Good morning.
Republicans plan to unveil a tax reform plan today, and we are all eager to see the details. But already, one thing is clear: This is not tax “reform.” It’s a tax cut.
Tax reform of the 1986 variety (a reminder: Showdown at Gucci Gulch is still in print, and still a good read) involved winners and losers, closing loopholes to pay for lower rates, and was crafted to have no effect on overall revenues. But Republicans have already passed a budget allowing this tax bill to lose $1.5 trillion dollars over ten years. And details leaking out this week suggest the price tag will be much higher than that.
The plan is expected to cut the top individual rate to 35%, the corporate rate to 20%, double the standard deduction, double the child care credit, and allow rapid expensing for business investment. Altogether, that suggests a ten-year price tag of more like $4 trillion.
Meanwhile, the only sizable loophole reportedly being closed in the plan is the deduction for state and local taxes. That’s an effort to make the burden fall heaviest on high-tax states – which tend to be Democratic. It’s an interesting political ploy, since few Democrats are likely to vote for the plan anyway. And defenders will point to the burden on high earners in New York and California as proof that their plan isn’t tilted toward the rich.
But eliminating the state and local deduction alone doesn’t begin to raise enough money to pay the $4 trillion dollar tab. And even the politics of closing that tax break will be dicey. Yes, the ten states with the highest income tax rates are mostly Democratic strongholds, including California, New Jersey, D.C., and New York. But Wisconsin, Paul Ryan’s home, is also on the top ten list. And so is Iowa, critical to any politician who dreams of running for president – which is to say, any politician.
Bottom line: the biggest losers in this game will end up being a future generation of taxpayers, who will have to pay off the debt.
Let me quickly add that I know the tax cut will be a boost to economic growth, which in turn will raise revenue, which will offset some of the cost. But the emphasis here is on “some.” Those who think growth will cover the entire cost of this huge tax cut are smoking something readily available in Colorado – which, by the way, has a relatively low income tax rate of 4.63%.
More news below.
| Alan Murray | |
| @alansmurray | |
| alan.murray@fortune.com |
Top News
• CEO Exits as Equifax Board Mulls Clawback Options
Richard Smith resigned as CEO of credit scoring company Equifax in the wake of the devastating data breach. The Wall Street Journal reported that Equifax declined to characterize his departure until an investigation into the breach is over. That matters because Smith may or may not be entitled to tens of millions in stock awards that haven’t yet vested, depending on whether he is terminated with cause. Equifax’s board will be keen to avoid the kind of embarrassment suffered by their fellows at Wells Fargo, whose initial generosity to CEO John Stumpf and Carrie Tolstedt provoked a furore among lawmakers and shareholders. Smith is due to testify before the Senate on Oct. 4. Fortune
• FBI Halts Adidas’ Charge in Basketball
Adidas has been tearing it up in the U.S., and more particularly in basketball, for the last year, but that’s now under threat. The FBI arrested James Gatto, its global director for basketball, Tuesday on charges of fraud and corruption in college-level sport. According to authorities, Gatto conspired with coaches to pay high school athletes to play basketball at colleges that Adidas sponsors. A crime is a crime and all that, but the fiction of college basketball being an ‘amateur’ sport hardly helps. The company’s shares, up 33% year-to-date, fell 2.5%. Fortune
• Dropping a Tariff Bomb on Bombardier
The Commerce Department hit Bombardier with a 219% anti-subsidy duty on its CSeries jets after Boeing accused Canada of unfairly subsidizing the aircraft. Boeing has complained the 110-to-130 seat aircraft were dumped below cost in the U.S. market last year while benefiting from unfair subsidies. The move has angered Ottawa and will complicate any renegotiation of the terms of NAFTA. It is also a huge embarrassment for Prime Minister Theresa May as she tries to sustain the Brexiteer line that a glorious, globally free-trading future awaits the U.K. outside the EU. The tariffs threaten 1,000 jobs at Bombardier’s plant in Belfast, the biggest private employer in Northern Ireland. What with Siemens jilting Bombardier’s rail business in favor of Alstom, it’s safe to say Montreal has had better days. Fortune
• Kohl’s Turnaround Will Be Gass-Propelled
Michelle Gass will be the new CEO of Kohl’s, the company confirmed yesterday. Gass, poached from Starbuck’s four years ago, is currently chief merchant and chief customer officer. She’ll take over in May 2018 from Kevin Mansell, whose 10-year stint at the helm saw first rapid growth, followed by a wrenching adjustment in which the share price fell by more than half from its peak. Kohl’s has pulled out of that tailspin with an array of new initiatives, the latest being a deal to offer its stores as a place for handing in returns to Amazon. Anything that gets the customer through the door. Fortune
Around the Water Cooler
• In Every Dream Home, a Tech Silo
Google effectively pulled its YouTube service from Amazon’s Echo Show devices by withdrawing support. It’s the latest instance of competitive frictions between tech giants with big ambitions for dominance of the ‘smart home’. Amazon, Google and Apple are all keen to lock customers into their own ecosystems to maximize revenues from the services associated with hardware like the Echo Show. That clashes with the long-held approach that inter-operability is the key to maximizing reach. Reuters mooted that Google’s decision may have been driven in part by the fact that sales of Google Home are lagging those of Amazon’s rival hardware. Fortune
• The Soul of Wit (1/47)
Twitter said it’s looking at expanding its Tweet format to 280 characters. Fortune feels that if you can’t say it in 140 it isn’t worth say Fortune
• Political Correctness Gone Mad, Gulf Edition
Saudi Arabia said it will lift its long-standing ban on women driving. King Salman’s decree will come into effect next June. It’s the latest in a string of policy shifts aimed at modernising the kingdom and chipping away at the power of religious conservatives. The ban has long been a symbol for the broader exclusion of women from large swathes of the economy, and its abolition raises hopes that further liberalisation will follow. Saudi women account for less than 20% of the country’s workforce. FT, metered access
• Dyson Plots His Revenge on German Cabal
Dyson, famous for its bagless vacuum cleaners and painfully-priced hairdryers, wants to put an electric car on the roads by 2020. Founder James Dyson told employees the company has been working on projects to end diesel-related air pollution for 20 years, and cast this one as the ultimate answer, without giving much else away. It looks like an exercise in revenge against a perceived German cabal of engineers that Dyson is suing in the EU courts over alleged labelling abuses. Dyson’s main competitor in vacuums is - coincidentally or not - Robert Bosch, the company that supplied the software for Volkswagen’s defeat devices. Fortune
Summaries by Geoffrey Smith; geoffrey.smith@fortune.com
@geoffreytsmith
