Chart 1: Sector EPS estimated impact from 20% rate 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% Financials 18% Discretionary 16% Telecom 14% Staples 12% Industrials 12% Health Care 10% Energy 10% Materials 8% Info Tech 4% Real Estate 2% Source: BofAML US Equity & Quant Strategy, FactSet, S&P While the effective tax rate of the S&P 500 is generally about 28% (currently closer to 25% due to the recent commodity recession), we estimate that the tax rate for the S&P 500’s domestic operations is much higher at roughly 33% — although this includes state and local taxes. If all companies with tax rates above the proposed new tax rate of 20% were to drop to 20%, and no companies provisioned for US taxes on foreign profits, we estimate the domestic effective tax rate for the S&P 500 would fall in line with its foreign tax rate of roughly 19%. This would represent a 9ppt decrease in the current S&P 500 tax rate and a 12% increase in EPS. We show the sensitivity to S&P 500 EPS to different assumed tax rates in the chart below, but we reiterate that these estimates exaggerate the actual impact on profits, as a significant portion of these benefits would likely be passed on to consumers via lower prices. We assume that in aggregate, roughly half of the gains from the lower tax rate would be retained (i.e. half of the amounts shown in the sensitivity analysis in Chart 2). Table 5: Impact of 20% domestic corporate tax rate Chart 2: Benefit to 2018 S&P 500 EPS from lower tax rates Sector Current tax rate New tax rate Change 20% Discretionary 30% 19% -12ppt _ oe Staples 29% 20% -Oppt 15% | ; Energy 41% 32% -9ppt i 1 — Financials 33% 21% -1 ppt 10% } 4 1 Health Care 25% 16% -9ppt \ ! | Industrials 32% 23% -9ppt 5% 10.50 ] ) 4 Info Tech 18% 14% -Appt ° cull $8.00 $5.00 Materials 28% 23% -bppt 0% Real Estate 9% 1% -2ppt 15% 20% 25% Telecom 29% 20% -9ppt Utilities 39% 20% A2ppt New Corporate Tax Rate S&P 500 28% 19% -9ppt Source: BofAML US Equity & Quant Strategy, FactSet, S&P Estimated impac