Job Creation Should Be Required for Corporate Tax Cuts, Macke Says

Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. Right now, we've got Justin Sink also out of our DC bureau, and Justin you're covering the president and you know, we've talked to us briefly about his planned trip to Puerto Rico. When he gets there, he's not is he gonna find any love? Well, I think that's a big question. Obviously,

the White House is depicted. Um, the response to the storm is more than adequate, they've said, you know, they think that, Uh, it's been a kind of unprecedented response in terms of military personnel and getting supplies down there. We've seen a lot of stories from the ground that suggests that and heard from the mayor of San Juan to suggest that there's a lot of frustration the things still aren't great there, that food and water aren't getting to people that need it. That power is still not

on and so uh we are. I think that's going to be the big question coming out of tomorrow is what kind of reception he receives um and how far he goes. It's possible that the president schedule just leaves him kind of on a military base where he's unlikely to face some of the criticism. But if he does decide to go out some of the more storm ravaged areas, it's a real question of how people are going to respond, you know. Justin I'm really struck by the normal playbook

that we normally have when there are tragedies. And this of course is relevant to the comments that we are waiting from President Trump imminently about the Las Vegas shooting. Normally, presidents come out and they say, oh, what a horrible catastrophe. We will do everything in our power to make things as better as we can for the surviving victims. Whether it's in Puerto Rico, we have, you know, doubling down all of our efforts. Our line is open, call us.

We want to hear from you. We want to figure out how to go go forward in a better and bigger way go you know, in the future. This is this is so out of the norm to basically try to attack people and spin the picture in the process. Am I wrong? No? I think I think you're right.

The presidents of both parties have really tried to play that consoler in chief role, you know, um, in the light of tragedy, whether it's President Bush going down to Katrina after We're going down to New Orleans after Katrina and Jack Parking and trying to harness that moment, even though obviously I think um it ended up being a

situation the damage is presidency. Uh. You mentioned Las Vegas, and I think some of the most memorable moments President Obama's term were has response him actually in events the church and Charleston being maybe at the top of that list. And Uh, it's not a role that that President Trump has really had to confront until the last couple of weeks,

and it's one where he seems a little uncomfortable. I think that this is um, somebody who is throughout his political career found um some of the most success in in rallying his core supporters and outraging UM some of his critics. And and that's an approach that is different from what many presidents have taken. At times where you might see them try to, I think, bring together a

national unity. And so it might be a reflection of Donald Trump, of a changing political climate, of different expectations among Americans. But it's going to be very interesting to see how he tried to navigate the speech coming up in a couple of minutes. But also, uh, is that it's Puerto Rico tomorrow. So justin just sticking Puerto Rico, I'm trying to get a sense of just how much of a humanitarian disaster it is and where the US troops and other first responders are in in uh, in

dealing with what's going on. I mean power has been restored to a lot of people, right, I mean are we out of the danger zone? I don't think we're quite out of the danger zone yet. And the reason that I say that is that, well, you know, there has been measurable progress throughout much of the island. There are still hospitals that aren't fully online. Um, there are still remote areas of Puerto Rico where we don't have great visibility into both what has already happened and the

current status. Uh. But things are getting better uh day to day. And so I think one of the big kind of outstanding questions is what is the extent of the damage since we don't have full communications, since we haven't been able to clear all the roads and get to everywhere. Um, you know, we have a sense of the major population centers starting to it into recovery mode, but I think especially in remote rural areas and areas

where communications continue to be a real issue. UM, we just don't have a size or or scope of of

what this sort of damage is yet. You know, justin I'm struck by the notion that there may be a connection between the damage that the commonwealth faces and economic decisions that were made years hence in the sense that you know, if you're not able to continually upgrade and strengthen and bolster your infrastructure and to take account of new information such as weather patterns and so on, Uh, then you're faced with what the what has happened in

Puerto Rico. Is there any way that in the rebuilding that takes place, it can be framed in such a way that it would actually lead to something positive for the future not only of the island itself, but of the way the economy works. Yeah, So I think there's two elements. This one is the sort of rebuilding of the infrastructure on the island, and something that Trump administration officials are really emphasized as they are sort of rebuilding the power grid, which is going to be a huge

undertaking UM. As they're rebuilding utility services like the sort of water and sewage systems, they're going to try to future proof those in a way that UM makes them less susceptible to the type of damage that we saw the after method that's hurricane. So that's going to be hopefully positive for the people of Puerto Rico as they

confront future tropical storms. UH. The second part of this is the trickier part, which is that there's still tens of billions of dollars of debt that hangs over the island's government and that's the problem that's only going to get worse as they try to grapple with UM an economy that's going to be as devastated as everything else

on the island. UM. So a big outstanding question is whether cong steps in and provides any sort of bailout to help the island UM get from under that you know, economic news that has really prevented them from doing the sort of maintenance and upgrades that that we've seen in other states. So far, we haven't seen a big movement

for that on Capitol Hill. But it's justin let let me just break in because it makes me think, is there a possibility that the Republicans would take this as an opportunity and therefore, because you know, one of the issues has always been if you were to in some way smooth the path for Puerto Rico to become part of to become a state, that would tilt the balance in the Senate, and uh, is this an opportunity for the Republicans to maybe gain if they seize the moment. Well,

it's it's tricky politics for sure. The statehood um issue is not something that we've seen a lot of traction on here in Washington, and I would be very surprised if that was now come. But it is going to be tricky to navigate, I think for politicians on both sides of this, because a lot of Puerto Ricans who are displaced by storm are going to end up moving to the Continental US where they can vote just like

any other American citizen and make their voices heard. But a lot of that it's likely to happen in Florida, where a big influx influx into a state that has historically been a swing state kind of fifty fifty Republican Democrat, uh could really be impacted by tens or hundreds of thousands of people moving there, and they if they are upset by the government's handling of of the storm, that

could really create um some political trouble for Republicans. Similarly, if Democrats aren't seen as responsive enough here or in some way holding up the relief effort, then you know,

can swing back the other way. But I think a lot of politicians are sort of attuned to the political consequences of what's happened, justin Do you have a sense of the response overwhelmingly in Puerto Rico, because we've seen some conflicting reports out the governor trying to make peace up between the mayor of San Juan and President Trump, others saying look, we have a ways to go, trying to saying kumba ya. Is that the mood among the residents or are they even following this because I know

internet has been down, yeah, exactly. So it's it's hard to get a real sense um of what sentiment on the island is both because uh, communications have been difficult, but also I think the primary concern for most of the people in Puerto Rico is can I get somewhere that the air conditioned. Can I get food and clean water and sort of the basic services that people need to to stay alive and live their lives. Can I

start rebuilding my business? So uh, it's not clear how engaged um the sort of everyday people of Puerto Rico are and this sort of back and forth spat that we saw over the weekend, But you know, the governor's comments are indicative of I think a politician who knows that massive federal aid is going to be needed and that is going to be distributed through the White House

in some way. And so even if I think the governor might be sensing frustration among um, the constituents in Puerto Rico or be a little uh starting to get agitated with the federal response, there is sort of a strategic advantage and keeping uh that sort of come by a spirit together because it's gonna be a long rebuilding process.

Justin is that is that a contrast to what would happen to a state versus being a commonwealth that you would go directly to the president rather than if you were a state and you had a coalition or a group of colleagues in the Senate in the House. Well, I mean, I think you bring up an important point, which is that, um, you know, one Florida or Texas

were hit by the massive hurricanes. They do have to sort of rely on the federal government for aide, but that they have both a state government that is more equipped to borrow money to help with recovery efforts that sort of thing, and they have a congressional delegation of at least you know, well two senators and at least one member of the House of Representatives that can be sort of forceful advocates for them in Washington, and whose colleagues have to interact with them and count on them

and need their votes for a whole range of things. Well, when we call upon Mark Gilbert are Bloomberg gad Fly columnists, we want to know one thing, what is the aftermath of the vote in Catalonia, the northeastern region of Spain, where the Spanish government from Madrid did just about everything they could think of in order to prevent the vote from taking place, What went on and what should we

take away? Everything went wrong? I mean, they've had three years of notice that that Catalonia was was was heading for an independence vote. They could have diffused it. They could have granted more independence. Economically to Catalonia, it's it's the country's richest region. It contributes about a fifth of the economic output. And yet Prime Minister Mariano RADIOI he's done just about everything wrong. And those those YouTube videos that we're seeing today of police using rubble bullets and

batons against the ordinary people who are voting. It's just terrible for for the country, you know. Just there was one image that really stuck out to me when I was looking at the videos and pictures of a woman, an elderly woman with gray hair, with blood coming down her face, after getting into an altercation with the police for voting allegedly illegally, because the Spanish government said that this was not illegal vote. I'm just wondering what's the

path ahead. And markets seem incredibly sanguine given the amount of turmoil now. Well even last week, the bookmakers odds were putting the chances of a vote in favor of independence between eighty and but that's largely because of turnout. So they're about five million eligible voters in Catalonian, of whom two point three million actually turned out, and of whom two million backed independence. So you've got about voting in favor of independence, but only on a turnout of

a bit more than forty. So the vote in terms of claiming to be the will of the people, that's tricky because a lot of those who oppose independence didn't turn out. They take the government's view that this is an illegitimate vote on the Spanish constitution um and surely didn't turn out there. But you know, it's never a good look on you, honestly, Mark, I mean in the US, honestly, turnout isn't usually all that much more than that, frankly

for elections, which shouldn't be necessarily a model. But it's pretty amazing that nearly half of the population voted in this illegal referendum, according to the Spanish government, and then the violence sort of sets up ongoing and escalating tension going forward. Now it does, but the turnout matters for something as momentous as seceding, And let's bear in mind Catle only has debts of about six billion euros. The Spanish country as a whole as debt of about one

point two trillion euros. So not only will catalonly have to take on a chunk of that debt, as I said, it accounts for about a fifth of economic output, so on on a competitive basis, it would end up with about a fifth of those debts. The European Union says it won't be part of the EU even if it man it's the succeed so it will be out there on a limb. It would make Brexit look like a walk in the park. And so the turnout really does matter for something as momentous as a readion of Spain

seceding from the country as a whole. And the problem is that the government has wanted the problem to go away. It kind of wish they would go away. Now it's on its doorstep. It's not really clear where roy can turn next. Our investors expressing their doubts by pulling money

from the stock market. I'm just looking at a chart of the I becks thirty five and if you go back to the beginning of May of of the year, you were looking at well, you know, a peak, right, so over eleven thousand but now we're down almost eight percent and it has been a steady decline. Is that an expression that investors are saying, look, I'm really not interested in adding more capital, so the prices are getting cheaper. The benchmark stock index is down about two percent today,

whereas the rest of Euros benchmark indexes are up. In the past month, the IBEX index is underperformed the stock six hundred, the benchmark for the Aurozone, by about four percent, so clearly it's having an effect. A couple of the Barcelona based banks are down about five percent or so today,

Kaiser Bank, Banco Sabadel. They're being hit the worriors that you can end up with a general strike in Catalonia um and I think that some of the secessionists are threatening to call a general strike in the idea is if if, if, if we're in favor independence, then forty percent not turn up for work, and again with the

reason contributing a fifth of Spanish economic output. You know there's a nascent economic recovery in Spain, unemployment down, but the last thing it needs as a general strike in this kind of this kind of strife going on, investors have have punished the bonds as well. A ten year yields up about time basis points, but it's down from where it was earlier this year, so there's not a

sense of panic. There's not really a sense of crisis, and investors have known this was coming for for for a couple of weeks now um, but there's definitely a feeling that this could turn nasty um and that Prime Minister Marini a ra high has got to do something. He's gonna have to offer some kind of olive branch otherwise you can end up with this general strike and that would be economically very damaging to the region and

to the country. Hey, Mark, when when do you think you're gonna start to get to those analysts reports to talk about how there's some value out there because these are, yes, there are social and political events. They turned violent. They make great headlines, and we feel for the people without,

you know, with physical injury and all that. But as an investor, you know your job is supposed to be able to find those things that other people have dropped or have neglected because they are swayed or they are manipulated by fear or or things that may not be a long term positive. What you've sensed that at all, And I'm sorry if you're taking so long, give you about ten seconds or so. Now, Well, the in the

broader market, the euros down as well today. Now that could be partly dullar strength, but it's definitely part of the sentiment. Look, we saw the German election with the populous DAFD winning some of the votes. That comes after Macrome won the French election. This is populism in Spain. It's a reminded. Look, we've got Italian elections coming up at some point. It's a reminder of the political landslape in Europe is not completely settled, even after Macrome won

the French presidency. It's a reminder of the risks. There is it a buying opportunity? Well, I mean, what is there Is there a particular company, let's say in Spain, because you know, just because it's in Spain doesn't mean it just has a Spanish market. I think for example of Iberdrola, And I mean you have very large companies that are financials. I was looking at earlier. We Banko San Sanderia is one of it's one of the biggest. You say, you know, maybe this is you know, people

that have been looking to get into equities. You know, if there was a catastrophe the United States, God forbid, then you know you look at the same kind of thing. Listen, the Eurozone economic revival is here, it is real. The p m I is the Purchasing Manager indexes have been rebounding for Europe all this year. European central banks about to take its photoph the accelerator, but it's not quite

there yet. European stocks have been have been performing well. Um, and this is this is a hic up, but it is a reminder that the political backdrop to the whole European Union project, Brexit notwithstanding, is still not set in stone, and there could still be my steps ahead. You know, I have to say I would take the other view. Frankly, PIM is that you're saying there could be buying opportunities,

but there isn't that much selling. And perhaps the reason why there isn't so much selling is because investors really are looking at this and saying it's just a hiccup. This has all been smoothed out in the past, even Brexit. Yes we've seen consequences, but it hasn't been that serious. Even the ten year treasure ten year yields in Spain.

It went up not tremendously. People don't seem that worried, and perhaps it's because it's never been paid off to to be too worried about some of these political events, right well. I think that this one is particularly pressing because of the implications for what it says about populism in Europe, which you know, investors thought was off the table with the election of Macron in France, which has come back with the German election a few weekends ago.

This reminds people that in Italy, which is the really sort of the the core of of of the problem of the Eurozone and its political issues, Italy still has a five Star movement which is doing well in the polls, which is still anti the euro and at some point they're going to be an election in Italy. I think that it's a reminder that that maybe the political backdrop you're investing against is not too settled as as it looked even a few weeks ago. Mark Gilbert, thank you

so much for your insights. Mark Gilbert is a Bloomberg gad Flight columnists covering asset management and debt markets. Talking about the Catalonia independence referendum and the ongoing turbulence that has that it has engendered. I want to bring in Chris Mackie now. He is the founder of Solution Nomics, based in New York, and it is a platform described as being dedicated to developing and disseminating return on investment based corporate tax policy. Chris Mackie, thank you very much

for being with us. A former contributed to the Federal Reserve Beije book. Uh your topic, and I want you to expand if you can, though, because tax reform is you know, it can lead you down a rabbit hole. But specifically, what is the the US administration trying to do with the relationship between US corporations, what they earned overseas, how much tax they should pay, and how to get as much of that money back to the United States as possible. Well, good morning, it's a pleasure to be

with you. What they are trying to do is, and this is their broader perspective in their entire proposal is they're trying to stimulate job growth and higher wages. And one of the theories is that if we lower the tax rate on the earnings from overseas, that will entice companies to use that cash to create more jobs in America. And well, I commend the Republicans for undertaking a reform of the tax code. That the problem is it's actually

not a reform, it's just more of the same. It's let's lower the tax rates more unconditionally, which means that whether or not those the foreign or in profits create jobs in America, the tax rates will go down. Now there's an alternative, which is to say, when companies increase American employment and when they increase American wages, then we'll have lower tax rates. And that's what we mean by an r o I based tax policy. But Chris, I

wonder how much of this is a rhetorical exercise. And so many companies pay a lower tax rate, they probably pay more in line with where the government would like to cut the taxes due to all of the deductions and other engineering that accountants do. So to me, I mean, is this just you know, you could say, you know what, what sounds better if you use it on a stump speech, but in reality, the plan is just to try to simplify things, uh, you know, to to get things into

a more kind of understandable level. Well, you bring up a very good point, because the effective tax right, the tax rate that companies have paid on average since two thousand has actually been nineteen and a half percent, So that's already below the statutory right. Now, the devils in the details and whether or not they eliminate all of the deductions that are currently out there that get companies

down to nineteen and a half percent. But regardless of what they do with the rate, if they don't tie each company's tax rate to each company's rate of job creation and wage level, it won't be real reform. It will be just a continuation of a hope based policy.

Well but hold on a second, Chris, because if you start to single out companies and start to evaluate what job creation means, what individual companies sort of contribution to the U. S. Economy is, this starts to look a little more subjective and could end up being uh, somewhat counter to sort of the spirit of capitalism. Now, oh no, absolutely not. It is the embodiment of capitalism. It is a merit based approach. I mean, you know, you know

we're talking about overseas profits. Well, that's you know, subjective, whether or not the profits were how much the profits were overseas or sys domestics. So the solution i'mics approaches. Look, rather than haggling over winnowing profits in the US versusan tax havens, let's actually focus on the job creation. Mean, look, these companies already know how many people they're hiring, how many people they're firing, they know the wages of their pain.

So we've already got the information. So it's just a matter of using that information in creating a merit based tax policy. You know, the Republicans talk about a postcard for the individual tax fair, Well, we're proposing a postcard. So you just have four metrics. You score each company

on those four metrics, and that determines their tax rate. Okay, so can we I just want to get a bigger sense here, because let's just get you know, scrub away some of the phography can and say, all right, let's just pretend for a minute that all the companies really want to do and all the government really wants to do is help them get the money that's now uh is sitting in accounts overseas back to the United States. What would be the most effective way to make that happen?

Because let's forget about time frames. What would what would they need to do to make that happen? Do you think? Well, first of all, the objective is not to get the money back to the United States. The objective is to get them to increase hiring and higher wages. So you could have two companies they could both bring the profits back. No, No No, I understand that. I understand that. But I'm just asking what would let's be you know, I want to be as a cynical as possible here. What what

what would be the way to get it back quickly? Oh? The way to get it back quickly is to say, look, the more jobs that you create in America and the higher wages you pay, we're going to lower your tax rate on those foreign earned profits you do. That will lower the rates. Chris Mackie, thank you so much for joining us. Chris mackey is a founder of Solution Omics, which is based in New York, and also a contributor to the Beige Book, so he has a good handle

on the US economy. Talking about what has been proposed with respect to the tax code and what Chris would like to see, which is uh, some kind of merit based tax rate based on how many jobs you create for the US. Here with us is Lily Kat's, a fintech reporter for Bloomberg News who wrote a couple of fascinating pieces in the past few days. First of all, I want to talk about overstock dot Com, which I think of when I was looking for bunk beds for my kids and I saw a lot of overstocked items

that they were selling. Um. I think of this as a sort of discount online retailer. I do not think of this as a cyber currency provider, and yet that is what's fueling it's returns right now. Can you can explain a little bit. Yeah, it's pretty interesting. You know, first Stock actually got into the cryptocurrency blockchain space back. They were one of the first, if not the first retailer to start letting people buy stuff online with cryptocurrencies.

And so they first started letting people use bitcoin to buy you know, that bunk bett you might want to purchase for your kid. Um. And they also inteen started this initiative to develop blockchain technology. They called it Medici

Ventures and Medici Uh. The main part of Medici is this other business called t zero, which I think includes as it includes a fintech company and two broker dealers and UM recently, the most recent exciting news that they've announced is that they're starting a cryptocurrency exchange to actually let people buy and sell different cryptocurrencies, so I they Other than that, they've also started letting people pay with

other cryptocurrencies aside from Bitcoin on their website. So yeah, it's pretty interesting to see a re tailor in in this space, right. You know, I'm not going to make you do the definition thing because it always goes over my head. Anyway. I want to know, though, if you said cryptocurrencies, take out the word crypto, do they need a license in order to be able to do this in the public venue. That is a great question, a very dimond question, and a question that a lot of

people have different answers to. You know, the sec recently came out with guidance saying, uh, you know, cryptocurrency, some cryptocurrencies might be securities if um, you know, if you're buying them and you're getting a return on them. Um. The CFTC has come out and said these things might be commodities. There are also lots of different licensees you can get within different states, so a lot of exchanges, for example, are regulated by state and maybe not by

federal regulators. So it's kind of like this big gray area. It's kind of it's still such a new area, and I don't think regulators have fully figured out how to regulate it yet. Well. And it's interesting because the Commodity of Futures UH Trading Commission just right now is looking at some odd trading on coin base that they're calling a flash crash in a cryptocurrency that you wrote about in a story on the Bloomberg today. I thought this

was fascinating. You have UH cryptocurrency flash crash and the specter of perhaps an unknown amount of leverage behind this transaction that might have spurred such a crash. Can you give us a sense of what happened here? And is this is this? Does this matter? I mean, is this enough money to matter at this point? Yeah, it's a lot to digest, but um on. So back in June, what happened was so there's this very popular cryptocurrency exchange

called coin base. It's where you know, most people go to buy and sell Bitcoin and the second largest cryptocurrency,

which is called ether UH. And on June one, there was this flash crash, and basically there was this big twelve point five million dollar cell order that came in, which was like one of the biggest ever on the exchange, and that the exchange kind of couldn't handle that much volume, and it caused the price of ether too plunge a bit, and then that triggered a lot of other cell orders to happen and so zooming out the price of Ether within like forty five milliseconds crash from you know, around

three to ten cents and then shot back up because of a twelve and a half million dollar or right yeah, And it's I mean in the greatest scheme of things

looking at the stock market, right like that. And the reason that then we all care so much about this is what because the hype around digital currencies and blockchain technology is so great that there's a proliferation of potential uses or well a lot of people, I mean people are putting a lot of money into this space, right Like, people lost a lot of money from that flash crash happening,

and the space is only getting bigger and bigger. In the last just this year alone, I think two billy in dollars has flowed into initial coin offerings, which are these new cryptocurrencies that are getting started. Um, but with

the flashcraft thing that I was just talking about. Um, the CFTC we just learned is looking into what happened here, and they've sent coin Base they Exchange a letter asking a bunch of questions about one like about that twelve point five million dollar trade, and to about margin trading, which is when you extend buyers and sellers leverage so they can you know, buy or sell more of an

asset than they'd otherwise be able to. Are these cryptocurrencies not very frequently traded or is it just that they usually treated in much smaller sizes the latter. Yeah, they are frequently traded, right, most people don't do twelve point five million dollar trade. Well, but but it's sort of surprising because if coin base wants to be the big player in this going forward, they have to have the technology to be able to manage this. No, this is

commonplace and almost any other market out there. Yeah, No, it's true. And they've they've been plagued by a lot of other issues, uh, in the last year. So they've had outages, they've had issues with the exchange being slow, which you know, prevented people from being able to buy and sell at certain points. And I mean, if you think about it, it's kind of like like the startup company that came into the space and maybe it didn't expect this crazy volume to start hitting the exchange. So

maybe they're not prepared for this much. That's heavy of a flow, you know. Thank you very much, Lily Cats, fintech reporter for Bloomberg News. You know, just a quick thing I want you, can you tell people your Twitter handled, because this is a topic that we need all the guidance we can get on and you're one of the best sources I can. It's a very simple Twitter handle. It's at Lily Cat's l A L y K A t Z. Anything else you recommend us should be read.

I mean we read everything you right here at Bloomberg. Read Read Bloomberg. We have good coverage of cryptocurrencies lately. Well done. Thanks very much, Lily Cat's fintech reporter for Bloomberg News. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. I'm pim Fox, I'm on Twitter at pim Fox. I'm on

Twitter at Lisa Abramo. It's one before the podcast. You can always catch us worldwide on Bloomberg Radio