There is still uncertainty about what specific policies President-elect Donald Trump will ultimately pursue in office, but analysts say tax reform is likely — and that could have a big impact on the technology sector.
There are two broad parts to Trump's tax reform.
For one, he favors lowering the corporate tax rate from 35 percent to 15 percent. That might seem like good news for tech companies, but it might not be as beneficial as investors first assume.
That's because, as analysts at Bernstein point out, the tech sector's prevailing tax rate today averages about 20 percent. In fact, that is lower than the market overall. And it suggests that the boost to earnings from a lower tax rate might be some 7 percent. For context, sectors with notably higher tax rates — like transports or consumer staples — could see earnings boosts of 20 percent or more.
So, the tech sector would benefit from lower corporate taxes, but relatively less than other sectors.
However, there is another tax consideration during a Trump presidency: the prospect of a one-time holiday on foreign cash repatriation.
Trump proposes taxing foreign source income that is repatriated at a much lower rate of 10 percent. Financial analysts at Barclays say tech stocks could benefit from increased stock repurchase programs as well as some reinvestment incentives.