The most powerful business lobby in the United States is not a fan of the landmark heath care and climate package President Joe Biden is expected to shortly sign into law.
"Business Roundtable opposes the 'Inflation Reduction Act,' which, among other things, includes tax provisions that would undermine American economic growth and competitiveness," the group said in a statement shortly before the measure was passed by the Senate.
But analyses by Wall Street institutions published over the past week found that the impact on corporate earnings would likely be limited, though some sectors could be more affected than others.
Breaking it down: The two provisions in focus are a 15% minimum corporate tax and a 1% tax on stock buybacks, which would help pay for climate investments.
The Business Roundtable claimed the minimum tax, in particular, would "suppress domestic investment when increased investment is needed to spur a strong recovery."
Strategists at Citi said their "general view is that higher taxes are an economic activity dampener." Yet once they dug into which S&P 500 firms would be affected by the new tax rate, they concluded it would have a "neutral" effect on aggregate profits, and that an economic slowdown and the Federal Reserve are "more relevant" to the outlook.
Citi found that 358 companies in the index make enough money to be subject to the minimum tax, which is expected to raise more than $220 billion over the next 10 years. Yet only 50 are expected to be taxed below a 15% rate in 2023. Applying the new minimum would reduce their earnings by roughly 0.4% next year, per current forecasts.
Looking at share repurchases for 2021, Citi found that a 1% tax would have reduced S&P 500 earnings by just 0.35%, all else being equal.
A team at Goldman Sachs drew a similar takeaway. It said that the buyback tax and minimum corporate tax would lower per-share profits next year among S&P 500 companies by just 1.5%.
That doesn't mean individual companies won't have to contend with the consequences. Moody's Investors Service found that 9% of investment-grade firms in the United States "can expect to pay higher cash taxes under the bill," and that oil and gas producers and software and semiconductor makers "will be affected the most."
"This tax will have the largest negative effects on large, growing companies that only recently met the income threshold," its analysts said.
The tax on stock buybacks would have an effect on oil and gas companies as well. Moody's Investors Service noted that while its implementation "is not likely to significantly affect the volume of share repurchases, it could be a considerable source of tax revenue over the next couple of years."
The Tax Foundation, in its analysis, found that the real estate sector also faces a sharp rise in taxes as a share of its income.
That said: The think tank found that the average effective corporate income tax in the United States will rise to 19.3% in 2023 from 18.7% currently due to the Inflation Reduction Act. That's a fairly marginal increase, though it could help revive negotiations for a global minimum corporate tax.
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