Kamala Harris' Tax Proposal and Its Impact on S&P 500 Earnings

U.S. Vice President and Democratic presidential candidate Kamala Harris has proposed a corporate tax increase ahead of the November elections. Analysts at Goldman Sachs suggest this could decrease earnings for companies on the S&P 500 by 5%. Harris' plans include taxing foreign income and increasing the alternative minimum tax rate.

U.S. Vice President and Democratic presidential candidate Kamala Harris has put forward a corporate tax hike plan ahead of the November Presidential elections, which analysts at Goldman Sachs say could reduce S&P 500 index companies' earnings by about 5%.

Last month, Harris proposed raising the corporate tax rate to 28% from 21%, emphasizing that large corporations should contribute more, should she win the election against Republican incumbent, Donald Trump. Goldman Sachs estimates that at a 28% taxation rate, S&P 500 companies could see a 5% earnings decline.

Furthermore, adding taxation of foreign income and increasing the alternative minimum tax rate from 15% to 21% could decrease earnings by up to 8%, analysts noted. Contrarily, Trump's proposal to lower the federal statutory domestic corporate tax rate to 15% from 21% could arithmetically boost S&P 500 earnings by about 4%.

The brokerage added that while the current U.S. statutory corporate tax rate on domestic income is 26%, the effective rate paid by a typical S&P 500 company is around 19%. Goldman projected that each 1 percentage point change in the U.S. statutory domestic tax rate would shift S&P 500 earnings per share (EPS) by slightly less than 1%, equivalent to about $2 of S&P 500 EPS.

Harris, now a prominent figure in the Democratic campaign, criticized former President Trump's plans, saying they would end federal programs offering small business loans, cut the corporate tax rate, and increase the U.S. deficit. While Trump had previously led in polls over Biden, Harris has since narrowed that gap in some national opinion polls.

(With inputs from agencies.)