It isn't often that shares of JPMorgan Chase (NYSE:JPM) climb 3.5% in a single day, but that's what happened on Tuesday, after optimism grew that the Senate may soon pass its tax reform bill, a major part of which is a lowering of the corporate income tax rate from 35% down to 20%.

The news caused stocks to climb broadly, with the S&P 500 (SNPINDEX:^GSPC) closing the day up by 0.98%. But few stocks benefited as much as banks did, with shares of Bank of America (NYSE:BAC) and Wells Fargo (NYSE:WFC) also closing higher by 3% or more.

JPMorgan Chase chairman and CEO Jamie Dimon.

JPMorgan Chase chairman and CEO Jamie Dimon. Image source: JPMorgan Chase.

The reason that large bank stocks led the way stems from the fact that they're among the most profitable companies in the United States. In fact, JPMorgan Chase, Bank of America, and Wells Fargo make up three out of the six companies on the S&P 500 with the highest net incomes over the trailing 12 months.

For its part, JPMorgan Chase earned $26.9 billion over the past four quarters, according to data from YCharts.com. That was second only to Apple when it comes to S&P 500 companies. Aside from the iPhone maker, which is in a league of its own when it comes to earnings, few other companies match up to the New York City-based bank. In third place is Microsoft, though it earned nearly $1 billion a quarter less than JPMorgan Chase has since this time last year.

It's hard to say exactly how much JPMorgan Chase will benefit from a cut in the corporate tax rate, given the complexity of its operations, which are spread around the world. Nevertheless, in the latest quarter, it allocated just under 30% of its pre-tax earnings to cover its tax bill. Each percentage-point drop in its overall tax liability will save it upwards of $400 million a year.

Bar chart showing the 10 most profitable companies on the S&P 500 over the past year.

Data source: YCharts.com. Chart by author.

There is still no guarantee that the Senate's tax bill will make it through Congress, though it took a big step forward on Tuesday, when the Senate Budget Committee voted to advance the bill to the Senate floor. A full vote on the bill could be held as soon as this week.

Whether the bill passes will come day to a handful of Republican senators:

  • Sens. Bob Corker, Jeff Flake, and James Lankford have all expressed concerns about the impact of the bill on the national debt and deficit.
  • Sens. Susan Collins, Lisa Murkowski, and Jerry Moran are against repealing the Obamacare individual mandate without first compensating taxpayers who might be affected by the move.
  • And Sens. Ron Johnson and Steve Daines both want the bill to lower the tax rate on pass-through entities as far as the bill does for corporations.

Can all of these demands be met? Republican leaders are optimistic that they can. And if they are successful, there will be few greater beneficiaries than JPMorgan Chase and its shareholders.

John Maxfield owns shares of Bank of America and Wells Fargo. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.