Good morning. David here, filling in for Alan from Berlin.
According to The New York Times, the Trump administration is considering another tax cut that would mainly benefit the wealthy: a change to the capital gains tax system that would make inflation a factor when calculating liabilities. Treasury Secretary Steven Mnuchin is currently trying to figure out whether this could be achieved without congressional approval—a massively controversial idea that was rejected by the first Bush administration.
The thinking behind such a move is that it would stimulate the economy by encouraging people to sell off assets that they would otherwise hang onto because of the capital gains tax implications of a sale. But is that really necessary when many are already warning of an overheating economy?
Indexing capital gains for inflation would certainly please the wealthier part of President Trump’s base, as rich people would see almost all the benefits. According to analyses quoted in the Times piece, two-thirds of the benefits would go to the top 0.1%. How that would resonate with the poorer part of the president’s base remains to be seen. It would certainly be a risky political move that could play into the Democrats’ hands in the midterms.
The fact is that, while Trump’s last tax reform boosted corporate profits and helped to juice economic growth, its long-term effects have yet to fully manifest themselves. The reform adds to the government debt load by $1 trillion over the next decade, and there’s no real evidence yet that it’s stimulated the investment that it was supposed to. There were a few catchy bonuses at the start, but capital spending on equipment isn’t rising and wages remain stagnant.
Is now the time to follow up that reform with a second act that would be an even harder political sell, beyond a limited constituency? Any such decision should be very carefully weighed up, if the economy is not to be a political plaything.
More news below.
Trump and Iran
President Trump’s announcement that he would meet his Iranian counterpart, Hassan Rouhani, with no preconditions surprised everyone, including those within the Trump administration. Secretary of State Mike Pompeo (an Iran hawk if there ever was one) went on TV to list preconditions that would have to be met in order for such a summit to take place, such as Iran reducing its “malign behavior.” And Rouhani advisor Hamid Aboutalebi set out that country’s own preconditions, including the U.S.’s return to the nuclear deal. Guardian
Morgan Stanley reckons the tech stock tumble—which entered correction territory yesterday—is just the start of a broader stock market correction that will be worse than that experienced in February. The fall “could very well have a greater negative impact on the average portfolio if it’s centered on tech, consumer discretionary and small caps, as we expect,” wrote Morgan Stanley strategists in a Monday note. Bloomberg
Uber will focus its autonomous vehicle efforts solely on cars, rather than applying it to trucks as well, the company has announced. Its Uber Freight division will not be affected, it said. Uber began its self-driving trucks initiative in 2016, when it achieved the world’s first commercial shipment delivery (beer, in case you’re wondering) by autonomous truck. BBC
Samsung’s Galaxy S9 flagship smartphone missed its sales targets, contributing to the Korean firm’s slowest quarterly profit growth in over a year. The company is feeling the pressure from Chinese Android phone manufacturers that have already beaten it on price, and are now posing serious competition in terms of design and specifications. Samsung had better hope its push for bendy phone screens delivers better results. Reuters
Around the Water Cooler
CBS is retaining outside counsel to investigate the multiple sexual harassment allegations against CEO Les Moonves, who will keep his job for the moment. CBS’s shares fell more than 5% yesterday. The company has now delayed its annual shareholder meeting again. Bloomberg
A group of state attorneys general has sued to block the Trump administration’s settlement with the non-profit Defense Distributed. The settlement allows people to distribute the files needed for 3D-printing guns. The attorneys general want a temporary restraining order across the country. Fortune
BMW’s electric car ambitions are getting a boost with news of the company’s €1 billion ($1.17 billion) investment in a new factory in Hungary. The plant in Debrecen will be able to pump out 150,000 vehicles a year, of both electric and combustion-based varieties, mostly for the European market. Reuters
A new NASA-sponsored study shows it’s just a pipedream to make Mars habitable using current technology. Elon Musk has theorized about nuking the Martian poles (no, really) to release carbon dioxide and water vapor, creating a greenhouse effect that would warm up the Red Planet enough to keep water liquid and people alive. But it turns out Mars doesn’t have the proven CO2 levels needed to make the plan viable. Fortune