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5 Stock Winners from Trump's Tax Plan

After gun rights and immigration, Republican presidential candidate Donald Trump has now come up with a controversial set of tax proposals. Promising sweeping reforms, Trump's tax plan promises to reduce taxes across all income brackets. The proposal also seeks to remove inheritance taxes and would do away with several deductions.

As expected, a number of the proposals have sparked debate. Several experts on taxation have questioned the feasibility of Trump's plans. At the same time, many would welcome any proposals to shave the maximum corporate tax rate by a whopping 20%, bringing it down from 35% to 15%.

Trump's Tax Plan

Trump proposes huge reductions in personal taxation as well. Per his plan, the number of tax brackets should be collapsed from seven to four. Married couples with a combined income of less than $50,000 would pay no taxes. Trump's plan also calls for the elimination of the alternative minimum tax.

The plan also eliminates estate tax and reduces the maximum capital gains tax rate from 23.5% to 20%. At the same time, Trump's proposals promise to do away with the loophole for carried interest. This primarily benefits a section of hedge fund managers and the private equity sector.

Relocation Abroad

But his reform proposals for corporate taxes would be hugely beneficial for industries. In the past, high taxes had led U.S. companies to adopt radical measures such as tax inversion. At 35%, the U.S. corporate tax rate is one of the highest rates in the world. Essentially this means that domestic companies are often moving abroad in an attempt to reduce tax payments.

Ultimately, in late 2014 the U.S. Treasury Department outlined new rules to deter domestic companies from moving abroad to reduce taxes. Now, President Obama's 2016 budget is planning to mop up $238 billion by levying a one-time 14% tax on the estimated $2 trillion cash stockpile that companies have built up abroad.

Largest Cash Piles

The reason for building up such large cash piles abroad are the prohibitive tax rates. Trump has proposed that a 10% one-time tax be levied on the money that companies repatriate to the U.S. At the same, U.S. companies will no longer be able to defer taxation on overseas income per Trump's proposals.

According to our recent estimates, the top 25 cash hoarders among U.S. companies have reserves which are higher than the GDP of nearly a third of the world's countries. It isn't the domestic rate alone that makes companies hoard cash. Reserves are required to make acquisitions, pay out dividends and invest in research and development.

General Electric Company GE tops the list, but there is more to this story than meets the eye. A substantial amount is held by its banking and financial services division GE Capital and GE is looking to exit the banking arena. Coming in next are Microsoft Corporation MSFT , Google Inc. GOOGL , Cisco Systems, Inc. CSCO and Oracle Corporation ORCL .

5 Stock Winners

According to report published in 2014 by Moody's Investor Service, Apple, Inc. AAPL , Microsoft, Cisco and Oracle account for nearly 90% of all cash reserves overseas. Apple is expected to be one of the key stocks which will be affected by both the 2016 budget proposals.

Recent estimates place the iPhone maker's overseas cash reserves at $157.8 billion. It will substantially benefit from the Trump plan. CEO Tim Cook has made public statements in support of a systemic reform of U.S. taxation even if his company has to pay higher taxes.

General Electric has said that it has $110 billion overseas. It has argued that this cash pile is used to fund operations in other countries. But if it brings back cash reserves, it's stock will certainly appreciate. Among the other companies likely to benefit from the plan are Cisco, Oracle and Microsoft, which has around $82.1 billion of overseas cash reserves.

Is the Plan Feasible?

Several analysts have questioned the feasibility of the plan from the fiscal angle. According to the Congressional Budget Office, the current fiscal year's federal deficit is estimated at $426 billion. Growth could receive a significant boost from the proposals. However, Trump would still have to make severe reductions in government spending to balance the budget.

At the same time, any major reductions in corporate taxation would act as a major impetus for companies who decide to bring back overseas reserves. If such proposals are implanted, it would result in substantial gains for their stocks.

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APPLE INC (AAPL): Free Stock Analysis Report

MICROSOFT CORP (MSFT): Free Stock Analysis Report

CISCO SYSTEMS (CSCO): Free Stock Analysis Report

ORACLE CORP (ORCL): Free Stock Analysis Report

GENL ELECTRIC (GE): Free Stock Analysis Report

GOOGLE INC-CL A (GOOGL): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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