VOO - If Buffett Is Right About Taxes Corporate Profits Face A Reckoning
2024-05-18 09:27:17 ET
Summary
- Warren Buffett expects US corporate taxes to rise as the government faces pressure to narrow the fiscal deficit. Meanwhile, President Biden has called for the rate to rise to 28%.
- Considering that the aggregate tax rate of the S&P500 is currently just 18.4%, such a hike would see net profit margins fall from 10.4% to 9.2%.
- While policymakers may opt for lower interest rates to address spiraling Treasury interest costs, corporate interest costs are already at rock bottom and should also rise over the coming years.
- A return to high tax and interest rates could reduce margins from 10.4% to 7.4%, which would increase the S&P500 PE ratio from 27.3x currently to 38.4x.
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If Buffett Is Right About Taxes, Corporate Profits Face A Reckoning