by Greg Valliere, AGF Management Ltd.
A PUBLIC FLOGGING is likely tomorrow for America’s leading tech companies — Apple, Google, Amazon, and Facebook — whose CEOs will testify remotely before House members who unabashedly say they want to break up the industry.
TECH COMPANIES HAVE LOUD CRITICS on both sides of the aisle who believe tomorrow’s hearing will produce damaging evidence. We agree that “headline risk” for the industry has increased, but a break-up is unlikely. The real risk for the tech giants is higher taxes.
THESE FOUR COMPANIES, and others in the tech industry, have made millions of shareholders very wealthy. Like all enormously successful firms, they frequently suffer from self-inflicted wounds: privacy issues, squashing small competitors, paying little or no taxes, etc. These companies are difficult to love.
BUT THEY CONTRIBUTE LAVISHLY to political campaigns, and they have very effective and well-funded lobbyists in Washington who point out — correctly — that this is perhaps the most successful and innovative industry in American history.
IT’S DIFFICULT TO ENVISION these companies would be broken up; we think a more imminent threat to the industry is an aggressive new minimum tax that could be enacted within a year if Joe Biden wins the presidency; that’s the real threat,
not an antitrust assault that could take years to produce results.
AMAZON PAID NO TAXES — the firm got a $129 million rebate — in 2018, when it
reported $11 billion in profits. That’s the industry’s Achilles’ heel; the tech
companies — as well as Wall Street — may soon face a steep minimum tax from Democrats who need money to pay for their activist agenda.
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MORE BUDGET TALKS TODAY: Key Democrats and White House officials will resume their talks today on a budget deal. The good news is that initial negotiations didn’t break down last night, and to take an optimistic view they have only two major issues to resolve — the dollar amount of unemployment benefits and level of state and local government aid.
BUT THOSE TWO ISSUES are huge, and have divided both parties. Yet a compromise seems possible by early August — a cut in federal unemployment benefits to something like $300 weekly, falling from $600 now, on a sliding scale in the next few months — perhaps combined with a signing bonus for people who return to work.
AS FOR STATE AND LOCAL GOVERNMENTS, the GOP proposal would expand the availability of money already appropriated for other uses; that’s a start, but any final bill will have to include at least $400 billion for the reeling state and local governments, down from Nancy Pelosi’s demand for $1 trillion.
THESE TWO FIXES PROBABLY WOULD ADD $500 BILLION to the final price tag, bringing it up to about $1.5 trillion. That’s an unacceptable amount for GOP deficit hawks, which means Mitch McConnell — ironically — would have to beg at least a dozen Democrats to support the final measure. We’re still at 70-30 that there will be a deal enacted in August.
The views expressed in this blog are those of the author and do not necessarily represent the opinions of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies.
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This post was first published at the AGF Perspectives Blog.
