How Trump’s Proposed Tax Cuts Will Benefit Apple

Apple stands to gain a 16 percent boost in profits if President Trump’s proposed tax reforms come into effect, according to analysis conducted by Citi and reported by Business Insider.

“Under my plan, I’ll be reducing taxes tremendously, from 35% to 15% for companies, small and big businesses,” Trump vowed during the first presidential debate, according to Quartz. “That’s going to be a job creator like we haven’t seen since Ronald Reagan. It’s going to be a beautiful thing to watch.” In addition, Trump has proposed implementing a one-time tax rate of 10 percent on the profits of companies that are being repatriated from overseas, payable over 10 years, as observed by the Tax Policy Center.

According to Citi analysts Jim Suva and Asiya Merchant, Apple would be “a significant beneficiary of Trump tax reforms.” The promised changes to US tax policy could encourage Apple to bring home the cash that it is holding in foreign subsidiaries. The iPhone maker is currently sitting on a cash hoard of $246 billion, $230 billion of which has been stashed overseas to avoid US corporate taxes.

In an interview with The Washington Post last year, Apple CEO Tim Cook defended his company’s tax strategy. He noted that under current US tax code, Apple would effectively have to pay a tax rate of 40 percent on cash that it repatriates from overseas. Arguing that it was legal to keep cash overseas, Cook declared “at 40 percent, we’re not going to bring it back until there’s a fair rate.”

During the rare interview, Cook also expressed optimism that the tax code would be reformed in the near future, paving the way for the cash stockpile to return to the US. “Honestly I believe the legislature and the administration will agree that it’s in the best interest of the country and the economy to have tax reform. So I don’t think I have to make that decision. I’m optimistic that it will take place next year”, Cook said.

If Trump’s reforms are passed, it’s very likely that Apple will take advantage of the lower tax rate and move its cash back into the US, which could have a significant impact on its stock buyback program and on the dividends it pays out.

Together, the tax holiday and corporate tax cuts would help drive up Apple’s profits, the Citi research analysts say. Assuming a quarter of the $230 billion is used in a stock buyback program, Apple’s earnings per share (EPS) would see a boost of 10 percent, whereas the lower domestic tax rate would add an addition 6 percent to EPS.

“Apple is very well positioned to benefit from potential tax reform of either or both a repatriation tax holiday and or a lower corporate tax rate,” the Citi analysts noted. “Our analysis show a reduction in US tax rate will drive 6% benefit to EPS while a cash repatriation holiday and share buyback could drive an incremental 10% EPS benefit (assuming 25% of repatriated cash used for stock buy back).”

That being said, it’s still far from certain that Trump will successfully overhaul the US tax code, especially in light of his recent failure in Congress to reform healthcare.

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