April 9 2021

Thought of the Week:

I was talking with a friend earlier this week. He is a small business owner in the residential home space. He is doing quite well right now as home prices are rising, and he leans to the conservative side of the political aisle. Our discussion turned to Georgia, Major League Baseball, and how big business has seemingly left the Republican Party. Some have called the growing tensions between corporate America and the Republican Party, which came to a head this week, as “business as unusual.” The truth is that the problems have long been bubbling below the surface as the country’s changing demographics have led companies to try to appeal to an ever more diverse set of stakeholders. You may remember that the National Republican Congressional Committee blasted the U.S. Chamber of Commerce for endorsing about two dozen House Democrats in the 2020 elections. Candidly, many Republicans acknowledged the endorsements were a sign that the Chamber needed to maintain a connection with what it expects to be the majority party going forward. Among the major policy priorities for large companies are looser immigration restrictions, and their need to sell products and services, and the truth is that big business is more aligned with Democrats than with the Trump-affiliated portion of the Republican Party on immigration. Although a wide-scale immigration bill is unlikely to make it through Congress, corporations can at least count on the Biden administration to utilize executive orders to undo the Trump administration’s immigration policies. Another major priority for business, of course, is selling their products, and Democrats’ economic power continues to increase. In short, it is becoming increasingly beneficial for big business to align itself with the Democratic Party.

Thought Leadership—from our Associations, Think Tanks, and Consultants:

Observatory Group: Watershed Moment for US-Japan Relations: Prime Minister Suga will be the first foreign leader to make an in-person visit to meet President Biden, on April 16, an honor previously reserved for the closest U.S. allies with a European heritage. Why is he first? It reflects the sense of geopolitical urgency the Biden administration feels toward the Indo-Pacific region. In the frontline of the new de facto Cold War with China, Japan is the single most important ally. In terms of big-picture game plans for Suga and Biden, expanding the role of the QUAD (the loose defense/economic cooperation of Australia, India, Japan, and the U.S.) along with the increasing military presence of core European countries (France, Germany and the UK) in the region, the U.S. and Japan want to establish a credible deterrence against China from continuing its destabilizing behavior, especially toward Taiwan. Although this loose cooperation will not turn into a real “anti-China alliance,” along the lines of NATO, if implemented convincingly, it could change China’s cost calculus for further egregious adventurism. One risk is that bolstering deterrence against China’s unilateral behavior could merely harden Beijing’s resolve.

Cap Alpha: Wall Street is Missing the Negative Impact of Biden’s Tax Policy: Domestic U.S. companies gave up a lot to get a revenue-neutral 21% corporate tax rate. When the rate goes up, they will miss having the deductions and credits they had in the past to mitigate the effect of a higher rate. The impact of President Biden’s tax increases will be greater and more negative than widely anticipated by investors. Street analysts ignored transitional effects, timing changes, and tax increases that were already built into the 2017 Tax Cuts and Jobs Act (TCJA) when they estimated the impact of Biden’s proposed plan on EPS in its first year. They also measured possible changes from unrepresentative base years. Tax increases already on the books from the TCJA begin in 2022.

NAM: New Study Analyzes the Economic Impact of Proposed Tax Increases: The new study, conducted by Rice University economists, finds that reversing course from the Tax Cuts and Jobs Act of 2017 by increasing corporate and individual rates, eliminating certain deductions, and expensing options and reinstating the corporate alternate minimum tax could slow economic activity, cost 1 million jobs in the first two years after implementation, and cause a loss of 600,000 jobs on average each year over the next decade. It would reduce GDP by hundreds of billions of dollars over the next decade, decrease capital investment, and lower wages and compensation in the long run. A summary of the study’s topline findings can be found here or the full analysis viewed here.

Cool Graphic:

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In Other Words (Quote): 

“Once you start to get a little older, beer just fills you up too much with all that carbonation. Too much bloat. So then, as a ‘young professional,’ I switched to Old Fashions. But if you’ve got a long night ahead of you, you usually find that drinking liquor for several hours is pretty much unsustainable.” — Former Speaker of the House John Boehner.

Did You Know:

Following renovations, Vice President Harris moved into the 33-room official vice presidential residence at Number One Observatory Circle on April 6. 

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