Tax Free Repatriation is the Only Thing Coming From Trump’s Plan; It Helps Only 4 or 5 Companies

The stock market is going ga-ga over Trump’s tax plans, and it is headed from the absurd to the still more absurd.

I’ve reviewed the plan. My conclusions are that it is, first, a war by the upper class on the upper middle class, enabling the extraordinarily wealthy to preserve and grow their wealth in a still more tax-advantaged manner than now. In its current state, moreover, it is also a war pitting rural America and Florida against New York, California, Illinois and New England by eliminating the state tax deduction. While the plan will surely appeal first and foremost to the 50% of Americans who would gladly sign their name above the word “moron” and who voted for this emperor, it is nonetheless likely dead on arrival.

What might not be dead on arrival is a smaller bill that would enable more favored repatriation of cash outside the US. The stock markets continue to spike on this possible outcome, even though when one looks closely most of the cash held outside the country is really held by Apple ($216 billion) and Microsoft (approximately $128 billion). And, there is no certainty that either of those companies would deploy their repatriated cash in manners that would spur innovation in this country. (I personally believe that both Apple or Microsoft could achieve a higher ROI by keeping cash abroad and investing it in renewable energy projects that Trump today declared war on in the US).

I believe that if, say, Apple – with cash equal to 25% of its market capital - were to have more freedom with its cash pile abroad, it would enjoy a still more favorable stock market multiple (Apple with a 2018 PE at 15x trades is well below the S&P’s 20x 2018 PE multiple). Cisco (36%), Qualcomm (34%) and Gilead (29%) are the only other large cap companies that have more than Apple does in cash overseas as a percentage of their market capitalization. For the vast major of U.S. conglomerates, the cash overseas as a percentage of market cap is in the low to mid-single digits. So all this talk about repatriation but the impact will only be significant for a very small number of companies and their shareholders.

This tax plan is noise, plain and simple, but it has driven the stock market to new and extreme highs. There is no logic on its merits. Indeed, the whole market should be and – mark my word - will soon be falling in response finally to the numerous and serious crises in Washington.

Editor’s Note: The author was long Apple, Cisco, Qualcomm and Gilead at the time of writing this article.