New book on American dream suggests wage increases correlated with internet adoption

Good Morgan Stanley Chart (Vis Bloomberg) implicit support forAutor/Dorn/Katz/Patterson/Van Reenen’s conclusion that,".... While the prediction that rising market toughness could generate an increase in concentration and the profit share may seem counterintuitive, the ambiguous relationship between concentration, profit shares, and the stringency of competition often arises in industrial organization...".

Justina Lee and Luke Kawa, "Big Companies Have Never Dominated the S&P 500 Like They Do Now," Bloomberg, January 13, 2020, https://www.bloomberg.com/news/articles/2020-01-13/big-companies-have-never-dominated-the-s-p-500-like-they-do-now

“…As the S&P 500 Index once again tests its record high, the top five publicly-traded American companies now make up a record 18% share of the benchmark’s capitalization -- higher than the tech bubble, Morgan Stanley said on Monday. U.S. large-cap equities have jumped to near the highest in more than 10 years against small capsin the early days of this new decade. Companies that make the most money overseas are near the highest since April versus domestic peers, Goldman Sachs baskets show….”

Chart implicitly highlights tax difference btw domestic/international facing US businesses

Theo Francis, "U.S. Businesses Find Welcome Surprises in Tax Bill,"Wall Street Journal, December 19, 2017, https://www.wsj.com/articles/u-s-businesses-find-welcome-surprises-in-tax-bill-1513679402

That rule-writing process will offer industry opportunities to shape the final tax regime. “It’s not like now we’ve got a bill and it’s done,” Mr. Bradley said

Although the final bill is expected to pass the Senate and House with Republican support and reach President Donald Trump’s desk by the end of the year, lobbyists and corporate executives are unlikely to relax in 2018. By Mr. Bradley’s count, the bill includes some two dozen provisions requiring guidance from the Treasury and IRS.

Lawmakers trimmed the credit available under the Senate bill to drugmakers for developing “orphan” drugs, or medications affecting relatively few people, to 25% from 27.5%. The House bill would have eliminated the credit.

Life insurers no longer face an 8% surtax on taxable income, a provision included in the House bill.

Private-equity firms kept capital-gains treatment for “carried interest,” or their share of profits from portfolio investments, but only if the investment is held at least three years. Today, the treatment applies after a year.

The final legislation maintains a tax break for foreign income generated by patents or other intellectual property held in the U.S. But it drops a related tax break intended to encourage companies to transfer foreign-held intellectual property to the U.S.

Other notable changes:

One, dubbed the base-erosion and antiabuse tax, or BEAT, is triggered at large companies where at least 3% of their tax deductions stem from payments to foreign affiliates, down from a 4% threshold in the Senate bill. A House-bill provision disliked by many companies—a 20% excise tax on many transactions with foreign affiliates—was scrapped altogether.

Lobbyists and corporate tax executives are still working through changes to some of the bill’s most complex provisions, which attempt to limit efforts to shift corporate profits to low-tax foreign jurisdictions.

Lawmakers ultimately dropped another closely watched interest-deduction limit, which would have applied where a disproportionate amount of a company’s borrowing came in the U.S. The provision was designed to help prevent “earnings stripping,” or shifting profits to lower-tax jurisdictions.

That compromise could cause problems for some companies down the road, analysts say. Lawmakers could ultimately extend the more favorable calculation, but the provision as it stands creates uncertainty, said Height Securities LLC tax analyst Stefanie Miller. “Companies that are highly levered or companies that are not particularly financially stable, when this switches to EBIT it could be a problem,” she said.

The final bill uses the more generous House definition of income—for the first four years, then switches to the less generous Senate calculation in 2022. The difference isn’t trivial. The House provision was expected to raise $171 billion, barely half the $307 billion the Senate calculation would have yielded.

The final bill splits the difference between House and Senate proposals to limit the amount of business interest companies can deduct from their taxes each year. The Senate used a measure that roughly parallels earnings before interest and taxes, or EBIT, while the House also used a measure including depreciation and amortization, approximating Ebitda, for a higher income figure and therefore a more generous cap on the interest that would be deductible.

The one-time tax is meant to serve as a transition from the old “world-wide” system to a new “territorial” one in which foreign profits will generally not be taxed at all, with exceptions intended to discourage abuse of foreign tax havens. Its novelty and complexity is likely to foster further lobbying and potentially litigation.

Under existing tax law, companies have been taxed at the full 35% statutory corporate rate for foreign profits brought to the U.S., beyond what was paid to foreign tax authorities. Foreign profits indefinitely reinvested outside the U.S. went untaxed—leading S&P 500 companies to accumulate some $2.5 trillion in unremitted foreign earnings.

The final bill ratcheted up a one-time tax on accumulated foreign profits, or what is often called a repatriation tax. It is now 15.5% on liquid assets, such as cash and cash-equivalents, and 8% on illiquid assets, including factories and equipment, paid over eight years. That is up from 14% and 7% in the House bill, and well above the 8.75% and 3.5% originally proposed by Republican leaders.

“The level of gaming that would have occurred if you would have had a 35% rate in 2018 and a 21% rate in 2019, it would have been truly amazing,” said Steven Rosenthal, senior fellow at the nonpartisan Tax Policy Center think tank.

The rate takes effect on Jan. 1, a year sooner than proposed in the Senate bill. That promises firms an extra year of lower tax and avoids a delay that worried many tax experts.

Also welcome: the 21% corporate tax rate, despite being a percentage-point higher than either the House or Senate bill proposed. “That’s a home run, there’s no other way to look at it,” Mr. Bradley said.

Among the provisions that made business leaders happiest was one that went missing in the final bill: the corporate alternative minimum tax. Its survival in the Senate billprovoked widespread consternation, as business groups worried that it would undercut a variety of tax incentives, including one fostering research and development.

Late modifications to reconcile conflicting House and Senate provisions—and lobbying by companies and industries—resolved some key uncertainties in the legislation, and offered a few surprises as well.

“Overall, the business community is very pleased with the bill,” said Neil Bradley, chief policy officer at the U.S. Chamber of Commerce. “If someone would have said 11 months ago, by the end of the year we’d able to produce a bill and get it to the president’s desk that does these things, skepticism would have been sky high.”

The final tax bill offers much of what large companies hoped to gain from the Republican overhaul: the billboard corporate rate was knocked down, cuts were accelerated and key credits were preserved.

U.S. Businesses Find Welcome Surprises in Tax Bill

Karl Russell and Nelson Schwartz, "What’s Driving Job Growth in Industrial America?,"New York Times, September 1, 2017, https://www.nytimes.com/interactive/2017/09/01/business/economy/manufacturing-trump-jobs.html

What’s Driving Job Growth in Industrial America?

President Trump campaigned on reviving the kinds of jobs associated with the industrial age — work done in factories, coal mines and oil fields.

Mr. Trump has called for expanding drilling on federal lands, while loosening regulations to help manufacturers. And since he took office, hiring has indeed ticked upward in these sectors — but is there any connection?

After a tough 2016 that saw the loss of more than 100,000 jobs, employment in manufacturing and mining (which includes oil and gas drilling) is rebounding. Still, there is plenty of catching up to do — both sectors are well below peak employment levels in recent years.