How Aussies Can Profit from Trump’s Tax Cuts

US tax cuts

I love to learn. Safe to say I’m not alone in my quest for knowledge. With the internet, anyone with a connection can learn something new every day.

Last night, I was bingeing on philosophy. After hopping from one link to another I came across a US university lecture.

The topic for debate was wealth distribution and civic responsibility to society. The lecturer started by talking about Michael Jordan.

Here was a man at the top of his field. He didn’t get there by luck, but through hard work and determination. MJ was not a basketball god from day one.

But with time, he built on foundations and became arguably the greatest basketball player of all time. Along with fame, MJ had many opportunities to grow his brand. Approached by Nike, MJ turned himself into a global brand.

He sold sneakers and other merchandise, ran camps, and invested in businesses. Clearly, Mr Jordan has done pretty well for himself.

But because of his wealth, does he now have a greater responsibility to society? Should he pay a higher percent in taxes as a result of hard work and success?

Some might say yes. But let’s take a look at it from the other side.

I agree that MJ wouldn’t have had the same opportunities had he been born in India or Vietnam. He was born into a society that prized their elite athletes and paid them a hell of a lot of money to perform.

However, why is it his duty to give more just because he’s successful?

This got me thinking about Trump’s tax cuts.

Trump’s tax cuts

The US Congress recently passed a bill to cut corporate taxes from 35% to 21% beginning in 2018. The top individual tax rate will also drop to 37%, down from 39.6%.

Why is Trump lowering taxes for corporations and the richest in America?

Well, for one, it encourages businesses to come to America. With lower tax rates, businesses would rather be in the US, which promotes US jobs and spending in the economy.

The same applies for the richest in society. If taxes are lower, the US will become an even more attractive place to live and invest in, which should encourage employment and advancement.

What’s more, it doesn’t penalise success just because others have less. As reported by the ABC:

Even Republicans are acknowledging that suspicion the tax cut favours the wealth means that this bill is unusually unpopular for an across the board tax cut. Still, the party claims the tax relief will supercharge the economy so much that they’ll pay for themselves and boost employment and wages.

What will this mean for Aussies?

So how could you potentially profit from the US tax cuts without living in the US?

By investing in companies with US operations. BlueScope Steel Ltd [ASX:BSL] is one such Aussie business. The steelmaker is up almost 60% this year.

Source: Google Finance

Around 35% of the company’s sales come from the US.

Source: BlueScope Steel 2017 annual report

This morning, BlueScope announced that it expects US earnings to benefit from the US tax cuts. The company expects their US taxes to decline by 7% in FY18, and 11% thereafter.

What’s more, the group is also benefiting from higher steel prices. That’s why BlueScope has increased first-half estimates for FY18 earnings.

The company expects earnings before interest and taxes (EBIT) to be around $460 million, $40 million above their previous guidance.

Current steel market macro conditions are positive, however we are seeing rising raw material costs and continued competition from imports,’ BlueScope’s CEO Mark Vassella said.

Cheers,

Härje Ronngard,

Junior Analyst, Markets & Money

PS: Commodity prices rebounded in 2016 and rallied hard in 2017. Could they continue to rally heading into 2018?

Our resource analyst, Jason Stevenson, thinks so. Jason is one of the sharpest minds when it comes to the resource sector. He’s written a report about what he believes are the top 10 mining stocks trading on the ASX right now. You can access that report here.

Härje Ronngard

Härje Ronngard

Harje Ronngard is a Junior Analyst at Markets and Money.

With an academic background in finance and investments, Harje knows how simple, yet difficult investing can be. He has worked with a range of assets classes, from futures to equities. But he’s found his niche in equity valuation.  

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