03 Jul Trump, taxes and the stock market

Q. What kinds of mutual funds would allow me to invest in the small companies that would be helped by Trump’s tax plan?
— Investor

A. We wish we had the crystal ball we’d need to answer your question.

Without knowing all the specifics of the Trump tax plan, it is hard to predict what will actually pass.

If the corporate tax rates are reduced from a high of 35 percent to 15 percent, it will potentially provide a big lift to corporate earnings for publicly traded companies, said Alan Meckler, a certified financial planner with Cornerstone Financial Group in Succasunna.

“Many investors expect a corporate tax cut to boost small stocks more than shares of larger companies,” Meckler said. “Their reasoning: Multinational companies are able to defer U.S. taxes on profits earned overseas, but many smaller companies make most of their profits on domestic sales.”

Meckler said there are some sectors that could benefit if the corporate tax rates are reduced.

First, Master Limited Partnerships (MLPs).

“One provision of the Trump tax plan is a tax rate of 15 percent on pass-through income,” Meckler said. “The rule would affect partnerships, S corporations and limited-liability companies.”

Meckler said shareholders in MLPs would also get the 15 percent rate on any pass-through income, making their shares more valuable.

Then there are technology funds.

Meckler said another proposal would allow companies with significant overseas cash hoards to repatriate that cash at a 10 percent rate rather than the maximum 35 percent corporate rate.

“Many companies have overseas cash stashes, the estimates are high as $2.5 trillion,” he said.

Many of the companies that have high cash overseas are technology funds, he said.

“Apple is said to have as much as $246 billion in cash, most of which is overseas,” Meckler said. “Should Apple and the rest of the companies be able to repatriate its cash at a lower rate, the stock should be worth more than investors currently think.”

Next, financial funds.

Although the financial sector would have no particular tax benefit under the Trump proposals, Meckler said, they could well benefit from loosened regulations under the new administration.

Before you do any investing, Meckler recommends you consult with a financial advisor, your CPA or spend the time doing research yourself.

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This post was first published in July 2017.