JT TAYLOR: CAPITAL BRIEF - JT   Potomac banner 2

THAT WAS EASY...: The House and Senate are managing to keep up with their ambitious tax timeline. After waiting for months to bring the FY18 budget to the floor, the House budget resolution passed with the majority of Freedom Caucus members and moderates mostly on the same page and with an eye on the vehicle to tax reform. The Senate advanced their FY18 budget out of the Budget Committee with that same goal - reconciliation = tax reform. The two chambers will have to work out the differences between their bills in conference after the Senate votes on the floor in two weeks with conservatives reluctantly ceding the ground for the sake of progress - for now. The House bill requires $203 billion in deficit reduction over ten years from entitlement programs, while the Senate allows for $1.5 trillion added to the deficit from the Finance Committee. Both assume reconciliation will lead to tax reform creating economic expansion large enough to offset any debt.

A BITE OF APPLE: Some of the largest U.S. tech companies have been moving parts of their businesses overseas for years in order to keep profits in tax havens. European countries believed this would spur major investments in their economies. Now the EU is saying that allowing these major companies different rates than their competitors is illegal. They are also targeting Ireland who is said to have given corporate tax rates near zero to Apple. The EU is working on ways to retrieve the avoided taxes - $300 million from Amazon and $15 billion from Apple. The world of global tax rates is changing for these major companies who have avoided paying corporate taxes on large cash reserves, the same companies who might be given a tax holiday to repatriate said profits into the U.S. at a very low rate.

KORUS CHORUS: President Trump’s strategy of threatening to pull out of KORUS might have worked. South Korea is changing their tune on trade negotiations, coming to the table on the notion that reopening the deal could increase benefits for both countries. The South Korean government will begin engaging with their legislators and stakeholders to start the process of renegotiations. U.S. Trade Representative Robert Lighthizer is doing his part to fully engage with South Korea as they work on a deal to replace the one Trump blamed for swelling the U.S. trade deficit. While neither side has laid out their goals, they will be meeting again in coming weeks. Trump believes in unilateral trade deals that put the U.S. first and are tailored to meet the needs of select countries and has been attempting to dismantle multinational deals since his first days in office.

HOLD THE SALT: The controversial proposal to eliminate the SALT deduction is attracting more resistance - and lawmakers, mostly Republicans from blue states, who are fighting it believe they are winning. Those Republicans don’t believe the House Ways and Means Committee has the votes to include eliminating the SALT deduction in their tax plan. Leadership is still tasked with writing legislation that pays for the major tax cuts and is now being forced to look at different deductions as offsets. SALT rates are not off the table, they are a major tax expenditure that some Republican states are willing to lose. Top tax revenues and expenditures in the U.S.:


TROUBLE ON THE HORIZON?: While the House leadership is working to balance the factions of the Republican party - Senate Majority Leader Mitch McConnell (R-KY) has to now deal with a growing list of Republicans that will vote against party line out of principle. Senators Bob Corker (R-TN) and Lamar Alexander (R-TN) are joining the likes of Senators John McCain (R-AZ), Lisa Murkowski (R-AK), Susan Collins (R-ME), Ted Cruz (R-TX), and Rand Paul (R-KY). McConnell can still only afford two defectors and creating a tax package that assuages this many egos will be his toughest task yet. 

TRUMP TO DE-CERTIFY IRAN NUCLEAR DEAL NEXT WEEK: Our Senior Energy Analyst Joe McMonigle writes - the White House plans a speech on October 12th to announce the U.S. pulling out of the Iran deal - a catalyst for U.S. sanctions on one million barrels per day of Iranian crude. Read the full piece here.

EVENT: UPDATED AGENDA: DEPUTY ENERGY SECRETARY AND FORMER OPEC PRESIDENT HEADLINE OCTOBER 11 HEDGEYE ENERGY CONF (NYC): Our Senior Energy Analyst Joe McMonigle is hosting a Hedgeye energy conference in New York City. Topics include regulating pipelines, grid reliability and energy infrastructure in the Trump Administration - as well as an OPEC meeting preview. Get the event details here.

ATTACKING NET NEUTRALITY IN THE SUPREME COURT (CMCSA, CHTR, T, VZ, CTL, S, TMUS): Our Senior Telecom Analyst Paul Glenchur writes - a Supreme Court review of Obama era net neutrality rules could kill off common carrier broadband regulation even if Democrats win in 2020. Read the full piece here.

CALL REPLAY - DAVID HOPPE: NEXT STEPS FOR TAX REFORM: We held a call with David Hoppe, former chief of staff to Speaker of the House Paul Ryan and Macro Policy Analyst JT Taylor as they covered the road ahead for the Big Six’s tax reform plan. Dive into the details on the replay here.