Tax Plan Puffery
DOW + 72 = 23,430
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It was a light volume session on Wall Street today. Stocks moved higher but closed well off session highs. This will be a holiday shortened week with the markets closed on Thursday and just a half session for stocks on Friday. We should all be thankful to take a few days away from the debate over the tax plan.
Sen. Susan Collins of Maine objects to the last-minute decision by Republican tax writers to include a repeal of Obamacare’s individual mandate — a critical source of revenue for the bill. Alaska Sen. Lisa Murkowski, another swing Republican, also has voiced objections to scotching the individual mandate. And Sen. Ron Johnson of Wisconsin wants more generous treatment for pass-through businesses.
Meanwhile, Sens. Bob Corker of Tennessee and Jeff Flake of Arizona, among others, have said the bill’s deficit impact could cost their support. If 3 Republican senators vote against a tax plan, it will not pass; that number might dip down to just 2 defectors depending on how the special election in Alabama swings. We don’t know if some of these senators have solid objections or if they are just negotiating.
This weekend, the White House indicated it might be willing to give in on repealing the individual mandate. But yanking the provision would exacerbate a problem troubling other potentially critical Republican votes in the Senate. It generates more than $300 billion in sorely needed revenue. Deficit hawks are working to wrench the bill in the other direction.
Corker, for one, has been categorical in declaring he’ll oppose a tax bill that adds “one penny” to the deficit. Late last week, he said he is working with like-minded colleagues to rein in the Senate version’s cost, now estimated at $1.4 trillion. In fact, the bill costs much more than that, thanks to expiring provisions for wage earners.
The White House budget director claims the bill will more than pay for itself through the economic growth it unleashes. But that’s just puffery. The administration so far has failed to produce an analysis justifying the claim. No independent study backs it up, either, and some paint a dire picture of the tax package’s impact on the nation’s fiscal health.
For example, even factoring in new economic growth from lower rates, the Penn-Wharton Budget Model found the measure would add up to $6.9 trillion to the debt by 2040.
Federal Reserve Chair Janet Yellen said she will step down from its Board of Governors once her successor, Jerome Powell, is sworn into the office. The announcement was expected, although Yellen could have stayed on as a governor even after stepping down as the chair, because her term as governor does not end until January 31, 2024.
Her decision to leave will give Trump an additional fourth spot to fill on the Fed’s seven-person Board of Governors in Washington, including for a vice chairman. This Wednesday, we’ll get the minutes of the last Fed FOMC meeting.
The Department of Justice will file a lawsuit today to block AT&T’s $85 billion acquisition of Time Warner. The No. 2 U.S. wireless carrier struck a deal in October 2016 to buy Time Warner, which also owns the premium channel HBO and movie studio Warner Bros, to compete with emerging technology companies by bundling video entertainment on its mobile service. The deal is opposed by an array of consumer groups and smaller television networks because it would give AT&T too much power over the content it would distribute to its wireless customers.
The legal challenge comes after AT&T rejected a demand by the Justice Department earlier this month to divest its DirecTV unit or Time Warner’s Turner Broadcasting – which contains news network CNN – to win antitrust approval. AT&T’s chief executive said then that he would defend the deal in court to win approval if necessary. Time Warner ended down 1.1 percent today.
Nebraska regulators today approved a Keystone XL oil pipeline route through the state, breathing new life into the long-delayed $8 billion project, although the chosen pathway is not the one preferred by the company that hopes to build it and could mean more time is needed to study the changes.
The Nebraska Public Service Commission’s vote also is likely to face court challenges and may even require another federal analysis of the route, if the project’s opponents get their way. Environmental activists, American Indian tribes and some landowners have fiercely opposed the project since it was proposed by TransCanada Corp in 2008. It would carry oil from Canada through Montana, South Dakota and Nebraska to meet the existing Keystone pipeline, where it could proceed as far as the U.S. Gulf Coast.
TransCanada has said that it would announce in late November or early December whether it planned to proceed with building the pipeline — which would carry an estimated 830,000 barrels of oil a day. Approval of the route gives TransCanada the ability to gain access to the land of holdout landowners through eminent domain proceedings.
North Korea is back on the list of state sponsors of terrorism, a designation that allows the United States to impose more sanctions. The designation came a week after Trump returned from a 12-day, five-nation trip to Asia in which he made containing North Korea’s nuclear ambitions a centerpiece of his discussions.
The Treasury Department will announce additional sanctions against North Korea on Tuesday. The designation will be largely symbolic, as North Korea is already heavily sanctioned by the United States. The United States has designated only three other countries – Iran, Sudan and Syria – as state sponsors of terrorism.
There is a possibility the move could backfire. North Korea could respond in several ways, including renewing missile or nuclear tests. The move also could undercut Trump’s efforts to solicit greater Chinese cooperation in pressuring North Korea to halt its nuclear and ballistic missile tests. In any case, it will do little to open the way for US dialogue with North Korea.
Chancellor Angela Merkel of Germany faced the greatest crisis of her career after negotiations to form a new government collapsed. The breakdown abruptly raised the prospect of new elections in Germany. Merkel said she was hopeful about forming a majority government. But if forced to choose, she would prefer to go through new elections rather than try to lead a minority government.
At a time when the European Union is facing a host of pressing problems, from Brexit negotiations with Britain, to the rise of right-wing populism, to separatism in Spain’s Catalonia region, the possibility of political instability in a normally reliable Germany prove disconcerting.
The potential for instability in Germany would be a major blow to the European Union. The political instability stems from the elections in Germany on Sept. 24, when Merkel’s Christian Democrats finished first. But their share of the overall vote dropped significantly, while the far-right Alternative for Germany scored a record vote, entering Parliament for the first time as the third-biggest grouping. Merkel was unable to form a coalition among the remaining parties.
Today’s emerging-market disaster comes courtesy of Chile. The nation had the world’s worst-performing stock market and major currency today due to some political turmoil. The prospect of a clear victory for billionaire Sebastian Pinera in next month’s run-off election evaporated following a poor performance in the first round on Sunday.
Many investors had taken for granted that Pinera would win the second round on Dec. 17, with the benchmark IPSA index rallying 39 percent this year through Friday in dollar terms on hopes the tax cuts he pledged would revive investment, growth and corporate profits. But that’s now in doubt, and the IPSA index retreated as much as 4.8 percent to 5,134.58 in Santiago on Monday, its biggest intraday loss since January 2012.
Chipmaker Marvell Technology Group said it would buy smaller rival Cavium for about $6 billion, as it seeks to expand its wireless connectivity business. In the last two years, the chip industry has witnessed a series of deals as companies try to gain market share in emerging areas such as automotive technologies and connectivity. The most recent is a bid by Wi-Fi chipmaker Broadcom for rival Qualcomm for $103 billion, in what could be one of the biggest technology deals ever.
The opioid crisis has ravaged some communities across the country. Of the estimated 50,000 Americans who died of drug overdoses in 2015, some 63% involved opioids. That same year, more than 33,000 Americans died of drug overdoses involving opioids. It’s estimated more than 54,000 people died from opioids in 2016.
According to a new report from The Council of Economic Advisers, an agency that is part of the Executive Office of the President, the economic cost of the opioid crisis in 2015 was $504 billion, much higher than previous estimates. One study from the Beth Israel Deaconess Medical Center in Boston found that the average cost of treating an opioid overdose victim in intensive care units jumped 58% between 2009 and 2015.
As the addiction persists, patients arrive in a worse condition and require longer stays. In 2015, average cost among 162 academic hospitals was $92,400 per patient in intensive care. The U.S. spent nearly $8 billion on criminal justice-related costs due to selling and consuming opioids, which was almost entirely a cost to state and local governments.
The cost in lost productivity is about $20 billion. Some seven in 10 employers have felt some effect of prescription drug usage among their employees. And fatal overdoses cost nearly $22 billion in health care and lost productivity costs.