Funded in part by HSS.
TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Watching Washington. A plan to overhaul corporate taxes is gaining traction and one part of it designed to keep more businesses in the United States is both novel and increasingly controversial.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: New high. The NASDAQ is six for six so far this year, closing at a fresh record and the S&P 500 did something it hasn’t done in nine years.
MATHISEN: Drug and drug price crisis. As the opioid epidemic grows, so does the price of a life-saving overdose drug — the first part of our series tonight on NIGHTLY BUSINESS REPORT for Tuesday, January 10th.
HERERA: Good evening, everyone, and welcome.
The focus on Wall Street today was Washington. On Capitol Hill, the first confirmation hearings took place. There was also a Senate examination of Russia’s hacking activities. The future of healthcare was a big topic of conversation as was a controversial component of a Republican plan to revamp the corporate tax code.
We begin with Senator Jeff Sessions, Donald Trump’s nominee for attorney general. While most of the questioning at his confirmation hearing was focused on his civil rights record, his views on mergers, antitrust and regulations could shape the business environment in the years to come.
John Harwood reports from our nation’s capital.
JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: Thirty years ago, Jeff Sessions had his first trial by fire in the Senate confirmation process. His second got off to a more promising start today.
The Alabama senator moved to limit his vulnerabilities at a Senate Judiciary Committee hearing on his nomination to become Donald Trump’s attorney general. He repeated his opposition to the Roe v. Wade decision legalizing abortion but said he would uphold the right to legal abortion under current law. He said he supported President-elect Trump’s plan to limit immigration from countries with high rates of terrorism, but opposed a flat-out ban on Muslim immigration. And he said that accusations of racism that sank his nomination for a federal judgeship in 1986 are simply untrue.
SEN. JEFF SESSIONS (R-AL), ATTORNEY GENERAL NOMINEE: I was accused in 1986 of failing to protect the voting rights of African-Americans by presenting the Perry County case, the voter fraud case, and of condemning civil rights advocates and organizations, and even harboring amazingly sympathies for the KKK. These are damnably false charges.
HARWOOD: Of most importance to Wall Streeters, his views on issues such as antitrust oversight of corporate mergers. Sessions didn’t offer much detail but noted the importance of using government’s power carefully.
Now, even though they were scattered protests in the hearings, fellow senators seem mostly supported. But Jeff Sessions will face a new test tomorrow when hearings resume with testimony in opposition from Senator Cory Booker of New Jersey, an African American and a potential Democratic presidential candidate.
For NIGHTLY BUSINESS REPORT, I’m John Harwood in Washington.
MATHISEN: FBI Director James Comey testified for the first time since the presidential election. He said that Russian hackers breached some Republican groups but chose not to release much of the material it obtained. Mr. Comey also stated that his agency has no evidence that the Trump campaign was successfully hacked and declined to say if the FBI is investigating links between associates of the president-elect and Russia.
HERERA: When it comes to Obamacare, Donald Trump is urging Republicans to repeal it immediately. The president-elect told “The New York Times” that he wants a repeal vote next week and wants the replacement to follow a few weeks after.
But according to Reuters, Senate Republican Leader Mitch McConnell said Trump’s remarks on the Affordable Care Act are, quote, “not consistent” with lawmakers plans.
Separately, the government today said that eleven and a half million Americans purchase health insurance plans on the exchanges. This is this enrollment season and that is the most since that law was enacted.
MATHISEN: The World Bank says Donald Trump’s proposed tax cuts could increase U.S. and global growth. In its semi-annual flagship economic report the organization also warned that Mr. Trump’s threats to use tariffs could wipe out the potential gains from his promise tax cuts if those threats result in a trade war.
HERERA: House Speaker Ryan and members of the Trump team met last night to discuss a controversial plan to overhaul the corporate tax code. The proposal focuses on a border tax adjustment. And while it may sound dry, some say it could encourage companies to keep more of their operations here in the U.S.
Michelle Caruso-Cabrera explains.
MICHELLE CARUSO-CABRERA, NIGHTLY BUSINESS REPORT CORRESPONDENT: Currently, U.S. corporations pay taxes on their profits from all over the world at a rate of 35 percent. But the House GOP plan changes that very radically, what Paul Ryan and company would like to do is change it to this formula — domestic revenues minus domestic costs and then a tax rate of only 20 percent. That would change the system from a worldwide system to what they call a territorial system, similar what our trading partners do. That means only taxing what happens here in the United States.
It also encourages production here in the United States because the more you produce here, the more you can lower your tax base. And that’s why retailers don’t like it, because they wouldn’t be able to reduce their tax base by anything that they import and they import nearly everything.
Now, here’s what’s crucial — the economist who support this policy say that it would strengthen the dollar a lot, enormously, maybe twenty or twenty-five percent. So, ultimately, companies like Walmart and other retailers wouldn’t face that much of a change. It actually be able to buy a lot more stuff with their dollars and that would be an offset to the higher taxes that they’re paying. But a lot of CEOs are worried that the economist aren’t right.
For NIGHTLY BUSINESS REPORT, Michelle Caruso-Cabrera.
MATHISEN: So, could a border tax like that one work we have two guests with opposing views on the topic. Kyle Pomerleau is director of federal projects at the Tax Foundation, and he thinks it will. And Stan Veuger is a political economy and public finance scholar at the American Enterprise Institute, and says that current proposal could create chaos.
I can’t imagine more opposing than that.
Kyle, let me start with you. This is a very complicated system that’s being talked here. On the surface, it seems simple, but, boy, the devil is in the details. Why do you think this would work and what would it do?
KYLE POMERLEAU, TAX FOUNDATION DIR. FEDERAL PROJECTS: Yes. So, the border adjustment is actually just one piece of a broader tax reform that the GOP is putting forth. They want to use tax reform to grow the economy, so they’ve proposed cutting the corporate rate allowing companies to fully expense their investment, but in order to pay for this proposal, they want to broaden the tax base as the — as such they’re putting forth this border adjustment, which is going to tax imports but exclude exports when goods are sold overseas.
HERERA: Now, Stan, you say that this could cause chaos. I think you’re referring to the movement in the dollar which with Michelle mentioned certainly. But how would it cause chaos specifically?
STAN VEUGER, AMERICAN ENTERPRISE INSTITUTE SCHOLAR: Also, there’s two options here — either dollar doesn’t move and then we impose the massive tariffs on imports or dollar does move and then U.S. owners of foreign assets will suddenly see 20 percent of value of their assets dissipate, emerging economies that borrowing dollars will certainly see the value of their liabilities go up at 25 percent. Those massive wealth shifts I don’t think I’ve been thought through at all.
MATHISEN: Let’s talk a little bit about how this would work in certain situations. I guess if Walmart imports a shirt from China, Kyle, at $10 and sells it at $15, they would not be able to deduct that $10 cost of goods sold against the $15 of revenue. And I got that right?
POMERLEAU: Yes, that’s correct. That’s basically how they have set this plan up, that when you purchase a good or a service from overseas, under current law, you can deduct that cost, but under this proposal, it’s brought into the tax base as a tax — in his tax.
MATHISEN: So, all other things being the same, my taxable profit there would be $15 not, $15 minus $10. If the shirt were made in North Carolina out of, by North Carolina inputs, North Carolina workers, I would be able to deduct that $10 and pay tax on $5, right?
POMERLEAU: Yes, correct. So, it’s clear that importers are going to have to remit more tax but going back to one of the big issues here as economists expect the dollar to appreciate, this means that the burden of that tax will not actually fall on those importers. It will fall on owners of foreign capital as was discussed earlier.
HERERA: You know, Stan, we’ve focused mostly on industries that might be affected by this. But what about financial services firms that have international exposure or you know, has dollar exposure, you think that it really could hurt pension funds and the like?
VEUGER: Yes, that’s exactly right. And a lot of pension funds own significant foreign assets and they typically face liabilities only in the U.S., right, because they will eventually have to pay out pension. So, they’d be hammered.
There are also industries that are quasi-exporters. You can think of hospitality or even education or real estate that sell goods to foreigners when they’re in the U.S. So, they would face a much higher dollar and they would not benefit from the export subsidies that border adjustment or grants.
MATHISEN: So, now, Kyle, how does this work in the case of a BMW that’s made in Spartanburg, South Carolina, by American workers at an American factory of a company that is owned in Bavaria and uses inputs from all over the world, there may be some American components, there may be an entertainment system from Korea, there maybe steel from Germany and engine from Germany? Tell me about that.
POMERLEAU: Yes. So, supply chains are clearly very complicated and I think a lot of companies are going to have to look at how these are going to — it’s going to impact them and what they’re changing — the change in their tax remittances are going to be.
But, generally, if the dollar does appreciate, you expect that too across evenly and its end whether your import is from one country or another while the dollar strengthened against both of those currencies presumably.
MATHISEN: But, really, at the heart of the question here, Stan, is what makes an American product, right?
VEUGER: For sure, and — you know, the problem is that once you change that definition drastically —
VEUGER: — you’re going to have these massive effects and, you know, I don’t think that’s the kind of policy instability that we want to have.
MATHISEN: All right, gentleman.
I think we’ll be talking about this a lot more. We’ll have your back. Kyle Pomerleau with the Tax Foundation, Stan Veuger with the American Enterprise Institute.
And to read more — because you need to read more — about what border adjustment tax could mean, head to our website in NBR.com.
HERERA: All right. The number of job openings rose to a near-record. According to government data, there were more than five and a half million openings in November, up slightly from October. The rate of people quitting also increased, and that’s usually an indication that workers are confident that they can find another job quickly.
MATHISEN: On Wall Street, healthcare stocks help to lift the NASDAQ to a new record in the S&P 500, closed right where it began, flat, zero.
Here’s how the major indexes finished the day, the Dow Jones Average lost 31, back down below 19,900, at 19,855. NASDAQ rose 20 points. That is it’s six for six for the year — gosh — making it the longest win streak to start a year since 2006. And the S&P 500 was unchanged, zero The last time that happened, nine years ago.
HERERA: Still ahead, the challenges that startup spaces they try and disrupt one of the most traditional industries around financial services.
HERERA: Despite being in the crosshairs of the president-elect, General Motors issued a bullish profit forecast, countering concerns that the car industry peaked last year. GM’s board also increased its share buyback program by $5 billion and said the company plans to continue cutting cost. Shares of the automaker rose more than three-and-a-half percent.
MATHISEN: Volkswagen confirmed that it has negotiated more than $4 billion drafts settlement with us regulators. The deal would resolve its diesel emissions scandal. The automaker also plans to plead guilty to criminal misconduct. The total cost associated with the company’s diesel scandal now exceed the roughly $19 billion it set aside to handle the issue.
HERERA: Half of all global companies, half, could be disrupted in the next decade. That’s according to a new report from Citigroup and one industry that some startup think is right for changes is the financial services business.
But as Kayla Tausche reports from San Francisco, turning an industry inside-out isn’t easy.
KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT: At the inaugural Fintech Ideas Festival, C-suite elite from more than 200 companies from Wall Street to Silicon Valley convene in San Francisco, a hotbed of innovation, to discuss the rapid change coming to the way we bank.
TIM SLOAN, WELLS FARGO CEO: It’s about voice and biometrics, authentication, safety, security. We need to move away continue to move away from passwords so that your body becomes your password.
TAUSCHE: The way global payments are made.
GINNI ROMETTY, IBM CHAIRWOMAN & CEO: Block chain is so profound it will do for trusted transactions what the Internet did for information.
TAUSCHE: And even the way we spend our time.
JOHN ZIMMER, LYFT CO-FOUNDER & PRESIDENT: The average American I believe spends about 70 minutes per day in a car. And typically, you’re focused on driving and staring at the road and not being productive. And so, if we can give that time back to you, that has large implications on humanity on productivity as well.
TAUSCHE: While optimistic about future technologies, these leading minds in corporate America say the year ahead is wrought with its own challenges.
STEPHEN STEINOUR, HUNTINGTON: Well, there’s a lot of geo political unrest and as we’ve seen, there’s a lot of cyber activity. So, both of those could combine to create instability in the system.
KELLY KING, BB&T CEO: We simply have to get a better handle on the terrorism issue and on top of security. Those are threatening the very fiber of our standard of living.
KEVIN MANDIA, FIREEYE CEO: Wherever money goes kind of falls, end of the story. So, you’re going to see these sovereign nations, those folks that pack during the day, trained to do it, very good at it, may choose to have alternative lifestyles at night where they can make money doing other things. And right now, without repercussions, that’s a real problem.
TAUSCHE: Cybersecurity emerging as the leading concern both for the future and the present.
For NIGHTLY BUSINESS REPORT, I’m Kayla Tausche in San Francisco.
MATHISEN: Ascena slashes its yearly outlook after disappointing holiday sales and that is where we begin tonight’s “Market Focus”.
The owner of the clothing chains Ann Taylor and Dressbarn lowered its profit expectations for this year, saying it expects the weakness to continue. The company also sees earnings for the current quarter below estimates.
Shares of Ascena down almost ten percent to $5.41.
Walmart will reportedly eliminate more jobs this month. “The Wall Street Journal” says the retailer plans to cut hundreds of positions at its headquarters and reduce regional personnel who provides store support. Walmart shares off 48 cents. They closed at $68.23.
And shares of Illumina continued to rise today after the genomics company unveiled a new device yesterday that it says may be able to decode a human genome in the future for a fraction of the current cost. The company also released better than expected sales expectations for the quarter. Illumina up 16 percent at $165.04.
HERERA: Despite posting a rise in revenue last quarter, Chipotle couldn’t be analysts’ earnings expectations. The burrito chain said results were hit by higher avocado prices and increased spending on promotions. Still, investors were pleased to see same-store sales improve. So, Chipotle shares were up almost 5 percent to $414.48.
Yahoo said it would rename itself Altaba, once it’s deal to sell its core assets to Verizon is finalized. Altaba will make up what is left of the former Yahoo, including the company’s 15 percent stake in the Chinese e-commerce giant Alibaba. Yahoo also said, once the sale closes, the current CEO Marissa Mayer will be stepping down from the board. She will remain with Yahoo after it becomes part of Verizon. Yahoo shares rose about percent to $42.39.
And after the bell, Ford declared a first-quarter special dividend of 5 cents a share which will be paid out in conjunction with that automakers regular dividend of fifteen cents. The company also said that it expects strength in its core business will lead to improve profitability in 2018. Ford shares rose fractionally in after hours but ended the regular session up more than one-and-a-half percent to $12.85.
MATHISEN: Optimism among small business owners is intensifying, in fact small business confidence so its biggest monthly increase since 1980. According to the National Federation of Independent Business, small business owners are upbeat about potential policy changes out of Washington. Higher optimism in theory leads to increased business activity like capital investment.
HERERA: That confidence extends to corporate America, even in the recently troubled retail and restaurant sectors. Sara Eisen is at ICR’s annual retail conference in Orlando, Florida.
SARA EISEN, NIGHTLY BUSINESS REPORT CORRESPONDENT: CEOs from America’s top retailers and restaurants are optimistic following the election of Donald Trump as president. They’re hopeful that the jump in consumer confidence will translate into higher consumer spending, after what’s been a rough patch for the industry, especially restaurants. They’re also excited by the prospect of lower corporate taxes. America’s corporate tax rate, 35 percent. President-elect Trump has talked about lowering it to fifteen percent and Republicans in Congress are on board as well.
RUSS BENDEL, HABIT BURGER CEO: It helps consumers because they have more money in their pocket and you’re — if you have an extra twenty-five dollars in your pocket this week, you’re more likely to go out to a restaurant they go by refrigerator.
DENNY POST, RED ROBIN CEO: Just the challenge of being a multi-state, in our case, multi-country business, it’s such a challenge to just land it. So, simplification even if I would love to have savings but just simplification would help.
STEVE SATHER, EL POLLO LOCO CEO: We’re 56 percent franchise, so the more money you put in their pockets, the more they’re going to invest in new units and growth. And growth creates jobs.
EISEN: And while retail executives are also welcoming the prospect of lower corporate taxes, they are worried about one other tax reform plan being discussed and that is the border adjustment or border tax. That would impose tariffs on imports and what affect most American retailers that get their product source from overseas. It could end up driving prices higher for consumers and it’s something Lululemon CEO Laurent Potdevin says is too early to assess the implications for his business.
LAURENT POTDEVIN, LULULEMON CEO: I think you can’t look at that issue in isolation. I mean, it could have ramifications to our global pricing strategy. It could have ramifications to our sourcing strategy. And it will likely have ramification to the currencies of the countries in which were sourcing. So, I mean, I think we’ll cross that bridge when we knew (INAUDIBLE)
EISEN: Beyond the policy changes, executives here are still trying to figure out ways that consumer habits are changing and how to respond to that. Millennials for instance doing more of their buying online and on their phones, and executives are trying to figure out how that affects their purchasing decisions.
Wingstop for instance here today announcing the first-ever restaurant partnership, ordering takeout through Amazon’s Alexa.
For NIGHTLY BUSINESS REPORT, I’m Sara Eisen, Orlando.
MATHISEN: Coming up, why America’s opioid epidemic is putting the rising price of medicines under scrutiny, the first part of our series, “The Drug Price Crisis” is next.
MATHISEN: Johnson & Johnson will issue a report next month showing how much it has raised prices for its prescription drugs. The report will list the average increase for all of its medicine sold in the U.S. The company says about two-thirds of its sales growth comes from selling more drugs not because of higher prices.
HERERA: One of the biggest health issues the incoming president will have to tackle is the opioid epidemic. At a time when deaths from heroin overdoses have surpassed those of gun homicides, the price of the drug that can reverse an overdose is on the rise and that increase in cost squeezing our first responders.
Meg Tirrell has the first part of our series, “Drug Price Crisis”.
MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT: Firefighters in Farmington, New Mexico, carry four essential life-saving medicines — aspirin, albuterol, epinephrine and Naloxone.
BRANDON HEARD, FARMINGTON FIRE DEPT., CAPTAIN: These are the most important medications and the only medications that we carry here at Farmington Fire.
TIRRELL: Medicines that can mean the difference between life and death. And for some, their cost has been a problem. Farmington Fire is switching away from the EpiPen, planning to carry vials of epinephrine instead.
But for another medication, the least expensive option has still been on the rise. Naloxone for opioid overdose.
HEARD: It’s up to almost sixty dollars at us right now. In years past, our catalyst you know fifteen, twenty dollars a dose.
TIRRELL: The increase fits a pattern set by many older medicines in recent years, despite being on the market for decades with varying levels of competition, some generic medicines have risen in price often exponentially. Manufacturers cite increased costs, investment in research and market dynamics.
For Naloxone, these increases have coincided with the explosion in opioid overdose in the United States.
Last year, opioids, including prescription painkillers like OxyContin, as well as illegal drugs like heroin, killed more than 33,000 people in this country. Deaths from heroin overdose alone have now surpassed those from gun homicides.
DR. ERIC KETCHAM, EMERGENCY PHYSICIAN, SAN JUAN REGIONAL, MEDICAL CENTER: We deal with overdose issues on a daily basis.
TIRRELL: Originally introduced in 1971, Naloxone acts as an antidote to opioid overdose. One study found that from 1996 to 2014, it reversed more than 26,000 overdoses in communities, not including countless more and hospitals.
Like San Juan Regional in Farmington, where emergency physician Dr. Eric Ketcham —
UNIDENTIFIED MALE: Was that the tar heroin?
TIRRELL: — confronts the issue daily.
KETCHAM: Naloxone is an absolutely vital medication for us in emergency departments. It’s a vital medication to our EMS personnel.
TIRRELL: Increasingly, public health experts want Naloxone in the hands of as many people as possible, especially first responders who use it to save lives.
KEVIN BURNS, NARCOTICS ENFORCEMENT TASK FORCE: Naloxone would provide our officers that first response to those situations where we might have an opportunity to save a life, plain and simple.
TIRRELL: There are multiple forms of the drug on the market and each has its own cost story. Those stories are playing out across America, from communities like Farmington to big cities like Baltimore.
MARK FLETCHER, BALTIMORE FIRE DEPT., DEPUTY CHIEF: Naloxone has actually tripled in price for us we’re experiencing not only in price but also in call volume. So, we’re actually using more Narcan. It has greatly increased our budget.
TIRRELL: For first responders, that often means making hard choices.
HEARD: If our medications cost more, then that’s less money available for us to buy to upgrade bags for instance or to upgrade different things that we may choose to or want to.
TIRRELL: Or sometimes not being able to carry Naloxone at all.
BURNS: There’s just no way for any of the agencies to afford it right now. There’s no way for us to put in Naloxone in every vehicle based on its cost right now.
TIRRELL: It’s a struggle that puts budgets and lives in the balance.
For NIGHTLY BUSINESS REPORT, I’m Meg Tirrell.
HERERA: And to read more about Naloxone, head to our website for an in-depth report, NBR.com.
And that does it for NIGHTLY BUSINESS REPORT tonight. I’m Sue Herera. Thanks so much for watching.
MATHISEN: I’m Tyler Mathisen. Have a great evening, everybody, and we will see you right back here tomorrow night.
Nightly Business Report transcripts and video are available on-line post broadcast at http://nbr.com. The program is transcribed by CQRC Transcriptions, LLC. Updates may be posted at a later date. The views of our guests and commentators are their own and do not necessarily represent the views of Nightly Business Report, or CNBC, Inc. Information presented on Nightly Business Report is not and should not be considered as investment advice. (c) 2017 CNBC, Inc.