Good morning.
Stock markets around the world continue to celebrate the imminent passage of the tax bill, which is likely to be approved in the House today and in the Senate by mid-week. The bill cuts the corporate tax rate from 35% to 21% percent; trims the top individual rate from 39.6% to 37%; cuts the top tax rate on “pass through” entities from 39.6% to 29.6%; nearly doubles the standard deduction but offsets that by eliminating the personal exemption; expands child credits; trims the state and local tax deduction; and ends the penalty for not buying health insurance.
As a matter of substance, the bill brings needed change to the corporate tax system and provides tax relief over the next decade to most Americans. But it does that at a hefty cost—roughly a trillion dollars added to the budget deficit over the decade. And its benefits tilt toward those at the top of the income scale.
As a matter of politics, the National Review’s Jonah Goldberg correctly calls this the GOP’s Obamacare. Like the Affordable Care Act, it was passed on a purely party-line vote, via a truly ugly process, with little time for legislators to figure out what’s in it. Both were justified more by ideology than analysis, vilified by the opposing party as apocalyptic in consequences, and passed on the assumption that once implemented, they would be very hard to repeal and reverse.
What remains to be seen is if the tax bill will end up being a better bet for Republicans than the health care bill was for Democrats—who lost control of Congress largely as a result. The Democratic fundraising machine is already gearing up to return the favor. Whether the economy continues its growth streak through next year’s election could prove critical. Whether companies use any of their windfall to invest in the U.S., rather than simply fund dividends and share buybacks, could matter as well.
There are a number of reasons why comparisons of this bill to the 1986 tax reform act are faulty. But the most important one is this: the 1986 tax act was passed after a long legislative process by bipartisan majorities in both houses of Congress, and became the law of the land. This bill, like the Affordable Care Act, is destined to become a political football. It may have some beneficial economic effects, but it’s not any way to run a country.
News below.
| Alan Murray | |
| @alansmurray | |
| alan.murray@fortune.com |
Top News
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• The Future of Food
Today, we’re publishing Beth Kowitt’s latest jaw-dropper on the future of the food industry, which explains how biotech is using the fermentation process to synthesize gelatin and other animal products without actually needing input from animals. Yesterday, we also published online her feature from our latest magazine that tracks the development of Beyond Meat, a startup that specializes in plant-based burgers and sausages. In a world where concerns about animal welfare are rising, and methane emissions from livestock are expected by many to offset all of the CO2 saved from electrifying road transport, this is a megatrend in the making. Read, and savor. Fortune
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The Trump administration has publicly blamed North Korea for unleashing the so-called WannaCry cyber attack that crippled hospitals, banks and other companies across the globe earlier this year. Tom Bossert, homeland security adviser to President Trump, wrote in The Wall Street Journal that “North Korea has acted especially badly, largely unchecked, for more than a decade, and its malicious behavior is growing more egregious.” Fortune
Around the Water Cooler
• Longfin, Short Everything Else
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• Oh, No You Won’t! Oh, Yes We Will!
Few things in life are as suited to the low farce of British pantomime as the Brexit talks, and the two chief negotiators have been going at it with a will since a brief and fleeting moment of cordiality and goodwill at last week’s summit. After the U.K.’s Brexit Secretary David Davis effectively disavowed the deal struck over the financial settlement to be paid, the EU’s chief negotiator Michel Barnier told a handful of sympathetic newspapers that the U.K. could forget about a sweet deal on market access for the city of London’s banks. Lloyd Blankfein’s veiled threat to relocate thousands of Goldman employees away from London may get a few more airings yet. Fortune
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John Skipper has resigned as president of Walt Disney’s ESPN, citing a substance addiction problem. He’d run the unit for five years, a period in which its ratings have come under ever-greater pressure from disruption in the sector. He had earlier signed a contract extension that would have kept him in place through 2021. Fortune
• Wells Expands Mack’s Role
Wells Fargo knows a safe pair of hands when it sees one. At least, it does nowadays. It has expanded the role of Mary Mack, who took over the troubled community bank division from the disgraced Carrie Tolstedt. Mack, a 33-year veteran of the bank, will now also lead consumer lending. Fortune
[Summaries by Geoffrey Smith; geoffrey.smith@fortune.com
@geoffreytsmith
