Good morning,
The U.S. Senate is moving toward a decisive vote on its tax bill Friday. And while the outcome remains unclear, the momentum looks hard to stop.
A number of CEO Daily readers have taken me to task for being too generous to the GOP tax effort. Their view, stripped of expletives, boils down to this: 1) corporations don’t need a tax cut; 2) the individual tax provisions ultimately hurt the least affluent; and 3) the bill adds to the national debt at a time when we should be reducing debt. Let me try to address.
Re: 1) — There is widespread agreement that the current corporate tax system is a mess, with nominal tax rates too high to be globally competitive, tax breaks that distort economic decision making, and penalties on overseas profits so big that they encourage U.S. companies to either move overseas, invest overseas, or keep earnings locked up in tax shelters overseas. The proposed new corporate tax regime may not be perfect, but it is better than the existing one, and should cause some boost in investment in the U.S.
Re: 2) — Most analysis showing the bill hurts the middle class is based on 2027, when the individual tax cuts are set to expire in order to minimize the effect on the deficit. But tax writers know that’s a cynical legislative ploy: whoever controls Congress a decade from now is unlikely to allow the standard deduction to be cut in half. (There’s a good analysis of the bill’s effect on individuals here.)
If individual tax provisions don’t expire in 2027, of course, that makes 3) even more of a concern. Here, I have no argument with the critics. The corporate tax changes likely will stimulate economic growth, but not enough to offset the full effect on the deficit. So the ultimate question is this: Is the benefit—a saner corporate tax system—worth the cost—a significant addition to U.S. debt?
Traditional Keynesian analysis would argue now is the time to be trimming the debt, so an over-stimulated economy doesn’t lead to inflation, and so “crowding out” of private savings doesn’t drive up real interest rates. But there ‘s no evidence of inflation or “crowding out”, leaving that traditional analysis in tatters. So put me on the fence.
I do, however, have a political concern: a tax bill passed on a party line vote that appears to prioritize corporate interests over individual interests could deepen public disaffection. And that, ultimately, could come back to bite the same CEOs who are now celebrating.
More news below.
| Alan Murray | |
| @alansmurray | |
| alan.murray@fortune.com |
Top News
• OPEC, Russia Set to Extend Oil Output Cuts
OPEC, Russia, and a handful of other oil exporters are set to extend through the end of 2018 an agreement that keeps 1.8 million barrels a day of their oil off world markets (barring last-minute accidents). While inventory data in the U.S. and abroad have shown the global glut being gradually absorbed by rising demand, balancing the market is still a tricky act, with Russian producers in particular vocal about not letting the U.S. shale industry capture more market share as global demand rises. However, the benefits of keeping prices supported around $60 a barrel appear to have outweighed such concerns. Fortune
• Amazon Aims Alexa at Professionals
Amazon is embarking on making Alexa a product for professionals. According to The Wall Street Journal, it will launch Alexa for Business Thursday at an annual conference held by its cloud-computing unit Amazon Web Services. The move greatly expands the potential market for one of the company’s hottest assets and, if successful, would cement the company’s reputation for being able to span the consumer-professional divide with its products—something few tech companies can boast. WSJ, subscription required
• Gillette Tries Again to Stem the Tide
Procter & Gamble unveiled a slew of new Gillette products, in an effort to stop the loss of market share to upstarts like Dollar Shave Club and Harry’s. Gillette’s market share has fallen to 59% from 71% since P&G bought it for $54 billion in 2005, a symptom of the stagnation that activist investor Nelson Peltz has highlighted in his campaign for a board seat. The move builds on its move back in March to cut prices for some products by up to 20%. Fortune
• Trump’s Twitter War with Theresa
President Donald Trump engaged in a war of words with U.K. Prime Minister Theresa May on Twitter after her office criticised his retweets of videos posted by a convicted British racist. The videos were presented as evidence of Muslim barbarity without verification or context. One of them involved an attack by a “Muslim migrant” on a Dutch youth. The Dutch embassy said via Twitter that the assailant was Dutch born and had been convicted and sentenced. Fortune
Around the Water Cooler
• What Is It About Talk Show Hosts?
Matt Lauer, the world’s highest-paid anchor and the face of NBC’s Today show for years, was fired after multiple allegations of sexual harassment emerged. Among other things, Lauer had had a button installed on his desk that allowed him to lock his office door without standing up, allowing him to make inappropriate advances in total security. How NBC’s facilities team waved that one through isn’t clear. After Fox’s Bill O’Reilly and CBS’s Charlie Rose also succumbed to similar allegations, a pattern seems to be emerging. Elsewhere, the sound of illusions being shattered reverberated across the Midwest, as Garrison Keillor, nobody’s idea of a swaggering, high-testosterone egomaniac, admitted being fired from Minnesota Public Radio for ‘inappropriate behavior.’ Keillor had defended Democratic Senator Al Franken in an op-ed for the Washington Post earlier this week. Fortune
• Musk’s Maglev Heads to Chicago
Elon Musk said on Tuesday his Boring Company will compete to fund, build and operate a high-speed Loop based on magnetic levitation to connect O’Hare Airport to downtown Chicago. Unlike his Hyperloop project, the proposal for Chicago would not involve drawing a vacuum inside the tubes through which the passenger-carrying pods travel. That will simplify the engineering and keep the cost down, which is just as well since Chicago Mayor Rahm Emmanuel said there’ll be no taxpayer funding for the project as he launched the tender yesterday. Fortune
• China Still Isn’t a Market Economy, U.S. Tells WTO
The U.S. has opposed China’s bid to be recognized as a ‘market economy’ at the World Trade Organization, a move aimed at keeping in place broad rights to impose anti-dumping duties on the country’s exports. The move came in a submission as a third-party in a case brought by China against the EU at the WTO. FT, metered access
• Google Faces Damages for iPhone Snooping in the U.K.
Google is facing billions of dollars in potential liabilities from a class action lawsuit in the U.K. on behalf of iPhone users. The lawsuit alleges that Google bypassed privacy settings on Apple’s phones and on its Safari browser in 2011 and 2012, in order to collect and monetize more user information. Fortune
Summaries by Geoffrey Smith; geoffrey.smith@fortune.com
@geoffreytsmith
