highlights the sensitivity of S&P 500 earnings to shifts in the federal corporate tax rate. Trump's plan to lower the corporate tax rate from 21% to 15% would lift S&P 500 earnings per share by roughly 4%, according to the Wednesday Goldman note.
In contrast, Harris' proposal to increase the tax rate to 28% would slash earnings by about 5%, the bank said. When combined with other proposed changes, such as a higher tax on foreign income and an increase in the alternative minimum tax, Harris' plan could lead to an 8% reduction in S&P 500 EPS, Snider said.
The Goldman Sachs report said "each 1 percentage point change in the statutory domestic tax rate would shift S&P 500 EPS by slightly less than 1%, or approximately $2 of 2025 S&P 500 EPS."
This arithmetic underscores how sensitive corporate profits are to shifts in tax policy. A potential 4% boost in earnings under Trump's tax cut scenario could provide a significant tailwind for U.S. equities, while Harris' proposed hikes could weigh heavily on future profits, according to the analysis.
Additionally, if the 2017 Trump-era tax cuts were to expire, Goldman estimates that S&P 500 earnings could decline by about 2%, adding another variable to an already complex fiscal outlook for corporate America.
Goldman Sachs draws parallels to the effects of the 2017 Tax Cuts and Jobs Act (TCJA) to illustrate how markets might respond to future tax reforms.
Following the passage of the TCJA, S&P 500 companies saw a 12% boost in earnings that led to a 10% rally in the index in the two months surrounding the legislation. The impact of the 2017 tax cuts was profound, as it significantly lifted corporate profits and investor sentiment.
In addition to statutory tax rates, the report also addresses the potential impact of an increase in the corporate buyback excise tax.
The Inflation Reduction Act of 2022 imposes a 1% tax on share buybacks, which has not deterred companies from aggressively repurchasing stock. Year-to-date, companies have authorized $831 billion in buybacks, nearly matching 2022's record pace.
If the excise tax were increased to 4%, as some policymakers have suggested, it could prompt companies to reconsider their capital allocation strategies, though Goldman said it would not directly affect earnings.
The report also tempers expectations, noting that "most investors will wait for legislative clarity before fully adjusting portfolios to reflect any changes in tax policy."
Goldman Sachs reviewed Russell 3000 stocks with market caps over $1 billion, expected 2025 net income exceeding $1 billion and consensus tax rates under 15% for 2024 and 2025, identifying these five companies with the lowest tax rates:
| Company | Consensus tax rate 2024 | Consensus tax rate 2025 |
|---|---|---|
| Carnival Corporation (NYSE:CCL) | 2% | 2% |
| Blue Owl Capital, Inc. Class A (NYSE:OWL) | 4% | 6% |
| Marvell Technology, Inc. (NASDAQ:MRVL) | 7% | 7% |
| CrowdStrike Holdings, Inc. Class A (NASDAQ:CRWD) | 4% | 7% |
| TPG Inc Class A (NASDAQ:TPG) | 7% | 7% |
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