Saturday, February 11, 2017

Trump's corporate tax cut plan


This is the best analysis I have found.  The S&P firms make about $1T globally so this guy's $87.1B tax reduction for his 441 would be close to a 10% increase in net for the index; makes sense.

Very bullish cet par.

here’s the logic behind my estimated 10.5% boost to the market, from a corporate tax cut to 20%.  
Among S&P 500 companies, 441 of them broke out U.S. taxes paid in their most recent annual reports, according to screens run for me by S&P Global Market Intelligence. I cut out the rest of them for my calculation here, since we don’t know what they paid in domestic taxes. My “S&P 441” paid $218.6 billion in U.S. taxes in 2015. I knock that down by 7% to account for state and local taxes, for an estimated federal tax paid of $203.3 billion.  
This number includes current year tax paid plus deferred tax. A cut in the tax rate to 20% implies a tax savings of about $87.1 billion. That’s because 20% divided by 35% times $203.3 billion suggests a new tax bill of $116.2 billion, for the roughly $87.1 billion in savings. (That’s $203.3 billion minus $116.2 billion.)  
Multiply that $87.1 billion by the forward P/E of 22 for my “S&P 441” (that P/E comes from S&P Global Market Intelligence) and we get $1.9 trillion. Added to a $18.3 trillion market cap for the 441 stocks that are my subgroup of the S&P 500, and that’s a gain of about 10.5%.


4 comments:

Noah Way said...

According to the GAO US corporations have an effective tax rate of about 12.6%. So logically speaking a reduction from the current official rate of 35% to 20% would put the effective tax rate in negative territory.

Tom Hickey said...

According to the GAO US corporations have an effective tax rate of about 12.6%

The tax rate on corps and the rich is meaningless. It's the exemptions and loopholes.

Changing the rate is cosmetic without addressing the tax system as a whole.

Everyone involved knows this, and many have been saying it for years.

Matt Franko said...

Noah,

Any firm that had to pay tax did so on taxable earnings at the 35% rate... some dont pay, some can only take partial credits if their are ceilings, etc...

bottom line is in this guy's article, they paid (at least the 441 firms he had data on) paid the 220B so if they get a reduction of 15/35 then (cet par) they pay the 87B less than previous... so this will add on to the 1T after tax earnings they already have at current sales and margins so about a 10% increase which would increase the index over some time period by about the same %....

Bob said...

They should cut it to zero, and make the whole Byzantine tax code obsolete. Not good for the tax loophole accountants, but who cares!