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July 26, 2017

Good morning.

President Trump gave an interview to The Wall Street Journal that went beyond his usual pyrotechnics with the press and deserves some attention. A few takeaways:

Taxes. The President said he hopes to get the corporate tax rate down to 15%, while also cutting taxes for the middle class. And he says he’s willing to see taxes go up on the wealthy. “If there’s upward revision, it’s going to be on high-income people.”

Corporate tax reform is the Holy Grail for business, and the reason many corporate leaders are still hanging with him, despite concerns about his anti-globalization, anti-trade and anti-immigration policies, and his general non-businesslike approach to governing. When he talks about raising taxes on high-income earners, my guess is he’s thinking of residents in high-tax states like New York, where the loss of the state and local tax deduction could offset any benefit from lower rates.

But putting together a tax reform bill that meets those goals and still complies with congressional budget rules is a monstrous task. As I’ve said before, tax deals are built around economic interests, not political ones. And building a tax reform coalition in Congress without any support from Democrats is like assembling a royal flush from half a deck of cards.

Apple. The President claims Apple CEO Tim Cook “promised me three big plants – big, big, big…. I said, Tim, unless you start building plants in this country, I won’t consider my administration an economic success, OK? And he called me and he says, you know, they are going forward, three big, beautiful plants. You’ll have to call him. I mean, maybe he won’t tell you what he tells me, but I believe he will do that. I really believe it.”

No comment yet from Apple. But if the company is able to repatriate some of the $200 billion-plus it has stashed overseas at a favorable tax rate, anything is possible.

Federal Reserve. The President said he likes Janet Yellen and he likes low interest rates, and he didn’t rule out reappointing her. When asked whether his economic adviser Gary Cohn—who was sitting in on the interview—is a candidate for the job, Trump said: “He doesn’t know this, but yes, he is.”

More news below.

Alan Murray
@alansmurray
alan.murray@timeinc.com

 

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Top News

Of Sessions and Sanctions

The President's interview with The Wall Street Journal diverted some, but not all, attention away from renewed attacks on Attorney General Jeff Sessions. Trump refused to be drawn on whether he would fire Sessions, a move that would allow him to appoint a replacement with the power to close down special counsel Robert Mueller's investigation into his campaign's links to Russia. Meanwhile, a bipartisan bill expanding U.S. sanctions on Russia, Iran and North Korea cleared the House by a sweeping 419-3 vote Tuesday. The bill was amended to address some concerns of the oil and gas industry, but kept provisions on sanctioning Russian energy export pipelines, such as the Nord Stream 2 gas link to Germany, and the Caspian Pipeline Consortium that takes Kazakh oil to the Mediterranean, two pillars of energy security for U.S. allies. Fortune

Repeal and Replace and Hurry Up and Wait

The Senate dragged itself over the starting line as it began debate on alternatives to repealing and replacing the Affordable Care Act. Vice President Mike Pence had to break a 50-50 tie on a procedural motion to get the ball rolling. But a first vote on repeal and replace measures failed by a wide 43-57 margin, underlining the gulf between various wings of the Senate GOP and the problems it faces in cobbling together a bill capable of being passed. Majority Leader Mitch McConnell appears to be focusing on passing a pared-down measure that would abolish employer and individual mandates and the tax on medical devices, but also drop plans for hefty cuts to federal funding of Medicaid. Fortune

The Easterbrook Supremacy

McDonald's has apparently found the secret to bringing back U.S. customers: cheap soda and upscale burgers. The world's largest fast-food chain reported stellar quarterly results, including a much-better-than expected 3.9% increase in sales at established U.S. restaurants, numbers that were bolstered by a $1 soda promotion and the introduction of crafted burgers. Global same-store sales did even better, posting a 6.6% rise, their best in five years. The efforts of CEO Steve Easterbrook to overhaul the company's business, including its menu and in-store operations, appear to be taking hold two years into a turnaround. Fortune

GM: Necessity Is the Mother of Inventory

General Motors' revenue and profit fell as it prepared to pull back from Europe, India and South Africa in order to focus on higher-margin products in the U.S. market. Specifically, that means pick-up trucks and new Cadillac models. The current quarter will also be weak, as the company is cutting production and discounting to reverse a sharp rise in unsold inventories to nearly 1 million as of the end of June. GM isn't alone. Hyundai overnight posted its lowest quarterly profit in five years and warned of worse to come due to problems in the U.S. and Chinese markets. Fortune

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Around the Water Cooler

Chipotle: It's the Shorts' Turn to Puke

Chipotle's second-quarter earnings showed it had staged an impressive comeback from last year's food safety scandals before shooting itself in the foot again last week. A video of a rodent-infested kitchen and an outbreak of Norovirus had taken 13% off the company's shares last week, but they rebounded 4.7% after it announced a quarterly profit up more than 100% on the year. Marketing chief Mark Crumpacker nonetheless told analysts that clawing back lost customers will be "an ongoing challenge." Same-store sales rose 8.1% on the year, but missed expectations. Fortune

Whitman Linked With Uber CEO Vacancy

Hewlett Packard Enterprise's Meg Whitman is in the frame to be the next CEO of Uber, according to Bloomberg and others. The agency reported that Whitman is on a shortlist of six candidates after recent meetings with the ride-hailing company's leadership. The appointment of Whitman would send the strongest possible signal about Uber addressing a toxic sexist culture and its other problems with corporate immaturity, though some would argue she has more to offer as an independent board member overseeing management. HPE repeated that Whitman is committed to her present job. Fortune

Token Resistance From the SEC

The Securities and Exchanges Commission poured cold water over the hyperactive market for digital currency tokens, ruling that those issued in one recent ‘initial coin offering' were in fact securities and thus subject to its regulation. It drew a sharp line between ICOs and crowdfunding, which was explicitly encouraged by recent tweaks to securities law. The ruling hit both of the two most popular digital currencies, Bitcoin and Ethereum, on whose blockchain many recent and planned ICOs piggy-back in various ways. However, in curtailing the scope for fraud, the SEC may have helped underpin demand for them as a means of exchange in the longer-term. Fortune

Diesel's Last Gasp Is in Sight

The U.K. followed the lead of France and announced it will ban the sale of diesel and gasoline-powered cars by 2040. There are two main contrasts to France: first, the U.K. initiative is primarily in the name of improving air quality, rather than fighting climate change; the second proceeds from the first, in banning not only pure combustion engines, but also hybrids (hence the less aggressive timeline). In related news, BMW said it would build the first all-electric Mini in the U.K., albeit with German-built drivetrains. The move suggests a degree of confidence that cross-border supply chains won't be wrecked by the Brexit process, and reflects the U.K.'s strategic weakness as it rushes towards an e-Mobility future. Fortune

Summaries by Geoffrey Smith Geoffrey.smith@fortune.com;

@geoffreytsmith

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