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GOP on the Tax Tightrope — CEO Daily, Friday, 10th November

Good morning.

I spent two years of my life following the perils-of-Pauline path of the 1986 tax reform bill (see: Showdown at Gucci Gulch), and remain skeptical that Republicans in Congress can repeat the process in six weeks. But they sure seem determined to try. Their poor showing in this week’s election, oddly, is helping their cause. They now realize—if they didn’t before—that they have to have an issue, other than Trump, to run on in next year’s elections. Tax reform is their last, best hope.

“It clearly is a do-or-die moment in my view in terms of holding the majority,” says GOP Rep. Tom Cole. “It doesn’t guarantee success, but it’s a precondition for success.”

Still, they face three big obstacles:

  1. Keeping the price tag below the $1.5 trillion that the budget resolution allows (you would think that would be sufficient!);
  2. Convincing people (or at least GOP voters) that the bill is better for the middle class (or at least the middle class in Republican states and districts) than it is for the rich, as they claim;
  3. Placating the small business lobby, which is a powerful force in Republican politics.

The Senate unveiled its version of the bill yesterday. They dealt with problem #1 by delaying the corporate tax cut until 2019 and by fully eliminating more of the state and local tax deduction, which largely hits Democratic states. They dealt with #2 by retaining a 10% bracket and retaining a tax on estates over $22 million. And they made an attempt to improve the optics on problem #3 by being more generous in their tax relief for pass-through businesses.

How the House and Senate will ultimately resolve their differences is unclear. But that only matters if both bodies can pass a bill first. The House is going to take a stab next week. The Senate is aiming for immediately after Thanksgiving. Given that Democrats aren’t playing in this game, both votes will be cliffhangers.

More news below—and enjoy the weekend.

Alan Murray

Top News

Trump Takes a Hard Line in Vietnam

President Donald Trump’s keynote to the APEC summit in Da Nang, Vietnam, demanded an end to ‘chronic trade abuses’ and invented a whole new geopolitical concept of the “Indo-Pacific region,” in what appeared a broad hint to south-east Asia to look to India, rather than the U.S., to protect them against Chinese expansionism. Outside of the main hall, Japan and Canada were trying to salvage what’s left of the Trans-Pacific Partnership, without success at the time of writing. Fortune

Rays of Light at Macy’s, Kohl’s

Macy’s completed a third year without sales growth, as comparable sales fell 3.6% in the third quarter, more than Wall Street had expected. Its stock still jumped 10% because the bottom line was much better than forecast, in part due to better inventory management. Elsewhere, Kohl’s also edged up after a strong back-to-school season which helped comparable sales edge up 0.1% on the year. Both sets of results would have looked better without the exceptional disruption from hurricanes this year. Fortune

China Ushers the Barbarians to the Gate

China said it will allow foreign companies to have majority control of joint ventures in securities, asset management and futures trading, and lift all limits on ownership after three years. That means that the foreign ownership cap of 20% for local banks and asset managers will also be scrapped. Insurers will have to wait a further two years before they get the same rights. A cynic would infer that it’s the banks and asset managers’ balance sheets that are going to blow up first after a decade of unrestrained credit growth. Reuters

Drahi Returns to Fix Altice Crisis

France’s Patrick Drahi, the billionaire founder of Altice, has returned as CEO after the stock market turned sour on its highly-leveraged growth strategy. Michael Combes was forced out after a poor quarterly report exposed how badly its cash cow, French mobile carrier SFR, was struggling. The company’s U.S. operations have at least had the consolation prize of a tie-up with Sprint after the latter’s merger talks with T-Mobile collapsed, but that seems unlikely to make much of a dent in the company’s 50 billion euros ($58 billion) of gross debt. FT, metered access

Around the Water Cooler

Disney Bets on Star Wars ad infinitum

Walt Disney announced plans for a whole new Star Wars trilogy that will involve a whole new raft of characters and storylines. The movies will be directed by Rian Johnson, whose Star Wars: The Last Jedi hits theaters next month. CEO Bob Iger also announced plans on the company’s earnings call for a Star Wars-themed TV series. That’ll all help populate Disney’s new streaming service when it comes, even if riffing off a 40-year old franchise stretches the definition of ‘original’ content.  Fortune

Toshiba in Trouble

Toshiba may need to raise $5.3 billion in capital to meet stock exchange rules on financial reporting, while it waits to pocket the money from the proposed sale of its memory chip unit. That deal is still being blocked by Western Digital, its current joint venture partner, which claims right of first refusal on the NAND chip business. The company’s battered shares fell another 8% in Tokyo.  Fortune

Hall of Shame, Friday Edition

It’s got to the point where all we have room for is the names of those accused of sexual harassment. Thursday’s roll of dishonor was headed by Louis CK, in some people’s eyes the most influential man in today’s comedy scene. Also mentioned in dispatches were Mad Men creator Matthew Weiner; hotelier André Balazs; Dr. Larry Nassar, the former doctor to the U.S. women’s gymnastics team; and, of course, Alabama Senator Roy Moore: in all, an eclectic bunch that speaks volumes about the pervasiveness of sexual harassment across society. Fortune

Make It One For My Baby…

Saturday is Singles’ Day in China, Alibaba’s spectacularly successful antidote to Valentine’s Day, which last year generated nearly $18 billion in sales. For comparison, that’s more than Black Friday and Cyber Monday combined. This year’s special offers include a lifetime supply of grain-based liquor called baijiu for just 11,111 yuan (see what they did there?), or $1,673. If the customer somehow dies within five years of the purchase, then a family member gets to inherit the deal. It may be worth noting that cirrhosis of the liver usually takes at least a decade to develop. Fortune

Summaries by Geoffrey Smith;