Trump’s countdown clock is ticking.
With less than two weeks until his January 20 inauguration, celebrations are underway.[ad#Google Adsense 336×280-IA]And investors should prepare to party, too. There will be big opportunities to cash in when the “inaugural ball” drops.
Why? Because the incoming administration has promised economic reform, tax cuts and the potential inflow of trillions to the U.S. stock market.
I’ve been investigating how and why some U.S. companies will win big during Trump’s first 100 days in office.
And today, I’m going to show you how you can join the profit party.
Taxing Away Profits
Most folks know that the U.S. currently has one of the highest corporate tax rates in the world: 35%. And this tax even applies to money American companies make in other countries.
So when a large company like Apple (Nasdaq: AAPL) decides to repatriate its cash or bring foreign-earned income back to the U.S., it pays 35% of it to Uncle Sam – minus any taxes it paid to a foreign government.
Foreign taxes paid by U.S. multinational corporations are almost always much lower than those paid to the U.S. government. So U.S. companies use their foreign subsidiaries like we use our retirement accounts…
They leave their money overseas where it grows free from the U.S. taxes.
In fact, American companies have an estimated $2.5 trillion stashed away overseas.
The problem, however, is that keeping the money overseas does nothing to help the U.S. economy. Plus, it lowers the amount of cash they can return to investors in the form of dividends and share buybacks.
Trumping Up Profits
But Trump has a two-step plan to encourage U.S. companies to bring that cash home to the U.S. where it belongs… and into investors’ pockets.
We’re expecting Trump’s initiatives to begin during his first 100 days in office.
His first order of business, to get a big piece of that $2.5 trillion back into the U.S., is to declare a “tax holiday.”
And he may do that by taxing all the money companies bring back at just 10%.
Next, he wants to lower the corporate tax rate from 35% to 15%, so corporations have little incentive to store cash offshore going forward.
This should add billions to companies’ bottom lines. It’s happened before.
A Groundhog Day for Taxes, Stocks and Investors
In 2004, Congress gave U.S. companies a similar temporary tax cut. Back then, they held far less money overseas.
But during the 2005 tax holiday, corporations repatriated more than $300 billion back into the U.S. economy.
And in 1986, Ronald Reagan hacked corporate tax rates from 48% to 34%.
Ten months after his Tax Reform Act of 1986 was enacted, the Dow was up 38%. And we haven’t seen that kind of return since then.[Next time], I’ll tell you more about what happened in 2005 – specifically, which small group of stocks rose 1,458% because of it.
And I’ll explain why Trump’s proposed corporate tax cut combined with a tax holiday could help the market “trump” those 1986 returns. Stay tuned.
Source: Wealthy Retirement