If he’s elected in November, Democratic candidate Joe Biden’s tax policies could have a major negative impact on earnings for companies in the S&P 500, according to Goldman Sachs analysts.
Goldman’s researchers, led by David Kostin, expect Biden’s tax plan to reduce their S&P earnings estimates by 12%, from $170 per share to $150 per share.
That estimate is based on several likely Biden policies including raising the statutory federal tax rate on domestic income by 7%, doubling the tax rate on certain foreign income, imposing a minimum tax rate of 15%, and creating an additional payroll tax on high earners.
The researchers also expect Biden’s tax policy to create a drag on earnings that’s comparable to the boost companies saw after the 2017 Tax Cuts and Jobs Act (and the corporate tax benefits that came with it).
Goldman’s analysts say the chance of a Democratic sweep in the fall has increased “substantially” since February and now stands above 50%.
Trump’s tax cuts—which Biden promised to roll back in 2019 by enacting $1 trillion in new corporate taxes—are widely considered to be a major factor driving the stock market’s explosive growth that has pushed the Dow Jones Industrial Average and the S&P 500 to record highs. The growth has even persisted despite the coronavirus pandemic: even after huge losses in March, the S&P had recovered all of its losses and turned positive for the year by the second week of June. Those tax cuts are part of the reason many investors and wealthy executives supported President Trump, even if they didn’t voice that support in public.
What to watch for
Second quarter earnings season kicks off this week. Corporate performance last quarter will provide crucial insight into whether or not the economy is recovering after the global shutdown in the spring.