After the latest political setbacks, US President Donald Trump will be on the offensive with the long-awaited tax reform. In Indianapolis, he promised “a historic tax relief for the American people”. Companies should also benefit. Berkshire Hathaway could then be among the big winners.
In addition to a simplification of the tax system and relief for average earners, Trump has also promised a reform of the company taxation. The maximum rate should therefore be from current 35 percent to a maximum of 20 percent. “We relieve companies as long as they produce in the USA,” said Trump.
However, the President left open important details, for example, on how the tax reductions should be answered. According to expert estimates, the lower tax revenues could result in costs of $2.2 trillion. This is hard to reconcile with the high national debt of the US, and Trump would be dependent on the support of the Democratic Party to implement the project.
Thrust for book value and profitability
Although Trump’s plans are unclear and the prospects for success are uncertain at this point, Barclays analyst Jay Gelb has investigated what Trump could mean for the Buffett’s Berkshire Hathaway – the company ultimately generates a large part of the profits from the US.
According to his calculation, the reduction of corporate tax to 20 percent would result in a lower deferred tax liability and an increase in book value by $27 billion. In addition, the profitability of the holding company would increase by about 15 percent.
Even though the past has shown that Trumps is prudent to enjoy, Berkshire Hathaway Inc. (NYSE:BRK.B) is just 0.5% below its all-time high of $184. For conservative investors, the company share remains a good long-term investment.
Recently, JPMorgan Chase analyst Sarah Dewitt launched coverage on its B share with an “overweight” recommendation and a price target of $210. She called BRK.B “a collection of best-in-class businesses with unmatched balance sheet strength.”