Some companies will win big
Q: Who would benefit most from tax reform?
A: There are three main ways companies could potentially benefit from tax reform.
If the corporate tax rate is reduced, it could benefit companies that currently pay high effective tax rates. For example, Southwest Airlines generates most of its sales inside the U.S. and pays a
38% effective tax rate. CVS Health pays an effective tax rate of 39%. If the federal tax rate were to be reduced from 35% to
20% as is being proposed, these companies could be big winners.
Another possible benefit is from the proposed repatriation tax break. It currently costs businesses 35% to bring foreign prof- its back home, and a temporarily low repatriation rate of 10% or so could be part of a tax reform package. This would help companies such as Apple and Microsoft, which have nearly $400 billion in overseas cash between the two.
Finally, companies that rely on consumer spending could benefit from lower personal income tax rates. Amazon.com, for example, could reap the rewards of higher consumer spending, as could payment processors such as American Express. However, predicting the big winners of individual income tax reform is a bit trickier.
Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool’s board of directors. LinkedIn is owned by Microsoft. Matthew Frankel owns shares of AXP and AAPL. The Motley Fool owns shares of and recommends Amazon and AAPL. The Motley Fool recommends AXP and CVS Health.