No. of Recommendations: 2
“Trump also wants tax reform, including reducing the corporate tax rate to 15%, for those companies that make their products in the U.S., after having cut the rate to 21% from 35% during his 2017-2021 presidency.
Such tax cuts - which will need to pass Congress - could support company earnings and sentiment for stocks, although the extent of such a boost remains to be seen.
Cutting the rate to 15% would boost S&P 500 earnings by about 4%, according to estimates by Goldman Sachs strategists.”I think it is now highly likely that the tax gets cut to 15%. This is a prominent part of Trump's agenda, and he now has a Republican House and Senate that are very likely to go along with this idea. And while a 4% earnings boost may be the average earnings boost for the S&P, that is because lots of those companies are already paying less than 21%, partly because they are not consistently profitable, partly because they get lots of tax deductions, and partly because they have significant operations outside of the US, where taxes are generally a bit lower. Although the federal rate is 21%, the average tax paid is only 13%, according to this source:
https://itep.org/corporate-taxes-before-and-after-....
Berkshire is a consistently profitable company with few deductions (with the notable exception of the utility businesses) and with almost all its operations in the US, so it pays much more than the average. Last year, for instance, Berkshire paid 19.2% overall, and paid 27.9% and 18.8% in the 2 previous years (p. K-104 in the annual report.) If Berkshire's taxes went from 20% to 14%, for instance, that would mean they keep 86% of earnings instead of 80%, which amounts to a 7.5% earnings boost. And while it is impossible to know how long that would last, it would likely only end if the Democrats control the presidency and both houses, so it might well be 10 years or more.
I think the Trump presidency provides other advantages for Berkshire, particularly in manufacturing, and while it is debatable whether this is a good thing for the planet, for other countries, and even for American prosperity, it is likely to be a good thing for most US companies that make things in the US, and Berkshire would be a very prominent example of a beneficiary. No wonder Buffett didn't endorse Harris.
dtb
