Joe Biden wants to raise taxes. What would it mean for the stock market.

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Investors apparently did not pay attention to the possibility of higher corporate taxes under Joe Biden’s administration, but the impact would be far from very small.

Since just before the presidential election, stocks have gone up. The

S&P 500

up 19% from November 2, the Monday before Election Day. And it’s up 6.4 %% from Jan. 4, the day before the Georgia run elections took control of both houses of Congress for Democrats, making it more likely that President Biden would be able to pursue trillion-dollar policy proposals of dollars in government spending.

And stocks are just as valuable now as they were before Georgia’s yield, even though bond yields were much lower then. Higher bond yields tend to slow stock valuations, so stock stability indicates a high level of optimism among investors.

Treasury 10-year yields have risen sharply since early January, reflecting a rapidly recovering economy, but the average valuation for stocks in the S&P 500 remains at just under 22 times of earnings per share expected for the coming year.

“Allowances do not appear to be a major concern in terms of tax increases,” David Kostin, Goldman Sachs ’chief U.S. equality strategy, wrote in a note.

Biden’s tax policy could bring the corporate tax rate as high as 28%, from the current 21%. On the face of it, that would shake up about 9% off the $ 200 in total earnings per share that FactSet data indicates companies expect in the S&P 500 in 2022.

Total earnings for each installment would be $ 182, all else equal. If the S&P 500 traded at 20 hours of earnings ahead by the end of this year, which many strategists predict, the index at 3640 would be well below the level closed of 3,940.59 on Monday.

But Goldman is seeing the tax rate rise to just 25%. That would come as no surprise, given that there are a number of medieval Democrats in the Senate, who may want a smaller rise. Such a tax increase would only shake up about 5% of the S&P 500 EPS.

Another positive feature is that little of the earnings from S&P 500 firms are payable in the U.S. Approximately 40% of revenues from index companies come from overseas, according to FactSet, which means that the majority of earning dollars are taxed abroad.

Higher corporate taxes are certainly a risk to stocks, but they are a risk less than they might seem at first glance. Any increase in rates could be offset by positive factors, such as economic-driven growth, which could push stocks higher.

Write to Jacob Sonenshine at [email protected]