A sweet Trump effect on Apple Inc. (NASDAQ:AAPL) could be in the offing: lower taxes on repatriated cash.
As intimidating as he made himself appear to the executive in Silicon Valley, Donald Trump seems to hold an important solution to one of the major problems U.S. companies doing business abroad face. Apple, Microsoft (MSFT), Alphabet (GOOGL) and General Electric (GE) are some of the U.S. multinationals that have accumulated hundreds of billions of dollars in offshore accounts because they are trying to avoid paying heavy taxes if they attempt to bring that money home.
More than $1 trillion is held by American companies in overseas accounts. If that cash could be brought back home, it could help spur economic growth, leading to creation of more jobs and boosting income taxes. As such, Trump proposed in the campaign trails that he would offer a one-time tax holiday so that U.S. companies holding huge amounts of money abroad could bring repatriate it at a lower cost.
How positive Trump effect on Apple could come about
Trump hinted at allowing Apple and its peers bring to back their overseas billions at a 10% tax rate instead of the nearly 40% penalty if they do so today. If the President-elect follows through with his tax break proposal, it could be a rare sweet Trump effect on Apple.
What will the money do?
But lowering tax to incentivize companies to repatriate money they have stashed overseas has been tried before but it never yielded much for the country, Congress found out.
In 2004, President George W. Bush extended a 5.25% temperate tax rate to American multinationals to bring back home their money in offshore accounts. The companies seized the opportunity and repatriated $312 billion. But as it turned out, the bulk of the money was spent on stock repurchases and dividends and some used to boost executive pay. Little went to hiring more workers, funding R&D and buying capital equipment.
As such, some have doubted whether slashing taxes to bring home billions in offshore account would have any meaningful positive impact on the domestic economy. Perhaps the situation could be different because you’re talking about Trump here.
Meanwhile, Trump effect on Apple and other tech stocks has so far been negative. Apple stock has plummeted about 3% since Trump surprisingly won the presidential election.
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