picha
Tax reform is expected to shift the outlook for S&P 500 (SP500) EPS, relative to the current forecasts, according to Goldman Sachs.
The current U.S. corporate tax rate statutory on domestic income is 26%, but the total effective tax rate that a typical S&P 500 (SP500) company pays is 19%.
Over the last 12 months, the median S&P 500 (SP500) company paid an effective tax rate of 19%, versus 28% prior to the 2017 Tax Cuts and Jobs Act.
“We estimate that each 1 percentage point change in the statutory domestic tax rate would shift S&P 500 (SP500) EPS by slightly less than 1%, or approximately $2 of 2025 S&P 500 EPS, all else equal,” wrote Strategist Ben Snider in a note.
In addition, if corporate tax rates decline from 21% to 15%, S&P 500 earnings could get a boost of about 4%. On the other hand, a corporate tax hike to 28% could reduce earnings by 5%, according to Goldman Sachs analysts.
“This scenario could reduce S&P 500 (SP500) EPS by about 8%,” they said.
Lastly, the extension or expiration of the Tax Cuts and Jobs Act’s bonus depreciation, R&D expense, and interest deductibility provisions would affect S&P 500 (SP500) EPS by about 1-2%.