3 Stocks to Benefit From Donald Trump’s External Revenue Service Plan

3 Stocks to Benefit From Donald Trump’s External Revenue Service Plan

Key Highlights:

• President Trump proposes creating the External Revenue Service (ERS) to replace the Internal Revenue Service (IRS), funding the government through tariffs instead of income taxes.
• This plan aims to eliminate income tax, increase disposable income, and boost consumer spending.
• If implemented, the ERS could reshape the U.S. economy, benefiting various industries, particularly financial services and consumer goods.

Below are three stocks positioned to thrive if the ERS becomes a reality:

1. Charles Schwab (NYSE: SCHW): Financial Services Powerhouse

The elimination of income tax could drive a surge in consumer savings and investments. Charles Schwab, the largest retail brokerage in the U.S. with $9.92 trillion in assets under management (AUM), stands to benefit from this influx.

• Current Strengths:
  • Record year-to-date inflows into Schwab Wealth Advisory, up 65% year-over-year.
  • Third-quarter 2024 net interest income reached $2.2 billion.
• Potential Gains:
  With more disposable income, taxpayers are likely to invest heavily, driving up Schwab’s trading volumes, wealth management fees, and net interest income.

2. Target (NYSE: TGT): Consumer Spending Catalyst

The increase in disposable income would boost consumer discretionary spending, favoring companies like Target, which offers both essential and non-essential goods.

• Challenges:
  • Target’s exposure to discretionary items negatively impacted its Q3 2024 earnings, leading to a 22% stock decline.
• Opportunities:
  The ERS could revive discretionary spending, helping Target recover as consumers splurge on apparel, electronics, and household goods.
• Competitor Consideration:
  Walmart (NYSE: WMT), while less exposed to discretionary items, may face tighter margins due to increased import tariffs.

3. Tapestry (NYSE: TPR): Luxury Retail Beneficiary

As consumers gain more disposable income, luxury spending is likely to increase, benefiting brands under Tapestry’s umbrella, such as Coach, Kate Spade, and Stuart Weitzman.

• Recent Performance:
  • Fiscal Q1 2025 revenue beat expectations at $1.51 billion.
  • Raised fiscal year 2025 EPS guidance to $4.50–$4.55.
  • Announced a $2 billion stock buyback program.
• Market Position:
  Despite withdrawing from a merger with Capri Holdings (NYSE: CPRI), Tapestry remains well-positioned to capitalize on increased luxury spending.

Outlook

The proposed ERS plan, if approved, has the potential to transform the economic landscape by boosting consumer disposable income and fueling spending. Financial services firms like Charles Schwab, consumer goods retailers like Target, and luxury brands like Tapestry are poised to benefit from this significant policy shift.

However, the plan faces congressional approval and could trigger global trade implications due to tariffs. Investors should stay vigilant and assess both risks and opportunities in this evolving scenario.