Will Apple Use Tax Breaks to Create More Jobs?

If you keep an eye on what the financial analysts are saying about Apple these days, you know that almost all have raised their stock price targets closer and closer to the $200 per share range. Almost all are bullish, and some believe Apple’s new fiscal year will break all records and that we could see Apple become the first company ever with a trillion dollar valuation sometime in 2018.

Our research continues to show high demand for Apple’s iPhones and Services and a very lucky $299 HomePod can’t but help Apple reach this valuation. They Have $250 billion in the bank and are increasing that cash on hand every quarter. But if you think Apple is sitting pretty now, just imagine the position they will have once the Republican tax cuts take affect, and their tax rate goes to about 12%-14%. When this happens, they can repatriate billions of cash held overseas at a highly reduced rate of 12% instead of the hefty 30+% it would be today if they brought any of that money back to the US.

One of the beliefs of the Republicans who passed this tax cut bill is that if corporate taxes are reduced, and companies like Apple can bring billions of dollars back into the US, they and others will build new factories and create new businesses which in turn will create new jobs.
History suggests that tax cuts like this could work if companies did put that cash into building new factories and starting new businesses but in many cases that are not what happens.
In a lot of instances, they use the surplus cash to buy back more of their stock and then increase the dividends they give back to their shareholders. If you are a shareholder, this is good. But if you are a normal citizen who does not own stocks of these companies, it has minimal impact on you and your financial situation.

I can’t speak to how other big companies will use their new cash-rich windfalls, but in Apple’s case, they have so much money in the bank now that if they wanted to build new factories or hire more people, they could already do that. While I do think Apple may invest in more factory partnerships with suppliers, I highly doubt that many will be in the US. Most of their suppliers are outside the US and even the ones who are based here, most of their manufacturing is being done overseas.

As for hiring more people, Apple’s business is growing exponentially, and they are hiring as fast as they can. Also, most of the kind of talent Apple is looking for are in the area of programming and engineering and highly skilled positions. At the moment, all of their US facilities are jam-packed, and they are even planning to build at least two new significant complexes in Silicon Valley, and as each goes up, they will fill up as fast as possible.

So if Apple already has gobs of money to work with and will now get more via tax breaks and overseas fund repatriation, how will Apple spend this extra cash? Most financial analysts I have talked to see Apple buying back more of their stock and then increasing the dividend to shareholders. Yes, some money will undoubtedly be applied to R&D and perhaps expanded investments through acquisition, real estate and building new properties to house more workers, but as I said, they already had enough money to do that even without the tax break or cash repatriation program.

While those behind the tax cuts would like Apple and other tech companies to hire unskilled labor, the fact is that most of the people Apple and many other tech companies need are trained programmers and engineers. And the idea that US companies will build more US factories is probably also a non-starter as anyone who studies worldwide manufacturing knows that it is just not economical in most cases to build many of the kind of manufacturing plants those who voted for these tax cuts want in the US.

It will be really interesting to watch how Apple and others companies use these big tax breaks and if it will be used to hire more workers. But if history is our guide, that just might not happen as our legislators hope it will come via the big tax breaks they are giving American corporations.

Published by

Tim Bajarin

Tim Bajarin is the President of Creative Strategies, Inc. He is recognized as one of the leading industry consultants, analysts and futurists covering the field of personal computers and consumer technology. Mr. Bajarin has been with Creative Strategies since 1981 and has served as a consultant to most of the leading hardware and software vendors in the industry including IBM, Apple, Xerox, Compaq, Dell, AT&T, Microsoft, Polaroid, Lotus, Epson, Toshiba and numerous others.

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