Not so fast on top corporate rateApril 8, 2021
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Not so fast on top corporate rate — It’s commonly believed that corporate America would be fine with a higher top corporate rate in any eventual infrastructure/tax deal. Even former NEC director Gary Cohn, who helped push through the 2017 cut to 21 percent, is on record saying the Trump administration went too low.
The conventional wisdom is business groups would accept a 25 percent rate rather than the White House’s proposed 28 percent. But none of this is entirely true. In interviews with MM, several corporate executives and tax experts who advise them repeatedly said that they’d only take a higher rate with deductions eliminated by the 2017 Trump tax bill restored.
Per one tax expert advising big companies on the Biden proposal: “There is one thing that possibly some of the CEOs don’t understand, and it seems like the administration doesn’t understand. And that is that there was significant revenue raised in the 2017 act to pay for some of the corporate rate reduction … So it’s not true that a 25 percent rate would somehow be neutral. And it’s not true that it doesn’t matter to a lot of people.”
Biden, for his part, smacked back pretty hard at corporate complaints about the tax hikes, saying: “I’m not trying to punish anybody. But damn it, maybe it’s because I come from a middle-class neighborhood, I’m sick and tired of ordinary people being fleeced.”
That did NOT sound like a president eager to back off his proposed tax hikes, even though he also spoke of compromise being “inevitable.” Trouble is, there’s not going to any tax hike compromise with Republicans. And the White House may have a problem using reconciliation again because …
… Manchin isn’t on board — In a WP op-ed, Sen. Joe Manchin (D-W.Va.) wrote that he doesn’t want to kill the legislative filibuster or do more big stuff through reconciliation: “There is no circumstance in which I will vote to eliminate or weaken the filibuster."
“We should all be alarmed at how the budget reconciliation process is being used by both parties to stifle debate … Legislating was never supposed to be easy. … I simply do not believe budget reconciliation should replace regular order in the Senate."
GOOD THURSDAY MORNING — Email me on [email protected] and follow me on Twitter @morningmoneyben. Email Aubree Eliza Weaver on [email protected] and follow her on Twitter @AubreeEWeaver.
EVEN RECONCILIATION ROUTE IS UNCLEAR — Not at all a lock that the White House can even use the 51-vote Senate route to push through the infrastructure bill via our Caitlin Emma: “Senate Democrats touted a wonky budget ruling this week as empowering them to muscle through more big-ticket bills without any Republican support. But not everyone fully understands it."
“Days later, congressional aides and budget experts — including some who have seen the actual ruling — are still confused about the decision from the Senate parliamentarian … Enough issues remain unresolved that it’s still not clear what the ruling means for … Biden’s $2 trillion-plus infrastructure and jobs agenda.”
BIDEN BUDGET ON FRIDAY! — Our Jennifer Scholtes: “Biden will send his first budget request to Congress on Friday … White House press secretary Jen Psaki told reporters … that it's ‘not accurate’ that the budget was delayed because of disputes among Democrats about whether Biden should seek static funding levels for the Pentagon.”
DEMS’ SECRET TAX WEAPON: CONFUSION — Our Brian Faler: “Democrats have a secret weapon in their bid to raise taxes: Much of it will seem incomprehensible. … Most members of Congress don’t understand the first thing about the international corporate tax system and won’t have the bandwidth to figure it out — which should make Democrats’ proposals easier to approve.”
TRUMP BACK IN THE FUNDRAISING GAME — Our Alex Isenstadt: “The screaming, all-caps texts and emails are returning. The red ‘Make America Great Again’ hats are back in stock."
“Former President Donald Trump is re-igniting his small-dollar fundraising operation for the first time since leaving the White House, part of his political ramp-up to stake out an outsize role in the 2022 midterm elections and expand his financial network ahead of a potential 2024 comeback bid.”
STOCKS CLOSE MIXED — AP’s Damian J. Troise and Alex Veiga: “Stocks closed mixed on Wall Street Wednesday, but gains for several Big Tech stocks nudged the S&P 500 to its second record high in three days."
“The benchmark index added 0.1 percent after a day of wobbling between gains and losses. The Dow Jones Industrial Average rose slightly and the Nasdaq fell slightly. Markets have been steadying in recent days as investors become cautiously optimistic about the economic recovery.”
INVESTORS BIG AND SMALL ARE DRIVING STOCK GAINS WITH BORROWED MONEY — WSJ’s Alexander Osipovich and David Benoit: “As of late February, investors had borrowed a record $814 billion against their portfolios, according to data from the Financial Industry Regulatory Authority, Wall Street’s self-regulatory arm."
“That was up 49 percent from one year earlier, the fastest annual increase since 2007, during the frothy period before the 2008 financial crisis. Before that, the last time investor borrowings had grown so rapidly was during the dot-com bubble in 1999.”
ROBINHOOD SEEKS MORE BANK CREDIT AHEAD OF PLANNED IPO — Bloomberg’s Matthew Monks and Michelle F. Davis: “Robinhood Markets Inc. is seeking to boost its bank loans ahead of an initial public offering, according to people familiar with the matter."
“The company, which pitches its trading platform to novice investors, has been holding talks with lenders about adding to its revolving credit lines, said the people, who asked to not be identified because the matter isn’t public. It isn’t clear how much the company is seeking.”
BIDEN’S TAX PLAN AIMS TO RAISE $2.5T, END PROFIT-SHIFTING — NYT’s Jim Tankersley and Alan Rappeport: “Large companies like Apple and Bristol Myers Squibb have long employed complicated maneuvers to reduce or eliminate their tax bills by shifting income on paper between countries. The strategy has enriched accountants and shareholders, while driving down corporate tax receipts for the federal government."
“President Biden sees ending that practice as central to his $2 trillion infrastructure package, pushing changes to the tax code that his administration says will ensure American companies are contributing tax dollars to help invest in the country’s roads, bridges, water pipes and other parts of his economic agenda.”
FED MINUTES SHOW EXPECTATIONS FOR STRONGER ECONOMIC RECOVERY — WSJ’s Paul Kiernan and Michael S. Derby: “Federal Reserve officials pointed to a brighter outlook for the economy at their most recent meeting while agreeing to provide continued support through ultralow interest rates and large monthly bond purchases.”
But the minutes also show that the U.S. is still far from the Fed’s goals and support is still needed — Reuters’ Howard Schneider: “Even as the U.S. economy gathered steam this year Federal Reserve officials remained cautious about the continuing risks of the pandemic and committed to pouring on monetary policy support until a rebound was more secure.”
MAJOR ECONOMIES SUPPORT $650B BOOST IN IMF RESOURCES — AP’s Martin Crutsinger: “Finance officials of the world’s major economies on Wednesday agreed on a proposal to boost the resources of the International Monetary Fund by $650 billion as a way to provide more support to vulnerable countries struggling to deal with a global pandemic."
"The Group of 20 major industrial countries issued a joint statement saying the increase in IMF resources would provide countries with greater resources to fight the pandemic.”
DIMON PREDICTS ECONOMIC BOOM THAT COULD ‘EASILY RUN INTO 2023’ — NYT’s Lauren Hirsch: “The annual letter to shareholders by JPMorgan Chase’s chief executive, Jamie Dimon, was published early Wednesday. The letter, which is widely read on Wall Street, is not just an overview of the bank’s business but also covers Mr. Dimon’s thoughts on everything from leadership lessons to public policy prescriptions."
“‘The U.S. economy will likely boom.' A combination of excess savings, deficit spending, vaccinations and ‘euphoria around the end of the pandemic,’ Mr. Dimon wrote, 'may create a boom that ‘could easily run into 2023.’ That could justify high stock valuations, but not the price of U.S. debt, given the ‘huge supply’ soon to hit the market.”
SEC OFFICIAL WARNS ON GROWTH OF BLANK-CHECK FIRMS — WSJ’s Dave Michaels: “A top securities regulator warned about the surge in fundraising by blank-check companies known as special-purpose acquisition companies."
“Speaking at a legal conference Wednesday, Securities and Exchange Commission official John Coates said there are ‘some significant and yet undiscovered issues’ with SPACs, which allow private companies to go public with a structure that offers outsize potential rewards to backers while bypassing some safeguards of a traditional initial public offering.”
ANALYSIS: CREDIT SUISSE IN SEARCH OF NEW MAP AFTER LOSING WAY WITH ARCHEGOS — Reuters’ Brenna Hughes Neghaiwi and Oliver Hirt: “Thomas Gottstein may have acted decisively enough this week to stay as Credit Suisse chief executive, but investors are likely to want more radical action after the bank’s $4.7 billion loss from the Archegos hedge fund scandal."
“Credit Suisse shares have dropped by 25 percent in the space of a month, with Switzerland’s second biggest bank reeling from its exposure to the collapse first of Greensill Capital and then Archegos Capital Management. This has left 57-year-old Swiss citizen Gottstein facing the daunting task of limiting the longer-term damage to the bank’s reputation and retaining both clients and staff.”
TRANSITIONS: MFA ADDS FORMER DCCC STAFFER — "The Managed Funds Association, which represents the hedge fund industry in Washington, has hired Ryan Hedgepeth as vice president for U.S. government affairs. Hedgepeth was most recently at the DCCC, where he served as deputy executive director for member engagement.”