Nightly Business Report – April 26, 2017

ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Sue
Herera.

(BEGIN VIDEO CLIP)

STEVEN MNUCHIN, TREASURY SECRETARY: Under the Trump plan, we will have a
massive tax cut for businesses and massive tax reform and simplification.

(END VIDEO CLIP)

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: What`s in it, what`s not? And
what might the president`s tax proposal mean for you, the taxpayer, and
investors.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: What the markets want.
Stocks have been rallying on the prospect of tax reform. So, why did they
barely budge today?

HERERA: Moving closer? Days before the deadline, is progress being made
to avert a government shutdown?

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Wednesday,
April 26th.

MATHISEN: Good evening, everyone, and welcome.

What a day it has been. Dramatic cuts and fast. That is what the White
House called for today.

The Trump administration this afternoon unveiled its tax outline, a
cornerstone of the president`s economic agenda. And at the center of the
blueprint is an overhaul to the individual tax system and a very sharp
reduction in the tax rates paid by businesses large and small.

(BEGIN VIDEO CLIP)

MNUCHIN: As the president said during the campaign, we will lower the
business rate to 15 percent. We will make it a territorial system. We
will have a one-time tax on overseas profits which will bring back
trillions of dollars that are offshore to be invested here in the United
States to purchase capital and to create jobs.

(END VIDEO CLIP)

MATHISEN: Here now, more details, such as we know them. For individuals,
the current seven tax brackets would be reduced to three, with a top tax
rate of 35 percent, down from the current 39.6 percent. The other
brackets: 25 percent and 10 percent.

The standard deduction would be doubled to $24,000 for joint filing
couples. The new plan would eliminate the federal deduction for state and
local taxes. This is a big one. And the corporate tax rate would drop to
15 percent from 35 percent.

U.S. companies would owe little or no tax on their future foreign profits.
That`s that territoriality Mnuchin was talking about.

And the tax rate on business income reported on individual returns would
drop to 15 percent.

John Harwood has been following the story for us all along from Washington.

Good to see you, John.

There are still a lot of details that we don`t know. But broadly speaking,
who wins, who loses under this proposal?

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: You`re right, Sue,
because a lot of details are absent, it`s hard to make comprehensive
calculations. But a couple of things we can say.

High income individuals are going to be big winners, because they`re going
to get a reduction in their rate from 39.6 to 35 percent, if this passes.
They`re going to get rid of the alternative minimum tax. They`re going to
have capital gains and dividend taxes lowered to 20 percent. They`re going
to get rid of the estate tax.

When you talk about losers, Tyler mentioned it a few minutes ago, that is
the loss of the state and local tax deduction, would hit hard for high tax,
high income states like California, New York, New Jersey. Those happen to
be disproportionately represented by Democrats.

MATHISEN: So what happens now, John? What has the reaction been on
Capitol Hill? Where do we go from here?

HARWOOD: Well, I think the reaction was a little underwhelmed, because
this broadly resembles the plan that Donald Trump unveiled during his
campaign. So, had this been markedly different, I think you would have had
the table turned over the tax discussion.

I think this allows the House Ways and Means Committee, which has been
preparing legislation which isn`t terribly different in most respects from
the Trump plan, they`re planning to do action on a somewhat slower
timetable they talked about earlier. Once they said, we`ll get it through
by August.

Now, they`re saying by the end of the year. And we`re waiting for the
House Ways and Means Committee to schedule those first hearings.

HERERA: Yes. So, what are some of the other obstacles, obviously getting
it all passed is one of them. But what are the others?

HARWOOD: Well, the big obstacles politically, Sue, are on the right,
you`re going to have big concerns about the impact on the debt and deficit.
The Committee for A Responsible Federal Budget came out with a back of the
envelope estimate this afternoon saying this plan over ten years would add
$5.5 trillion to deficits and debt. That is going to be a problem for
conservatives.

On the left, you`re already hearing reaction from the leadership by
Democrats in the House and Senate that this is a giveaway to rich people
and they`re going to resist it. And it`s also true that if you poll the
issue of lowering business taxes, that isn`t all that popular. Many of
those blue collar, working class Trump voters may be exposed to a lot of
messaging from Democrats who are going to say, hey, your president is going
to cut taxes for Wall Street and big business, not for you.

MATHISEN: All right, John. Thank you very much. John Harwood in
Washington.

All right. So, under President Trump`s proposed tax plan, if there are
changes to your taxes, which deductions would stay, which could go? And
how might it impact you?

Bill Smith is managing director at CBIZ (NYSE:CBZ) MHM National Tax Office
and he`s here to share his perspectives on this.

Bill, I guess obviously the big change in deductions here, what Mr. Mnuchin
said today, there are basically only two classes of deductions that stay
for individual filers, the mortgage tax deduction and for charities. All
others go away.

BILL SMITH, CBZ MHM NATIONAL TAX OFFICE: That`s absolutely right, Tyler.
Your mortgage interest deduction will stay and your charitable deductions
will stay. And everything else is gone. And that means some big
differences for a lot of filers.

HERERA: Such as? One of the things that kind of stuck out to me was the
medical expenses. On the other hand, there are some people where some of
that is covered by employers, maybe that`s not as significant as I think.

SMITH: I think it won`t be that big a significant change, because it`s
difficult to take advantage of a medical deduction because you only are
allowed a deduction for amounts in excess of 10 percent of your gross
income, your adjusted gross income. So, it`s difficult without some
relatively high medical expenses to get a benefit there. The really big
one, the biggest one by far, as was mentioned, the state income tax
deduction. So —

MATHISEN: Yes, and that hits, as John pointed out, people in high tax,
high income states like California, New York, New Jersey, where real estate
taxes are very high. You would have to expect that those congressional
delegations will put up a fight over it.

SMITH: I would certainly think so. If you lose your state income tax
deduction and your real property tax deduction, that makes up a very large
part of the typical schedule a where people itemize deductions.

HERERA: You know, what do you think about the aspect of economic growth
and paying for it? I mean, there are a lot of things in this plan that, as
John just mentioned, people are worried will balloon the deficit and it
will be difficult to pay for it. As you look at what`s staying, what`s
going, what do you think?

SMITH: Well, history would teach us that changes in tax policy don`t move
the economy that much. Of course, the Republicans and the president want
to adopt this “a rising tide raises all boats,” and this will be such a
boon to the economy that the plan will pay for itself. But if history is
any teacher, that`s going to be difficult to accomplish.

MATHISEN: What do I need to know about depositing money into an IRA or a
similar account or for the fact that I am paying for 401(k)s with pretax
income? And then, last but not least, what about those adjustments to
income like the effective deductibility of alimony payments for the payer?

SMITH: Well, alimony is an excellent question. That wasn`t addressed. We
did hear from Secretary Mnuchin today that retirement plan tax benefits
would be kept.

So, presumably the IRA deduction would be kept. Your 401(k)`s would be
safe. It`s not clear about alimony. So, we have to wait and see as they
flesh the plan out and give us a little more detail, who is going to get
hurt and who is going to get saved.

MATHISEN: All right, Bill. We`ll find out more in the coming days, I`m
sure. Bill Smith with CBIZ (NYSE:CBZ) MHM National Tax Office.

SMITH: Thanks, Tyler. Thanks, Sue.

HERERA: As we reported, the White House has proposed slashing not only
taxes for big companies but firms of all sizes.

Kate Rogers (NYSE:ROG) tell us why that`s a big deal for the nation`s small
business owners.

(BEGIN VIDEOTAPE)

KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: President Trump`s tax
proposal includes a key element for small businesses across the country —
parity with their corporate counterparts. The major tax cut the White
House is proposing of 15 percent would apply to both big corporations and
smaller businesses.

According to the Tax Foundation, the vast majority of businesses in America
are structured as pass-through entities, including sole proprietorship and
partnership. This means they file taxes at the individual rate, because
business and individual earnings are combined and can be taxed on the
highest end at 39.6 percent. Meanwhile, the corporate tax rate is 35
percent.

Small business advocates believe more business investment and creation may
follow if the plan is passed into law.

Entrepreneurs like Laurie Sprouse, owner of destination management company
Ultimate Ventures in Dallas, says the tax code puts her on an uneven
playing field with her corporate competitors.

LAURIE SPROUSE, ULTIMATE VENTURES PRESIDENT: So, we have competition
sometimes that aren`t small entities like we are. They`re getting taxed at
the corporate rate. And so for us, being taxed at the individual rate, I`m
married, and so my spouse may have a really good year. And so, we`re going
to get taxed at the higher rates even if we — even if I wouldn`t be there
on my own.

ROGERS: While tax reform is certainly welcome among small business owners,
not all are confident it will come to fruition. In fact, a recent survey
from the nonpartisan National Small Business Association found nearly one-
third of small business owners believe comprehensive tax reform will never
be enacted.

For NIGHTLY BUSINESS REPORT, I`m Kate Rogers (NYSE:ROG).

(END VIDEOTAPE)

HERERA: As you probably know, the stock market has been rallying on the
expectation of tax cuts. But today, the announcement failed to give stocks
a lift. The Dow Jones Industrial Average dropped 21 points to 20,975. The
NASDAQ fell fractionally. And the S&P 500 was off one.

MATHISEN: So, there was the initial reaction to the president`s tax
proposal. What is next?

Mark Lehmann is president of JMP Securities, joins us now to discuss.

Mark, I guess you could say it was a case of buy the rumors and sell the
news. You could say maybe the market was a little disappointed in what it
saw. But what do you think happens next with respect to the market`s
reaction to the Trump agenda and tax reform specifically?

MARK LEHMANN, JMP SECURITIES PRESIDENT: Yes, I think your assessment is
right, Tyler. I think the market was expecting something like this. I
think the rush to get it out before the magical hundred days on Saturday,
that happened, and this was very much in line with what we heard from
candidate Trump and now we see it under President Trump.

I think there`s a lot of devil in the details. Most people have been
relatively quiet on the Democratic side. I think there`s going to be a lot
of work ahead. The reason we haven`t had any tax reform of massive note in
30 years is because it`s really hard to do, and you`ve got a lot of
constituents who have got a lot invested here.

And I think there`s going to be — the reason the market didn`t react is,
this isn`t very much looking to me like health care, which is going to be
somewhat drawn out, there`s going to be a lot of compromise, and more will
be shown with the status quo than actual big legislation. I think we`re
going to see a lot more of the status quo with some tweaks as opposed to
massive legislation.

HERERA: So, you — it sounds as though you think the odds of it actually
passing intact as it is now are relatively low, is that a correct reading?

LEHMANN: I think that`s right. I think the odds of this much change and
this much — actually of a sea change in how we tax people and what those
important deductions that have been the bedrock of our tax policy changing
— just to me, change is glacial. And this is not a glacial change. This
is a huge change. And the odds of this becoming law like we just saw today
I think are quite remote.

MATHISEN: And we really can`t tell, Secretary Mnuchin said today basically
for individuals, the only deductions that survive are mortgage interest and
charitables, but he did not go into deductions specifically with respect to
business. And that`s were businesses have traditionally lowered their
taxes. For example, there`s been a lot of talk about immediate expensing
or the deduction of capital investment in equipment. That wasn`t mentioned
today.

So, we really don`t know how different businesses or sectors are going to
fare, do we?

LEHMANN: We don`t. What we have is some headline numbers that look very
attractive to people. When you see a 15 percent number for corporate tax,
that sounds attractive. But again, underneath, it covers a lot of
specifics we don`t know. I think there`s a lot of cash held overseas that
we`ve often talked about, repatriating that cash and taxing it one time,
that`s a well-versed way to raise some revenue, I think it`s quite likely.

But again, the devil is in the details. That`s why I think the market was
very, very quiet today. You had bonds rallying actually a little bit,
which I think is also interesting, it stuck at the 230 level. I think this
is going to be a long process and like you said, we thought this is going
to be August.

Now, we`re taking into the year. This is going to take a long time. It`s
April now. Let`s have a conversation at the end of the summer and see what
we`re at.

MATHISEN: In foggy San Francisco, Mark Lehmann, we appreciate it, with JMP
Securities.

LEHMANN: Thank you.

HERERA: Well, much of the attention today was on the White House`s tax
proposal. Some progress was also made on the funding bill that needs to be
passed by Friday or we risk the shutdown of the government.

Kayla Tausche is in Washington tonight.

Kayla, good to see you as always. So, where do the negotiations stand at
this point?

KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, Sue, lawmakers
are pursuing short and long term options. The long term option would be
that full spending bill that Republicans are still optimistic they can get
by the end of the week.

Congressman Tom Cole, who sits on the committee that will be tasked with
allocating or appropriating money in the bill said today he`s hopeful they
will still see a full spending bill. The short term option could be filed
as soon as tonight. That`s according to some reports. That could be a
one-week stopgap short term fix to keep the government open so it does not
shut down while some of these last-minute fixes are worked out.

The White House has been somewhat involved this week, particularly on two
matters. Earlier in the week, they backed away from a push to provide
funds for the controversial border wall, the president saying he would push
that until later this fall so this bill could go through. Today, White
House officials say they will at least in the interim make some payments to
insurers that will lower costs of Obamacare premiums. And that had been
hotly contested.

On that specific point, Senator Chuck Schumer said today, quote, “Like the
withdrawal of money for the wall, this decision brings us closer to a
bipartisan agreement to fund the government.”

So there is progress being made. There is optimism as there often is in
Washington. But the clock is running out.

HERERA: You know, Kayla, do you get the sense that it`s going to play out
the way it has in the past, where it`s right up to the last minute, which
has created an awful lot of market volatility? Or do you get the sense
that enough movement is taking place that we may not take it up right to
the bottom line?

TAUSCHE: Well, you never know, Sue. And last week, when I was doing some
reporting on what the options were, the idea of a one-week short term fix
had been floated. And certain Republicans were saying, well, we wouldn`t
do that until the very end, because that`s when you get the pressure.

HERERA: Right.

TAUSCHE: That`s when you get the last-minute changes in positions, really
when you get up to the deadline, and then you have some defections on these
bills. So, we`ll see. They do like it to go up to the very end. It was
expected that with Republican control at the White House and at Congress,
we wouldn`t get this close. But this is where they get some of that
pressure.

HERERA: All right. Kayla, thank you. Kayla Tausche in Washington.

MATHISEN: There are reports tonight that the president is considering
pulling out unilaterally of the North American Free Trade Agreement. As
first reported by “Politico”, the White House is considering drawing up an
executive order that could pull the U.S. out of the pack. The timing of
the order unclear right now.

On that report, though, the dollar advanced against the Mexican peso and
the Canadian loonie.

HERERA: Still ahead, the stock that suffered its biggest one-day decline
ever.

(MUSIC)

MATHISEN: These days, investors are basically focused on two things: taxes
and earnings. And today, three big blue chips, Boeing (NYSE:BA), United
Technologies (NYSE:UTX), and Procter & Gamble (NYSE:PG) reported their
quarterly profits, but with mixed results.

Dominic Chu has more.

(BEGIN VIDEOTAPE)

DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT: After two straight
days of big gains for the Dow Jones Industrial Average, stocks calmed down
a bit as three big Dow component companies reported earnings that were
generally mixed. One of the biggest upside performers in the index today,
you got industrial conglomerate United Technologies (NYSE:UTX) which makes
everything from Otis elevators, Carrier air conditioners and Pratt and
Whitney jet engines. It reported earnings and sales that top Wall Street
estimates, thanks in part to strength in European orders and signs of
momentum in the global economy.

Sticking with the industrial theme, shares of Boeing (NYSE:BA) were among
the biggest drags on the Dow today. The aerospace and defense giant
reported better than expected earnings, though sales fell short of analyst
expectations. That weakness was due in part to fewer deliveries of
commercial aircraft. But on a more positive note, Boeing (NYSE:BA) did
boost its full year profit projections.

The stock had been one of the Dow`s best performers so far in 2017, up by
around 17 percent. So, perhaps a pullback here is not a huge surprise.

And speaking of full backs, that`s what Procter & Gamble (NYSE:PG) stock
did today. The consumer products giant responsible for big brands like
Tide laundry detergent, Gillette razors and Pampers diapers also reported
mixed results with profits topping estimates alongside sales that narrowly
missed expectations.

Procter & Gamble (NYSE:PG) said geopolitical uncertainty around the world
could be affecting market growth and continues to see headwinds in key
markets.

JON MOELLER, PROCTER & GAMBLE CEO: It`s geopolitically volatile in this
country as well. Saudi is one of our top 15 markets. The prototypical
Saudi consumer has had their income cut by 20 percent while energy prices
that they pay have increased and are set to double again in July. So,
that`s an example of a very difficult market. And in those markets, as you
could expect, it impacts consumption.

CHU: When it comes to the Dow, traders will be carefully watching four
more components that will report this week. Tomorrow, we see results from
tech titans Microsoft (NASDAQ:MSFT) and Intel (NASDAQ:INTC). And on
Friday, we`ll have oil giants ExxonMobil (NYSE:XOM) and Chevron (NYSE:CVX).

For NIGHTLY BUSINESS REPORT, I`m Dominic Chu.

(END VIDEOTAPE)

MATHISEN: U.S. Steel has its biggest one-day drop since it went public
back in 1991. And that is where we begin tonight`s “Market Focus”.

Last night, the company surprised Wall Street with a large quarterly loss.
And the bad news didn`t end there. The steel maker said plans to improve
its mills would eat into profits, causing the company to cut its guidance
for the full year. And investors today punished shares. U.S. Steel
dropping nearly 27 percent to $22.78.

Twitter reported user growth that beat expectations, with the company
attributing the gains to improvements made on its basic platform. Twitter
also reported earnings sharply above estimates, but did note a drop in
revenue. Even so, that also came in ahead of street targets. Shares rose
nearly 8 percent on the session to $15.82.

Pepsi reported profit and sales that rose and beat estimates, thanks in
part to higher pricing and strong demand for the snack giant`s healthier
products. Despite the earnings beat, the company said quarterly results
would have been stronger if it wasn`t for one challenge the company
experience.

(BEGIN VIDEO CLIP)

HUGH JOHNSTON, PEPSICO VICE PRESIDENT& CFO: Tax refunds for certain payers
were delayed until February 15th. We saw it in our business in the first
six weeks of the year. As we exited March and now we`re about to exit
April, the business has really bounced back very strongly in the United
States. So, overall, I think the consumer is optimistic, but a bit
cautious in the United States. And that`s not a big change from where
we`ve been before. If anything, it`s probably slightly better.

(END VIDEO CLIP)

MATHISEN: Still, the company gave weak guidance for the year, and shares
fell 83 cents to $113.33.

HERERA: Anthem said higher premiums and a rise in enrollment helped it
post profit and revenue that topped estimates. The health insurer also
raised its full year adjusted earnings outlook and said it would consider
leaving state exchanges in 2018 if the government doesn`t continue paying
subsidies for lower income members. Shares rose more than 3 percent to
$179.03.

Fiat Chrysler reported earnings ahead of expectations as the automaker saw
strong demand for its Maserati brand and improving profits in its European
market. Overall, revenue also grew and the company confirmed its guidance
for the year. Fiat Chrysler shares popped 10 percent to $11.65.

And Northrop Grumman (NYSE:NOC) said an increase in F-35 fighter jet
deliveries helped that company post stronger than expected sales. The
defense contractor also posted profit ahead of estimates and said it was
raising its earnings guidance for 2017. The shares were off 7 cents to
$248.06.

MATHISEN: Coming up, why the FCC wants to rewrite the rules of the
Internet — again.

(MUSIC)

HERERA: ESPN is laying off 100 on-air personalities and writers. The
network, easily the biggest in sports broadcasting, has lost more than 10
million subscribers over the past several years, as the cost of
broadcasting rights for live events has continued to rise. This is the
second round of layoffs at ESPN in less than two years. ESPN is owned by
Disney (NYSE:DIS).

MATHISEN: Well, the rules governing the Internet could soon change. And
that could impact both the companies that make it run and users like you
and me.

Julia Boorstin explains.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: FCC Chairman Ajit
Pai taking the stage at the Newseum event in Washington, D.C. today to
outline his vision for the future of Internet regulation and to propose
rolling back Net Neutrality rules enacted under the Obama administration in
2015, particularly a regulation called Title 2 which regulates Internet
service providers as if they were utilities, which Pai says has stifled
growth and cost more than $5 billion in investment.

AJIT PAI, FCC CHAIRMAN: What we don`t want is heavy handed regulation that
stands in the way of building next generation networks.

BOORSTIN: The fundamental idea of Net Neutrality is that Internet
providers should be mandated to treat all traffic on their pipes easily.
And the Internet Association which represents more than 40 top Internet
companies including Google (NASDAQ:GOOG), Facebook (NASDAQ:FB) and Netflix
(NASDAQ:NFLX), says there`s no reason to change the current rules.

The organization`s CEO, Michael Beckerman, saying, quote, “Consumers pay
for access to the entire Internet, free from blocking, throttling or paid
prioritization.”

And consumer advocacy group Free Press says Pai`s proposed change would put
consumers at the mercy of phone and cable companies. Internet service
providers generally oppose the more stringent regulation of Title 2.
Comcast (NASDAQ:CMCSA) (NYSE:CCS) issuing a statement saying that it
supports the reversal of that part of the regulation, but that it also
supports a free and open Internet and does not block, throttle or
discriminate against lawful content.

Pai saying his proposal will ultimately benefit consumers.

PAI: If we want to give more consumers better, faster, cheaper Internet
and getting rid of these heavy-handed economic regulations inspired in the
Great Depression is the way to do it.

BOORSTIN: So, what`s next? Chairman Pai will put his proposal to review
those rules up for a vote on May 18th, the FCC`s next meeting. That will
set off a process of soliciting public comment. After four to six months,
incorporating that feedback, Pai would propose a final rule for a vote.

For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Los Angeles.

(END VIDEOTAPE)

HERERA: And that does it for NIGHTLY BUSINESS REPORT tonight. I`m Sue
Herera. Thanks for joining us.

MATHISEN: And thanks from me as well. I`m Tyler Mathisen. Y`all have a
great evening. We`ll see you back here tomorrow.

END

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