Will S&P 500 ETFs be Affected by Harris’ Proposed Tax Hike?

U.S. Vice President and Democratic presidential candidate Kamala Harris has proposed hiking the corporate tax rate from 21% to 28% if she wins the November election. According to Goldman Sachs analysts, this hike could lower earnings for companies on the benchmark S&P 500 Index by about 5%.

Harris also looks to introduce a taxation of foreign income and raise the alternative minimum tax rate from 15% to 21%, which could further lower earnings by up to 8%, as quoted on Reuters.

Trump’s Proposed Tax Relief

In contrast, Republican rival Donald Trump has proposed cutting the federal statutory domestic corporate tax rate from 21% to 15%. This tax relief is projected to increase S&P 500 earnings by approximately 4%. Currently, the U.S. statutory corporate tax rate on domestic income stands at 26%, but the typical effective tax rate paid by S&P 500 companies is 19%.

How Popular Is Harris?

Harris’ rise to the top of the Democratic ticket has changed the shape of the campaign for the party. Recent polls indicate that while Trump had initially built a lead over Biden, Harris has now surpassed the Republican candidate in some national opinion polls, as quoted on Reuters.

Impact on S&P 500 Earnings

Goldman Sachs estimates that a 1 percentage point change in the U.S. statutory domestic tax rate would result in a slight shift in S&P 500 earnings per share (EPS), amounting to less than 1% or about $2 of S&P 500 EPS.

Per the Earnings Trends issued on Aug. 29, 2024, in the context of Q3 of 2024, earnings estimates for full-year 2024 have also been coming down lately, with estimates for 12 of the 16 Zacks sectors falling since late June.

The implied EPS for the S&P 500 Index, calculated using the current 2024 P/E of 23.9X and index close, as of Aug. 28, is $233.63 compared to $216.35 in 2023 and $219.28 in 2022. Using the same methodology, the index EPS works out to $268.22 in 2025 (P/E of 20.8X). The multiples have been calculated using the index’s total market cap and aggregate bottom-up earnings for each year.

S&P 500 ETFs in Focus

Given the above figure, investors should note that a shift of $2 of S&P 500 EPS should not matter much for the index’s performance. Earnings growth for Q3 and Q4 of 2024 for the S&P 500 Index are expected to be 3.8% and 10.5%, respectively, while revenue growth is expected to be 4.6% and 5.2%, respectively.

For full-year 2024, the expected earnings growth of the index is 8%, while revenue growth is 1.8%, according to the Earnings Trends. Investors can thus rely on the likes of SPDR S&P 500 ETF Trust SPY, iShares Core S&P 500 ETF IVV and Vanguard S&P 500 ETF VOO for the medium term.

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