Good morning.
Big business scored a big win in the Republican tax bill released yesterday. Fortune’s Shawn Tully does the best job breaking down what it means for large companies here, but the bottom line is the bill cuts the top rate to 20%, creates a territorial tax system, accelerates the write-off for capital investment, and allows for repatriation of overseas profits at low rates.
There are some offsets, but not as bad as business groups feared. Interest deductions are capped at 30% of earnings, but not eliminated; and the plan includes a minimum tax on profits earned in overseas tax shelter countries, but not as onerous as feared. The Business Roundtable and the Chamber of Commerce both endorsed the plan.
The plan is based on the assumption that a better corporate tax system plus repatriated earnings will lead to more investment and jobs in the U.S. Past experience, however, suggests there’s a danger much of the money will get shoveled into corporate share buybacks and dividends, which would boost the stock market (and CEO bonuses) but do little to create jobs or help disaffected workers. The plan could have done more to nudge companies to address pressing workplace needs—for instance, by creating the tax credit for training that Isabell Sawhill proposes here.
Passage of the plan is still far from a done deal. Its limits on state and local deductions threaten a revolt from Republicans in high tax states, home builder groups remain opposed, and the National Federation of Independent Business is holding out for even bigger breaks for small business. Republican leaders want to force a House vote by Thanksgiving—which would be a far cry from the 1986 tax reform bill, which took two years to get through the legislative process. My favorite quote of the day comes from Rep. Tom MacArthur of New Jersey, who said: “I’m not sure this gets better with time. It’s not like a fine bottle of wine.”
In other news, the President made good on CEO Daily’s prediction that he would pick Jerome Powell as Fed Chief. Powell is a good choice—an old school Republican, moderate deregulator, consensus builder, with experience in crisis management—which, in all probability, he will need.
More news below—and enjoy the weekend.
Alan Murray @alansmurray alan.murray@fortune.com
Top News
•Everything’s Rosy in the Apple Orchard
Apple’s iPhone X hits the stores today. The sight of early-morning lines of fanboys outside of stores and the stock hitting a new all-time high a day after the company announced another fine set of earnings create a familiar sense of well-being. Only curmudgeons would be upset at how evasive Tim Cook was on yesterday’s analyst call when it came to giving sales forecasts. That reversed a good part of earlier gains. Fortune
•But Something Is Rotten at TripAdvisor
Online travel agency TripAdvisor is facing some uncomfortable questions about its business model after multiple women claimed it had suppressed hotel reviews alleging sexual assaults on them. TripAdvisor gives little away about its policy for removing negative reviews, but the potential conflict of interest that comes from hosting customer reviews and taking commission from hotels is clear enough. Fortune
•AT&T/Time Warner Isn’t a Done Deal
The Wall Street Journal reported that the Justice Deparment is, after all, looking at blocking the merger of AT&T and Time Warner. The report hedged its own headline by saying that the DoJ could still just as easily approve the deal with certain conditions, but the news took over 4% off Time Warner’s stock price nonetheless. WSJ, subscription required
•China Looks at Widening Outbound M&A Controls
China drafted new restrictions on outbound investment in what the Financial Times called a “substance over style” regulation that would allow regulators to block deals even if they were entirely conducted offshore. The new rules hint at a more permanent and active role for Beijing in steering outbound M&A, in contrast to earlier regulations which focused more narrowly on alleviating capital account pressures on the currency. FT, metered access
Around the Water Cooler
•Less Is More at Ralph Lauren
Ralph Lauren is starting to see the benefits of its efforts to restore a sense of exclusivity to its brand. The company reported better-than-expected revenue and profit margins for the three months to September, pushing its shares up 2.6%. It still expects revenue to fall by between 6% and 8% in the current quarter, after a 9% drop in the last one, as it continues to retreat from a misjudged discount-driven expansion. That strategy increased its exposure to department stores, another mistake that it’s still trying to unravel now. Fortune
•More Tea for Unilever, But Starbucks Needs Something Stiffer
Unilever is to buy Starbucks’ Tazo tea brand for a modest $384 million, in a fresh reminder of how the coffee shop chain’s ventures beyond its core business have struggled. Starbuck’s shares fell over 5% after the bell after it lowered its long-term target for earnings growth to 12% or more, from 15%-20% previously. CEO Kevin Johnson said there’s no getting away from the secular slowdown in main street retail. China, where same-store sales rose 8% on the year in the third quarter, remains a beacon of hope for the company. WSJ, subscription required
•Sterling Hit By Brexit, Sex—and Socialism on the Horizon
The pound fell by over 1% against both the dollar and euro after the Bank of England gave a gloomy outlook for the U.K. economy despite raising interest rates for the first time in 10 years. Being forced into rate hikes to stop currency-induced inflation is traditionally a hallmark of emerging economies. In the U.K.’s case, it might be more accurate to call it a receding economy. The prospect of the Conservative government being brought down by a cascading sexual harassment scandal, and being replaced by a Labour Party that has rediscovered Socialism under Jeremy Corbyn, is hardly improving the mood. Fortune
•An 11-Minute Silence That Went Around the World
For 11 minutes Thursday, an eerie peace descended on the world of social media as a departing customer support staffer deactivated President Donald Trump’s Twitter account. The company is claiming it was ‘inadvertent’, but it is, to say the least, consistent with the kind of stunt often pulled by soon-to-be-ex-employees (CEO Jack Dorsey suffered a similar indignity last November). Fortune
Summaries by Geoffrey Smith; geoffrey.smith@fortune.com
@geoffreytsmith
