Harris, Trump and the Future of Corporate Taxes
Posted: August 27, 2024
August 26, 2024 (Maple Hill Syndicate) – Kamala Harris and Donald Trump will clash over corporate tax rates in the next two months.
As President, Trump pushed for lower corporate tax rates and got them. In 2017, Congress slashed the corporate tax rate to 21% from 35%.
Corporate tax as we know it today was born in 1909. The rate has been as low as 1% in 1910, and as high as 52.8% in 1968. According to the IRS, the average rate from 1909 to 2024 has been 32.08%.
In 2022 under President Joe Biden, Congress passed the Inflation Reduction Act, which mandated that large corporations pay at least a 15% rate regardless of how many deductions and credits they have.
Trump says he will try to lower corporate taxes further. Harris proposes raising them to 28%.
Yet, judging by the campaign contributions I’ve looked at, corporate executives appear to be leaning more toward Harris than Trump.
Here’s a look at four prominent corporations’ tax rates, their political contributions in the 2023-2024 election cycle, and my opinion of their stock.
I chose these four companies because they were featured in a Fortune magazine article in 2022 about companies that “paid next to nothing — or nothing at all – in taxes in 2021.” Since then, their taxes have gone up, at least in part because of the Biden minimum.
Amazon
Amazom.com Inc. (AMZN) paid less than 19% in corporate taxes in four of the past five years. It paid a bundle (54% of pretax profits) in 2022, however.
Individuals associated with Amazon have given $438,360 to the Harris campaign, according to the web site Open Secrets, which tracks political contributions and lobbying expenditures. They have given only $102,292 to the Trump campaign.
Contributions by Amazon.com as a corporation to political action committees (PACs) have been fairly small and about evenly split between Democrats and Republicans.
Amazon.com stock is expensive, selling for 42 times recent earnings and nearly eight times book value (corporate net worth). I’m a cheapskate, and wouldn’t buy it. But most analysts would. Of 60 analysts covering the stock, 59 rate it “buy” or “outperform.”
Dare I go against so much expert opinion? You bet. A study I do each January tracks the fate of the stocks most loved by analysts and the stocks most despised by them. Universal love for a stock is not a good sign. The adored stocks have performed worse than the Standard & Poor’s 500 Total Return Index.
Exxon
At Exxon Mobil Inc. (XOM), the tax rate has been running at around 29% lately.
According to Open Secrets, entities affiliated with Exxon Mobil have given about $155,000 this year to the National Republican Senatorial Committee and the National Republican Congressional Committee, and $32,500 to the Democratic Senatorial Campaign Committee.
Individuals associated with Exxon Mobil have given $37,678 to Trump and $22,849 to Harris, the website says.
The stock, selling at 14 times earnings and a little less than two times book value, seems attractive to me. I think the transition to solar and wind energy will be a long one and fossil fuels will continue to be important at least into the 2030s.
AT&T
AT&T’s tax rate lately has been about 21%, and it hasn’t been higher than that since 2015.
Tabulations by Open Secrets show that AT&T has given more money to PACs supporting Democrats (about $350,000) than Republicans (about $225,000). Individuals associated with AT&T have given $119,341 to the Harris campaign and $68,371 to the Trump campaign.
The stock? It pays a sweet dividend, with a yield of 5.6%. But it hasn’t been a great investment, as it’s lost 25% over the past five years. The company’s debt load is larger than I prefer.
Microsoft
At Microsoft Corp. (MSFT), the tax rate recently has been about 18%, and hasn’t been above 19% since 2018.
Individuals associated with Microsoft have given $1.1 million to the Democratic National Committee Services Corp. and the company has given $15,000 to it. Individuals at the company have given $120,215 to the Republican National Committee.
Individuals associated with Microsoft have given $580,872 to Harris, versus $81,706 for Trump.
Microsoft is a profit powerhouse. Its operating profit margin is close to 45%. Return on stockholders’ equity is very high, about 37%.
Arguably, that makes the stock worth its current valuation of 35 times earnings and more than 11 times book value. It’s not my cup of tea to “pay up for quality” but I understand why many people do so.
Disclosure: I own Exxon Mobil stock for some clients. My wife, who is a portfolio manager at my firm, owns Microsoft shares personally and for clients; I own it for one client.
John Dorfman is chairman of Dorfman Value Investments in Boston, Massachusetts. His firm or clients may own or trade the stocks discussed here. He can be reached at jdorfman@dorfmanvalue.com.