Biden’s corporate tax plan gives CFOs earnings angst
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The upcoming first-quarter reporting season, which kicks off Wednesday with JPMorgan and Wells Fargo, may be the strongest in more than a decade, according to John Butters, senior earnings analyst at Factset. But instead of popping the champagne, chief financial officers are prepping to handle some tough questions on President Biden’s corporate tax plan.
Goldman Sachs, in a client survey, noted their investors want CFOs to discuss, among other things, "the potential negative EPS impact if the new tax reform proposal by the Biden administration is adopted," according to the team led by David Kostin, chief U.S. market strategist. If it sails through Congress, earnings growth in 2022 could dive to 5% from 12%, the firm forecasts.
"There is a tremendous amount of uncertainty for companies," Jon Traub, Deloitte’s Tax Policy leader, tells FOX Business as details around the plan remain uncertain along with its future in Congress. Even so, he notes, companies are still prepping for change. "CFOs are asking V’s of tax to model various scenarios," he explained while noting the impact won’t affect every company the same. "For some companies, it will be a bit hit, for others not as much."
BIDEN SPENDING SPREE TO UNLEASH INFLATION, BIG-MONEY MANAGERS WORRY
Biden’s plan, in its current form, would take the corporate tax rate to 28% from 21%, the level established in 2017 by then-President Trump when he slashed it from 35%.
Behind the scenes, many corporate chieftains are banging the drum against the hike.
BIDEN'S CORPORATE TAX PLAN TO HURT U.S. COMPETITIVENESS
"Seventy-five percent of CEOs said that an increased tax burden on U.S. companies would negatively affect their company’s investments in R&D and innovation, 71 percent said it would negatively affect their ability to hire, and nearly two-thirds said it would result in slower wage growth for U.S. workers," said Business Roundtable Tax and Fiscal Policy Committee Chair Gregory Hayes, chief executive officer of Raytheon Technologies, in a survey released Monday.
Along with the defense giant, the BRT counts Walmart, JPMorgan and Verizon among its many CEO members, with the group producing $20 trillion revenues and providing jobs to 20 million Americans.
Not everyone is opposed to a higher corporate tax rate. Amazon CEO Jeff Bezos last week said his company is "supportive in a rise in the corporate tax rate" as detailed in an open letter.
With the S&P 500 and Dow Jones Industrial Average hovering at records, it's unclear whether first-quarter earnings, even stellar results, will continue pushing equities higher if companies cannot provide clear specifics on the potential impact of a higher tax rate.
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