Good morning.
If you are still looking for major tax reform this year—as opposed to simply a $1.5 trillion tax cut, which the budget allows for—consider this: Over the weekend, Ways and Means Chairman Kevin Brady threw in the towel on the biggest money raiser in the emerging reform plan: elimination of the state and local tax deduction. That’s good news for taxpayers and homeowners in high-tax states like New York, New Jersey, and California. But it’s bad news for any hope of real tax reform.
And it gets worse. The National Association of Home Builders, which could have celebrated the fact that property taxes would remain deductible, instead announced it would oppose Brady’s tax plan. Why? Because doubling the standard deduction would reduce the number of people who can benefit from the mortgage interest and property tax deductions. The home builders instead want to create a new homeowner tax credit that would extend their tax break to people who don’t itemize. This, of course, would defeat the whole purpose of tax reform, which is to reduce tax breaks for special interests (e.g. homeowners) in order to provide tax relief in the general interest (e.g. everyone who gets the standard deduction.)
You can read more on the Congressional tax debate here.
Meanwhile, Gerald Seib of The Wall Street Journal reminded business of the real gift it is getting from the Trump administration—regulatory relief. According to Seib, new figures from the Chamber of Commerce coming out this week will show the administration already has issued 29 executive orders to reduce regulation, and issued 100 additional directives that either knock down regulations or begin a process to eliminate or shrink them. That’s less sexy than a tax reform bill, but ultimately could have an bigger impact on business.
More news below, including the revelation that Facebook posts by Russian operatives reached 126 million Americans during the election.
Alan Murray @alansmurray alan.murray@fortune.com
Top News
•Mueller Shows His Teeth
Three of President Trump’s former campaign team were charged by Special Counsel Robert Mueller. Arguably the most damning detail was that George Papadopoulos, a foreign policy adviser who tried to broker meetings between candidate Trump and Russian officials, had pleaded guilty to lying to the FBI after his arrest in July. The charges against former campaign manager Paul Manafort and his business partner Richard Gates relate largely to alleged money-laundering for Russian-linked entities before 2016 but, as they carry a 20-year maximum sentence, are a powerful incentive for Manafort to cooperate with further questioning from Mueller’s team. Fortune
•Dear Lord, Give Me an M&A Slowdown - But Not Yet
We promised you a slowdown in M&A. We didn’t promise it would start yesterday. Lennar Corp agreed to buy CalAtlantic for $5.7 billion, creating the U.S.’s biggest homebuilder by revenue. The deal will allow savings on inputs for new housing and more efficient labor hiring. Meanwhile Vistra Energy agreed to buy Dynegy, creating a company worth $20 billion (including debt). That’s chiefly a response to sustained low pricing in the wholesale power market thanks to cheap shale gas and lower capacity utilization at big power stations due to increased renewable supply. Bloomberg
•Sprint—the Exception That Proves the Rule
But not every courtship ends in a happy ever after. Despite months of merger talks, the prospects for a deal between Sprint and T-Mobile plunged on Monday amid reports that the two sides couldn’t agree on terms. Sprint’s shares fell 13% after reports that its majority owner Softbank acknowledged it was unrealistic to expect the larger and faster-growing T-Mobile to cede control of a merged company. Fortune
•Big Oil Is Back
It was a summer to remember for Big Oil. Exxon Mobil and Chevron both posted 50% increases in net profit on Friday, while BP said Tuesday it would resume paying cash dividends and buy back the stock that it had been issuing in lieu of cash in recent quarters. Like its peers, BP has slashed and burned its capex but until recently had said it needed a price of $60 a barrel to cover both capex and dividend obligations. In the third quarter, however, it managed to do so at an average price of $49. Crude futures, meanwhile, continue to flirt with 2-year highs at just above $54/barrel in the U.S. and (more relevantly for BP) $60/barrel for Brent. Fortune
Around the Water Cooler
•Social Media Admits to Congress What It Boasts of to Advertisers
Facebook said the divisive ads placed by Russian-linked accounts on its network in the last couple of years reached 126 million Americans. The same troll factory put over 131,000 messages on Twitter and 1,100 videos on YouTube, the New York Times reported, citing documents prepared for Congress as part of its investigation into election-hacking. If it’s any consolation, both Facebook and Twitter have been repeatedly caught making exaggerated claims about their reach in recent months. It’s not clear whether executives were eager to flag that to Congress in mitigation, however. Fortune
•Apple Prepares to Drop Qualcomm
It’s hardly a surprise given the bad blood between them, but reports suggest Apple is preparing to cut Qualcomm out of the iPhone’s supply chain from next year. The biggest beneficiary could be Intel, which currently shares the task of supplying modems for the iPhone. The reports emerged on a day when Apple’s stock hit an all-time high on reports of strong demand for the iPhone X. Fortune
•Spacey’s House of Cards Crumbles
Netflix said it will pull the plug on House of Cards after its next season, due to be released in mid-2018. The news comes only a day after series star Kevin Spacey was accused of making drunken advances to an underaged actor 30 years ago. Cynics suspected the studio of dressing a business decision up in ethical principle, pointing to previous rumors of it planning to end a show whose early impact had faded. Fortune
•Rosenfeld Exits Mondelez on a High
Mondelez beat Wall Street’s expectations in the third quarter thanks to strong demand for Oreos and Trident gum in Europe and Latin America. The cost-cutting program of outgoing CEO Irene Rosenfeld also bore fruit, driving the company’s stock up nearly 5%. Rosenfeld hands over to McCain Foods’s Dirk Van de Put in less than a month. He’ll find that North America is still a problem area as regards sales, lagging not only other regions, but also rival Hershey. Reuters
Summaries by Geoffrey Smith; geoffrey.smith@fortune.com
@geoffreytsmith
