Information technology sector has the largest cash balance
Earlier in the series, we discussed how Trump’s trade policy could impact Microsoft (MSFT) and its peers. According to a recent Factset report, on a quarterly basis, Microsoft’s cash and short-term investment balance of $136.9 billion was on the top of the list for the fourth straight quarter, followed by Apple (AAPL) with $83.1 billion in cash reserves. These positions would be reversed if we include long-term investments.
As the below chart shows, the top five companies with the largest cash reserves belong to the IT sector. Microsoft, Apple, Cisco Systems (CSCO), Oracle (ORCL), and Google (GOOG) are the top five cash holders in the tech industry. The information technology sector as a whole had the largest cash balance of $672.7 billion at the end of 3Q16.
Biggest beneficiaries of Trump’s tax policy
Donald Trump intends to bring the technology sector’s cash corpus back into the US “by taxing it at 10% instead of 35%,” as he stated in a September speech in New York. Among the various countries in the OECD (Organization for Economic Co-operation and Development), the United States levies the highest corporate tax rate of 35% on repatriated cash.
According to ITEP (Institute on Taxation and Economic Policy), US firms currently possess $2.5 trillion in offshore earnings. At the current rate of 35%, they would owe $720 billion in taxes. However, if Trump’s reduced tax rate is implemented, they will have to pay only an estimated $206 billion.
ITEP estimates Microsoft would save approximately $28.1 billion on its $124 billion in overseas earnings. After Apple, it would be the biggest potential beneficiary of Trump’s cash repatriation proposal.