Biden's tax hike could drag S&P 500 profit growth to a near-standstill next year, says Goldman's chief US stock strategist

Biden's tax hike could drag S&P 500 profit growth to a near-standstill next year, says Goldman's chief US stock strategist
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  • Tax increases could weigh on the S&P 500's earnings growth in 2022, Goldman's Kostin told CNBC.
  • The chief US equity strategist said profit growth could be as low as 2% if all of Biden's proposals pass.
  • However, he anticipates not every proposal within the plan will pass.

Corporate tax hikes out of Washington could put a dent in the S&P 500's earnings growth in 2022, Goldman Sach's David Kostin told CNBC on Thursday.

The chief US equity strategist said that if the entirety of President Biden's plan is passed, which includes raising the corporate tax rate to 28% from 21% and cracking down on companies that move profits offshore, the S&P 500 would see earnings growth of about 2% in 2022.

That's lower than the 22% quarterly profit growth in the first quarter of 2021, and the 6% profit growth in 2020, according to Bloomberg data.

However, Kostin's team is pricing in that only parts of the plan will pass and taxes may only be increased to about 25%. In that scenario, the S&P 500 could see 9% earnings growth next year.

He added that if the current tax law was applied for 2022, earnings growth would be around 12% in 2022.
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"2%, 9%, 12%. Somewhere in that range is likely to be where the earnings growth ends up being for the market in 2022," Kostin said. "And make no mistake about it, all of the conversations with clients right now are about the prospect for profits in 2022."

The chief strategist added that it may be too early to trade based on the tax proposals, as specifics around the plan haven't been sorted out by the legislature.

Goldman has a year end price target of 4,300 for the S&P 500, a roughly 5% gain from current levels.
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