About the selloff in treasuries. One of the underperformers in germany 50 basis points. We made it. David we will get a range of u. S. Economic data at 8 30 a. M. Eastern time, including core pce and Second Quarter gdp. The Kansas City Fed president at 9 45 this morning. Will speake chairman 15 minutes later at a conference in london. At 1 00 this afternoon, the u. S. Treasury will sell off 28 billion in 10 year notes. Emma President Donald Trump kicked up his campaign to cut tax rates for corporations and individuals, casting the proposal as an economic jolt for hiring across the country. The Corporate Tax rate at 20 . Framework, we will dramatically cut the business tax rates of that American Companies and American Workers can beat our foreign competitors and start winning again. Businesses would be allowed to immediately break up their Capital Spending for five years. European unions chief brexit negotiator says the pie minister speech in florence is causing a new dynamic in our negotiations and we have held it this week. Japans pie minister prime before it is year required by law. Elections will be held october 22. Global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. Im emma chandra. This is bloomberg. David lets have more on that lead story, President Trumps tax reform plan. E are joined by Michael Zezas two comprehensive notes on the plan welcome back, michael. I want to get to the details of this plan. What is the overall sense how likely is this . Michael we think its going to happen, but the timeline is more extended than what the republicans are telling you. The primary problem with the framework, it identified a lot of cuts but did not identify a lot of pay fors. The senate has agreed to accommodate about 1. 5 trillion in deficit. That means you will either moderate the price substantially or face a big interest battle that will see more time than we have in this calendar year. David one of the battles they appear willing to take on is the state and local tax deduction. That affects them across and republicans. How critical is that to making this whole plan work . Do they have to get that through . Michael they could just not do it at all and try to do a temporary tax cut. Thats less likely to happen. Youhink its more likely transform and do some type of tax credit or have some limitation, income phaseout for itemized deductions. This is a key battleground issue. Even though nationally it favors republican politics, there are 50 blue state republicans who represent districts that will be important. Alix the hot headline, 35 to 20 . We have to look at the effective tax rate. The expected tax rate for most companies is already kind of like between 20 and 25 . If youre atify tech company and you already have a 22 tax rate and you are going down to 20 . Michael i dont have a specific number to put to you there. This is a plan that skews in terms of benefits to smaller and domestic focused companies. I dont think its any surprise that you saw the russell 2000 outperform yesterday as a consequence. Multinationals are not taking on the same types of benefits paid thosem, utilities, industries are out performers in this. The multinationals are going to not going to do worse, but not as well. That. Ry is still out on the key provision people are pointing to is this extension of Capital Expenditures which reads exactly like extension of current plans around b ond appreciations. Only 50 of companies have taken advantage of that. Extending Current Conditions and knowing the history makes this a us a bit skeptical that this will unleash some type of capx. Mike mccormick joins us in new york as well. This one off levy on a community used to be ahere big discussion about what this would mean for the dollar. What does it ultimately mean . Michael people put their acronyms on the backseat theres not a lot of details about repatriation or whats going to happen within the Corporate Tax reforms. Markets have really forgotten about it. Now, the expectations around fed policy and fiscal stimulus and washington in general the dollar is coming from a very depressed level, markets have been short u. S. Dollar based on the proxies we have for positioning. Overall, the story is about changing the positioning, more about a pause in a major theme, ade withergence tr the rest of the world catching up to the United States. A cap xrepatriation story . These companies have been buying corporate debt. Denominated in dollars as well. Will it have any effect at all . Mark it will have a marginal effect. We are talking hundreds of billions of dollars over a , the kind ofiod flows you could coming on the fx side from repatriation are not that big. It does provide a cyclical tailwind. This is coming at the same time you are getting a recalibration of the fed and a change in sentiment on a shortterm basis, but this will not drive u. S. Dollar over a longerterm cycle. If you look at what could happen on tax reform, you could see a larger twin deficit, the budget balance increases a bit that is much more powerful, much more negative than the one of repatriation. Alix Companies Keep their corporaternings notes and bonds versus foreign city bonds. Havesue is that we companies that have a lot of money overseas like apple that have raised billions of dollars in the debt market. If they wanted to invest, they are going to invest. There. we agree the incentive structure is not change materially for a company like that. In terms of cheaper cost of capital and access to capital for those types of companies isnt changing given all of this. In terms of repatriation and where the benefits accrue in terms of capital come i, it tens to be in higher rate companies. Half of those repatriated on repatriated earnings are un repatriated earnings, half of them are in foreign d denominated investments. Definable, a clear, large cash flow coming at the another. Ne way or david growth comes from productivity and employment and wages. How will these tax reforms actually change how corporations invest in capital or employee employees as a practical matter . Mark i dont think it changes calculus too much. Maybe you improve the sentiment you get organic growth. The u. S. Is one of the Major Economies that doesnt have a major output gap. David doesnt this just inflate assets . The moneys going to the corporations and the shareholders, not going to productivity increases or employees. Mark thats one of the risks, one of the concerns we have looking at this from a dollar perspective. Basic expectations, maybe 10 basis points on the u. S. Economy next year. You dont have a lot of excess capacity you are feeling more support for an economy that doesnt need it. That doesnt do a lot to change the overall trajectory. You will have to have the fed offsetting what fiscal stimulus would be coming through and that is offsetting forces. Theres not much of an impetus that will drive u. S. Economy back to the levels that we saw a couple years ago. Decelerating whereas most art accelerating global economies are accelerating. You, michaelo see zezas. Mark mccormick is sticking with us. Revenue coming in stronger, earnings coming in stronger they see Software Service Revenue Growth of this year as up to 1015 for the full europe 2018. The full year of 2018. A solid quarter for blackberry. David coming up later, pat toomey of pennsylvania and ben cardin of maryland will be here to talk about tax reform and what we could expect from capitol hill. This is bloomberg. Alix the boston fed president echoed fed chair janet yellen by saying the central bank should raise rates at a regular and gradual rate. If we continue to push past what is sustainable, the risks of higher asset prices or inflation to increase do increase. It is advisable that we gradually remove Monetary Policy accommodation over the course of the next year and a half. Alix even jim bullard talked about equity valuations. 9 45, Esther George. 10 00, Stanley Fischer. 1 30, the atlanta fed president. Joining us now is Michael Mckee still with us, Michael Zezas of Td Bank Mark Mccormick of td bank. Michael they dont know how much its going to cost, what the final rates will be, they dont know how soon the cash gets into peoples hands. You dont know what the stimulus affect is. Janet yellen said it the other day and more than one senior fed official has said this today. We are below the feds definition of full employment. The potential for problems with the economy overheating from tax reform is very real. They may have to lean against it. Alix weve seen the market doesnt seem to want to listen to that. This shows the market expectation versus where the fed is. The green line is where the fed is. If we see a rerating of any kind from the market up to the feds expectation, what does that imply for yields and the dollar . Mark if we can get to the it changes the sentiment around u. S. Dollar on a 36month basis. What is the feds terminal rate, how quickly will they get there . The one thing i take away from the last couple of fed meetings, the fed has cut the view on the terminal rate the fed has reengaged and talk a lot about the models in the framework theyve used. Theres no explanation for why the terminal rate has been cut so much. If we get back to the dots, the dollar is cyclically undervalued right now. The Canadian Dollar should come off, the euro should come off a bit. Is somewhere between where the market is pricing and where the dots are pricing and its more likely or not that even if the fed goes in december, we are at 75 for that now. We get two more next year. Moving all about markets the curve you have momentum and technical drivers. For me, this is a big washout after the convergence divergence trade. You want to sell dollar rallies, particularly on the fed and the rest of the normalization of centralbank policy in the g10. Jon there you sense a nervousness from fed speakers at the moment . Nervousness about falling behind the curve and maybe they need to move regardless . Mark i dont think they are nervous. Michael they are looking at the data and saying we should see inflation start to pick up, but they see how low and slow inflation has been. They want to stay ahead of the curve but they dont think they are behind it yet. Jon Mark Mccormick will be sticking with us. 20 years of centralbank independence for the united kingdom. They are celebrating that today. This is bloomberg. Celebrating 20y years of Monetary Policy control. Carney weighing in on brexit. Circumscribed independence is highly effective in delivering both price and Financial Stability. It cannot deliver lasting prosperity and it cannot solve broader societal challenges. A host ofyears, issues have been laid at the doors of the bank of england from Housing Affordability to poor productivity. Jon joining us from london, adair turner. Turner. See you, lord the former npc Monetary Policy maker said the following today in his presentation. A greater likelihood of conflict between central bank it was nice while it lasted. Whats in store in terms of the future . Adair i dont necessarily agree with charles on that. What we may see at the whole Global Economy turns down again, we will have to consider even more radical policies than we did before. Both i and ben bernanke have out that younted should consider fiscal deficit you can make that completely compatible with centralbank independence. As long as it is the central bank which determines the maximum amount of such monetary finance, you still have independence. Independence is still worth defending. Lets see the big reason why people might challenge it. The Central Banks have been effective at achieving low and relatively stable inflation. We have a more resilient Financial System. If you step back and say the last 20 years, what has Economic Performance been like its been a disaster for the second 10 and there will be social pressures coming back, people saying this system isnt working for enough people to be sustainable. Jon it has come with inflation targeting. Has that made Financial Systems more stable . Self. Not in it the great fallacy before 2008 was the belief that it was enough to have one objective, low and stable inflation, pursued with one policy instrument, the Interest Rate. We achieved low and stable inflation and we still had an enormous financial crisis. Low and stable inflation is a good objective but it is not enough. Before 2008, we ignored the huge buildup in debt, private debt across the world. That is still not resolved. The debt has moved around from private to public sectors or from the advanced economies to china. It is still there. We can only keep this economy going with low Interest Rates but low Interest Rates that create their own problems. Yes, low and stable inflation is a good objective, but its not enough definition of the objectives of economic stability. In july, the bank of england executive director for Financial Stability said he saw a classic signs that lenders may be underestimating risk and they are dicing with a spiral of complacency. What do you have to say on those things . Adair what we know is that of caution by the Financial System, theres bound to be a regeneration of financial exuberance. Im sure alex is right that there are some problems developing, for instance the Consumer Debt in the u. K. The Global Financial system is much more resilient than it was before 2008 because of higher levels of Capital Requirement and liquidity requirement. The Crucial Point i will be making in the presentation i give this afternoon is despite that improvement in the Financial System itself, we are still seeing a relentless buildup of debt. If there is a downturn in the economy in a couple years time, the burden of that debt will have a major macroeconomic effect, even if we dont get a crisis like 2008 with banks going bankrupt. Jon from new york, this is bloomberg. Jon we are two hours away from the cash open in new york. Futures a bit softer following yesterdays gains. Down 18 on the dow permit negative two points on the s p 500. The selloff continues, yields continue to grind higher. Treasury yields up to 2. 34. Thatlds on a 10 year transatlantic. E Dollar Strength over the last week. One of the biggest weeks of Dollar Strength this year. So far, a bit of dollar weakness. The cable rate back up to 1. 34. Trump andident donald Congressional Republicans have unveiled the first major revamp of the nations tax code in a generation. The 6 trillion tax cuts would simple five brackets and double the standard adoption. Tax reform will protect low income and middle income households, not the wealthy or the wellconnected. They can call me all they want, not going to help. Im doing the right thing. Its not good for me, believe me. Emma the tax rate would fall to 20 for corporations. Almost all of the rico remains without power thats puerto rico remains without power. Bloomberg spoke with the cochairman about his plans to lend fresh cash to the storm damaged island. Theres immediate need for restoration of the electric grid. That requires an incredible amount of capital. What are Bondholder Group did was put forward a proposal for billions of dollars in new capital. Emma hugh hefner has died. He died at his home of Natural Causes last night. He ran playboy from his elaborate mansion in chicago. He was 91. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. Im emma chandra. This is bloomberg. David President Trump announced his tax plan yesterday but he also said he hasnt given up yet on health care. Here tolain explain, kevin cirilli. Kevin its tough to see who hes talking to push on Health Care Reform, when you look at the lawmakers in his own party who came out against it, they simply werent there. Its quite interesting to see the president continue to discuss health care. Now, all attention has turned to tax reform. David he said after the first year, he wants to revisit this. There is narrow path forward in terms of getting there to some type of reform on obamacare with centrist democrats and republicans. This is being pushed by the governors. That said, a lot of the special Interest Groups in washington really think that is a pipe dream. Should they address tax reform by the end of the year, that is just a couple of months away from the midterms, making it incredibly hard for republicans to pitch some Bipartisan Health care bill. That, we have to get over that hurdle of tax reform. Thank you so much for joining us today. Theres been a lot of talk in washington about Companies Competitive disadvantage because of the Corporate Tax rate, but not as much talk about how raising thats rising how rising costs Health Care Costs are affecting the companies. One chart shows the increase in Health Care Costs. The blue is how much the employer is bearing and the orange part is the individual. The employers increasingly have to pay a lot of Health Care Costs. Health care costs compared to Corporate Taxation. While weve been growing Health Care Costs up to 17 of gdp, Corporate Tax rates are hovering below 2 . Why arent we hearing more about the burden on companies . Thatosgrove the problem wasnt addressed by all the legislation coming from congress, the fact that the root cause of the problem is the rising cost of health care. There are a lot of things that can begin to affect the costs of health care. We have to deal with hospitals and providers being more efficient in reducing the costs of health care. We have a 10 increase in pharmaceuticals, 12,000 pages of regulations in the last two years. Have a lack of ability to consolidate. We do not have interoperability among electronic records. All those things can be addressed it is lately administratively or legislatively. We have a nation that is getting sicker all the time. We have an epidemic of smoking, a major cause of cancer of all types, it is preventable. We can tax cigarettes to the point where people wouldnt buy them. We have an epidemic of obesity. That accounts for 10 of the Health Care Costs in the United States. Third of the United States is obese and it is getting worse. We continue to subsidize sugar. Were going with a terrible epidemic of opiates, which we need to address. I dont think most people in the United States recognize the magnitude of the problem. This year, there will be 52,000 thats and United States deaths in the United States. This is going all the way to 90,000 over the next three years. Those things are costing us a lot of money and they are all getting worse. We will have a rising cost david you start out with pharmaceuticals. To what extent is the increase in Health Care Costs directly attributable to the increasing pharmaceutical prices . Dr. Cosgrove we certainly can import drugs. Ive never heard theres a problem with bringing drugs in from canada. We subsidize the development of drugs for the entire world. Cost 80,000 are egypt. For 800 in a heart valve in United States for 3000 is 300 in egypt. We are paying for the development of drugs and devices in the United States. You can begin to think about importing. Not sure anybody in congress is ready for that you can push things through the fda much faster. Last year, our pharmaceutical bill went up 19 at the Cleveland Clinic. It is exploding very fast. Alix a lot of what youre talking about is preventatives. What can we see change in obamacare that would address it . Helping toe we are introduce a bill into congress that would give small financial incentives to seek wellness. Annual wellness visits, maintaining their blood pressure, looking after their diabetes. If they accomplish those, there will be a small financial incentive to be that. That will reduce the total bill in the medicare population. We have to allow corporations to increasingly drive their employees to better health. The Cleveland Clinic of the last 10 years, weve taken our inflation rate from 7. 5 down to 2 last year. That is done by a series of things. Wellness, smoking, food, exercise, etc. Management for asthma, hypertension, diabetes and obesity and smoking. If people enter into that, we give them a reduction in their insurance and that has made a major difference in our costs. For sickness and 20 reduction for emergency room visits, admissions to the hospital. We have a healthier population, it costs less. David allowing more mergers of hospitals allowing big guys to get together and merge does not lower prices. Why should we trust the big hospitals to get together and charge less . Dr. Cosgrove right now, 62 of the Cleveland Clinics patients income comes from medicaid and medicare. We have little ability to negotiate with Insurance Companies right now to raise our rates at all. We are lucky to maintain what we are getting right now. The pressure is on the Insurance Companies. Thats little evidence youve seen prices go up where theres been consolidation. Dr. Tobyd to see you, cosgrove. Bloomberg surveillance can be can be heard across the u. S. On sirius xm. This is bloomberg. Emma this is bloomberg daybreak. Coming up later today, jim chanos. This is bloomberg. Bloomberg. Is we now know a great deal more about the president s tax plan, even if there are still some questions that have to be answered. What can get through the congress and make it to the president s desk . Mark short is the man charged with getting that done marc short is the man charged with getting that done. Take us through how the sausage is going to get made from here on out. We have republicans coming out saying they are behind us, they support it, but the devil is in the details and how you get this through congress and to the president. Marc thanks for the question. Right now, the way we look at it, this is a priority for the american people. The Obama Administration committee economy averaged a 1. 8 gdp growth. Thats the lowest for any president since herbert hoover. We need to bring jobs back. One is a focus on middleclass families. We hear that from republicans and democrats alike. Important its because the Corporate Tax code structure in america is so outdated that many jobs have been leaving our shores. The inversions have become so complicated, companies have decided to take their jobs overseas. We need to bring those jobs back. Job growth is an important part of our tax plan. E wwnt this to be a bipartisan plan. Weve met with over 200 commemorative congress of both parties to get their input. Thatimetable is one october will likely be focused on markets in the house and hearings. We hope to get a vote in the house in november. Hopefully a vote later in the senate i. David you talk about a bipartisan approach. Looking accomplishments a theres no way we are getting democrats we will have to do this in reconciliation. Are they wrong . Marc we think this plan will be better if we get democrats. We want to earn the support of democrats. Republicans have made promises to repeal obamacare for years. Ever since 2010 on the campaign trail and they couldnt do it on a partisan basis. We cant assume that we can get this passed with just republican votes. We need to earn the support of democrats. Heidiesident brought heitkamp to north dakota. We focused on missouri and montana. We will need to democrats support to get this across the finish line. Republicans feel and next or pressure at the moment because of their failures to repeal obamacare. Extra pressure at the moment because of their failures to repeal obamacare. David you need to pay for the proposal. By eliminating the debt deduction for state and local taxes. That could be a bipartisan sticking point. Youve got 52 republican congressman who come from districts that are over the rage in taking deductions how can you persuade those people that they wont hurt their own constituents . The president is theres to clean up will be a lot of special interests coming to washington to protect those. One in a quarter of those residents, when you raise the deduction, fewer will itemize. Those 510 will be the most wealthy. Why are residents in middle tax breaks . Idizing that is an important argument that our country needs to have. The residence in new york and california will be winners. David no question this is an important discussion for the country to be having. This will appeal to middle america. Im from michigan. Lets talk about new jersey specifically did we have a congressman, Leonard Lance in new jersey, in his district, they took 4. 9 billion for state and local taxes last year. How do you go to him and say this is in your best interest to vote for this . Marc its in the countrys best interest. We will make this far simpler for the vast majority of constituents in his district. Many of those itemized the dutch the duction will no longer be taken advantage of many of those itemized deductions will no longer be taken advantage of. Alix if i was going to be losing billions of dollars, i might not want to vote you back in office. Marc i dont think you will be losing billions of dollars. You will be saving significant dollars. The vast majority of residents will be saving dollars because of this. The corporations and Small Businesses will have their rates reduced from 35 to 20 . Alix what about carried interest . Marc the president has expressed his desire to eliminate carried interest. That is something that is worked through the negotiating process in the house and the senate. President s position is he looks to simple by the code and get rid of the special interests and special deductions. David give us a sense of a timetable. You said markup through october. What should our audience expect . When could we have something on the presidts desk . Marc before the end of the year, this calendar year. We expect october to be focused on hearings. We would expect a vote in the house in november. Hopefully a vote in the senate by the end of november. Because this is under budget reconciliation, you have to pass a budget first. You could see the house turned to that next week. David the majority leader said that yesterday. He wants to bring the budget up next week. Marc short, thank you for joining us today. Alix check out tv. Watch as online, interact with us. If you missed anything from this interview, go to tv on your terminal. This is bloomberg. Emma this is bloomberg daybreak. Things are heating up for the power unit, westinghouse electric. Blackstone group and Apollo Global management have teamed up to bid for it. Others are in talks about the joint bid. An Interest Rate increase should be considered good news for the u. K. Rather than a source of fear. The majority policymakers believed the economy is nearing the point where a reduction and some stimulus might be warranted. It will be the first in more than a decade. U. K. Consumer confidence rose to its highest level in six months. Still, it remains below prereferendum levels. Consumer spending is starting to recover after being held back by inflation in the wake of the brexit vote. That is your Bloomberg Business flash. Alix pier 1 getting hit now, down by 10 in premarket. It cut its annual forecast by 12 . It saw Second Quarter margins dropping. It had to cut prices to compete. The online home goods retail store, wayfarer, saw shares double this year. Pure one has to discount they are really struggling. 20 to income sales up or down 2018 comp they see sales up or down just 1 . 26 , beatales rose estimates, Record Software sales for blackberry. The ceo sees the majority of growth coming in the back half of the year. The security of their new software is very primetime for him there. Mcdonalds, my favorite upgrade ive ever heard of. Getting an upgrade at longboat thats one of the main reasons, mcdonalds is seen as a beneficiary of legalized pot. I love that upgrade. Also good for taco bell, by the way. 40 of Legal Marijuana users eight at mcdonalds in the last four weeks. 48 of Legal Marijuana users ate at mcdonalds in the last four weeks. The new mcdonalds deserves higher than historical multiple rap in the legalized pot, you get an upgrade. Jon an improving u. S. Trend. I dont know what you think about that david i could see a whole new ad campaign. Jon i cannot. Up next, greg davis. One hour 34 minutes away from the open in new york. Features a little softer, down. 1 on the dow and s p 500 futures a little softer, down. 1 on the dow and s p 500. Is this a phone . Or a little internet machine . It makes you wonder shouldnt we get our phones and internet from the same company . Thats why Xfinity Mobile comes with your internet. You get up to 5 lines of talk and text at no extra cost. So all you pay for is data. See how much you can save. Choose by the gig or unlimited. Xfinity mobile. A new kind of network designed to save you money. Call, visit, or go to xfinitymobile. Com. Jonathan the bond market flies amid growing optimism over the health of the u. S. Economy and the president s tax cut plan. The scourge of regrowth involves a big rate reduction. Companies would pay 20 down from 35 three of trump calls it a revolutionary rechange that. From new york, good morning. This is bloomberg daybreak. As we get you set up for the market day, futures are a little softer. Down for points on the s p 500. For technicals, analysts treasury yields through a 200 Day Moving Average up three basis points. The global bond selloff continues. We reverse some of the recent dollar gains. , 1. 1772. Ar 85 basis points is the difference between your yield. Dollar flat, gold flat. German tenure owned yield, 50 basis points. Isnt that some kind of record . Highest in a month and a half . David i will talk about it if you want to. About a half hour from now we will get a range of u. S. Economic data that will include pce, initial jobless claims and the third reading of secondquarter gdp. Kansas city fed president Esther George at 9 45 this morning. Fed vice chairman Stanley Fischer will speak 15 minutes after that at a conference in london and at 1 00 this afternoon, the u. S. Treasury notes. Ll emma President Donald Trump kicks off his campaign to cut tax rates for corporations and casting the it proposal of an economic jolt that will boost hiring across the country. The plan would reduce the Corporate Tax rate down from the current maximum of 35 to 20 . We will cut the business tax rate so that American Companies and American Workers can beat our foreign competitors and start winning again. Emma businesses will be allowed to write off Capital Spending. Mark carney says the banks independence has given it tools to deal with brexit. That does not make it an all powerful institution. Carney made comments at a conference in london. Foresa may slammed boeing its role in the u. S. Governments decision to impose a 220 tariff. She says it could threaten thousands of jobs in northern ireland. Boeing alleged bombard ea allowing itst to sell planes to delta for less than the cost of production. Global news 24 hours a day, powered by more than 2700 journalists and analysts in over than 120 countries. In more than 120 countries. Jonathan Republican Leaders unveiled their tax reform plan yesterday. U. S. Stocks ride higher into the clothes. Incredible. Een the greenback poised for its biggest weekly gain since november of 2016 are you joining vanguard cio. Is, great to catch up with you. Lift the lid on your business for a moment. You can look down on amounts of flow, financial markets, money going into various asset classes. Give me a peek at what is happening at the moment. Strong flowsed this year. 250 billion of cash flow across our complex. Going into our mutual fund as well as into our etf product. Flows are running ahead of our pace where we had record cash flow last year. A strong year for us. Jonathan what we have seen is enthusiasm at the beginning of the year around things like tax reform and cuts, then it died halfway through the year, now it feels like it is coming back with a vengeance. You see it in small caps. Is that what we are going to see the start of the year play out . Greg when you see this positive optimism in the marketplace, we saw the news earlier this week, now we have to wait and see does this legislation actually pass. We have seen fits and starts throughout the last 12 months or so. We need to see whether or not this goes all the way through and we get reforms being talked about. Our view is, tax reform, we view that positively. Reducing Corporate Tax rates, simplifying and reducing individual tax rates. We view that as positive in terms of Economic Growth. The key and the details will be important because you need to do all of these things in a fiscally responsible way. Details are going to matter. Jonathan the market is not waiting for the details. Lets begin with that one off. Evy on foreign earnings earnings accumulated. Whether these companies repatriate that cash in a significant way, wheres it going to benefit . Greg youll see that in terms of rise in the dollar. It is also going to allow folks to reinvest in busess in the United States which should help with job creation. Shortterm positive if the proposal gets past. Still a lot of work that needs to be done. Tremendous amount of uncertainty whether it will go through. Alix the chart we are showing is where companies have foreign earnings invested. A lot of it is in u. S. Treasuries. What we have also seen as a lot of Companies Like apple or microsoft going to the bond market, not waiting for repatriation to raise cash and put it to work. What does it mean for the corporate debt market . Greg when you figure out the corporate debt market, given the and mark when you think about the corporate debt market, there is still a strong appetite for high quality corporate debt. As a result, we dont think that is going to change. Alix my point is if they can get cash from overseas to use in the u. S. They might not need to go to the debt market is much in order to raise that cash. Greg that is very possible. There might be less issuance. When you can borrow attractive rates you are not sure how long that will persist. A lot of treasurers are trying yields thatntage of are attractive from issuance standpoint. David we dont know whether tax reform will go forward, but lets assume it does. I want to draw a distinction between what it does to the economy as opposed to what it does for investors. Companies have more aftertax dollars. That will be good for investors. You said it would lead to job creation to read why you say it would lead to job creation . Companies have a lot of cash on the Balance Sheet, they can borrow money. If they wanted to hire people or raisewas, they would do it now. Greg the way i would answer that would be around the fact that if you have Stronger Economic growth you will see business continue to produce more goods and services in the economy and demand more labor to be able to do that. The big driver is not about the cash and being able to do it. Its going to be the poll from the command because the economy were seeing Stronger Economic growth as a key driver. David does that mean you need to get the dollars to people who dont make as much money as they are more likely to spend it . If you put it in the hands of investors who tend to be more affluent, they tend to spend less of their income. Greg that is where its important that the structure of the tax cuts need to benefit those folks more likely to consume those tax cuts and spend versus investing. To the extent that it impacts middleclass and lower income taxpayers, that is going to be a huge benefit in terms of spurring Economic Growth. Jonathan excitement about generated Economic Growth at 3 . I sensed a word of caution that this is not done yet. Is your message today dont jump on the trunk tray too soon and stick your current plan . Greg we caution investors all the time, dont react to news headlines. Investors should be focusing on the things they can control. Cost, making sure they continue to invest in a balanced way into not shortte noise of what is happening and stay focused on longterm investment goals. Alix my last question is wrapping up the two when you take a look at corporate as well as individual tax rates. I know you are cautious, but if we wind up getting a tax break for individuals, weve seen earning estimates for Consumer Discretionary roll over for the Fourth Quarter in the beginning of 2008. Weve seen flows come out of that. Would that start to reverse slowly . Reg something we might see it depends on whether or not we see this proposal passing through. How much the middle class and lower income taxpayers are ultimately affected by this proposal. In devils are in the details terms of how this will play out so it is hard to tell. Investors iso event do not focus on shortterm noise and stay focused on longterm objectives. David greg davis will be staying with us. We will have republican senator pat toomey and senate but i senate budgt committee member, he will be joining us to talk about tax reform. All that, coming up. David this is bloomberg. From the beginning President Trumps push for tax reform has been part of his agenda to grow the u. S. Economy faster. Republicans have supported him. Senator pat tmey of pennsylvania wrote in the view piece americans are rightly d up with the feeble growth in recent years. Progrowth tax reform will enable us to return to the robust growth that is normal for america. Senator toomey, a member of the Senate Finance committee, joins us from washington. Good to have you, senator. Sen. Toomey thanks for having me. David i read your statement in support of the outlines of the plan. What i think we would like to understand is how come if this plan goes forward along the lines suggested, it will lead to Economic Growth. I understand it will lead to increased value for investors, but what about the growth in the economy . Sen. Toomey thats a great question. This is not a demandside attempt to goose consumer purchases for a day or a week or month or whatever. Instead, this entire tax reform is designed to create incentives to encourage the expansion of the productive capacity of the american economy. That is what generates Sustainable Growth and higher wages and better standard of living. I could give you several ways in which it does that. One of the most rheumatic is a move to allowing full expensing for Capital Expenditures. When a business buys new equipment, they will be able to deduct the full cost of that equipment the year they buy it. Rid of the long depreciation schedules that make it more expensive for business to buy the equipment they need. That step willing courage business to spend more capital, to buy more equipment. As you know, its equipment and innovation that comes with it, that makes people more productive. That expands productive capacity of a company and the economy, and leads to wages. That is one of the most progrowth elements. Lower marginal rates create a higher incentive to risk money, start a new business, expanded existing business, and wiping out some distortions gets rid of the economically sub optimal way we allocate capital in response to the tax code. Those are at least three ways im confident we will be encouraging more growth. Toomey that is helpful david that is very helpful. I daresay there is no one that would disagree with the need to have more Capital Investment in order to get productivity up. At the same time, do you have access to information either from you staff on capitol hi or from the white house that would suggest expensing is the thing that is keeping companies from making Capital Investments. Its inexpensive to borrow money now. Companies have record earnings. Wouldnt they be doing it already . Sen. Toomey capital is very inexpensive and that is very low cost if you are a Large Company that can access the capital market. But if you are a Midsize Company or small company, you dont have access to the capital markets. Its not necessarily that easy to borrow the money. Expensing is a more attractive opportunity. You might be as leveraged as you can get already. More leverage might not be a good idea. Just allowing the tax treatment to follow the cash flow, this is no giveaway, no special favor. We are saying when a business goes out and buys something that the tax returns can reflect what they did that year. The short answer is, there is a lot of data that suggests for encourages alix investment. There is data that points to the fact that it does not. Unicredit had a stat out that says in the u. K. They had a 30 over tax rate in 2007. 19 now. The British Investment to gdp shares is lower than it was in 2007. Sen. Toomey i dont know all the other moving parts that must have been occurring at the same time. No idea what the net effect is. I dont study the british economy that closely. But i can tell you all else being equal, at any point in time, a movement to expensing, and i think you are referring to a marginal rate reduction. A movement to expensing encourages more Capital Investment. I think lower marginal rates encourages investment generally. There are other things happening in our economy. At this point, i think both of thessteps will b constructive. Got thein mind, weve highest Corporate Tax rate in the industrialized world. Alix if you look at the effective tax rate, 250 between 2008 21. 2 in 2015, which for them means a 1 reduction in the tax rate, which equals one dollar in profit according to Goldman Sachs. Thats not a big difference. Sen. Toomey the fact is, the effective average rate is always lower than the top marginal rate. Thats true in the United States , but its also true in the rest of the world. When the oecd average marginal rate as 22. 3 come of the effective rate for European Companies is lower than that. We are still at a competitive disadvantage and i dont want American Business and workers to be at that disadvantage. Jonathan theres going to be a oneoff levy on the money abroad, the foreign earnings of many of the United States companies. What are the objectives of that policy . Tooomey the goal is hold the international peace. Income earned by subsidiaries, usbased multinationals. The goal is to move to a territorial system where we no longer tax local income, but really adopt what the rest of the industrialized world has done. A system where overseas subsidiaries pay their tax locally and after they have done that, they can bring that money home without additional penalty. That is going to be scored by government account keepers as losing revenue. We will have a one time repatriation. We will look at accumulative historical profits, assigned attacks to that number. A sign a tax to that number we end up with a system that is as competitive as the rest of the world, getting rid of the incentive for inversions, getting rid of the competitive advantage that European Companies have when it comes to acquiring other companies. A much better system. Jonathan that money historically has been brought home the last time we had a repatriation holiday, one of levy read it was used to buy back dividends. Do you have an objective for where the cash will be used . Ultimately that is probably where it is going to go. Sen. Toomey we dont know where it is going to go. If we marry this with other good ,ncentives like the expensing there will be greater incentive to invest that in capital items then there would be in the absence of that reform. This is not happening in isolation. Its happening in the context of broader reform. Its not for us to direct the resources of a business. What we should do is create the most rational, competitive tax code and let the leaders of the business decide how to allocate resources. David weve talked to you before and you indicated you are at least dubious that you will get democrats to go along with this plan. We talk with mark legislative director. He said they will want to get this bipartisan. Is there a difference of andoach for the White House Congress . Sen. Toomey there is not a difference between approach. There might be a difference in opinion about how some of my colleagues will approach this. I would be delighted to be wrong. If democrats want to work with us, thats terrific and we will have a process that will be wide open. Regular order of the way the senate works. We will go through committee. All the democrats on committee will have unlimited opportunity to offer amendments, to persuade us of how they would like to approach things. It will be on the floor. I would love to be proven wrong. David it sounds like that will make senator mccain very happy. Sen. Toomey it should. This is a completely normal, ordinary process. David thank you so much. Senator pat toomey of pennsylvania. Later, kevin mccarthy, House Majority leader and democratic senator ben cardin of maryland will be with us to talk about tax reform and what will go on on capitol hill. This is bloomberg. Alix lots of fed speak this week and it is the hawks versus dogs. Despite that drop in inflation. Dves. Ersus i think the risk of higher asset price or inflation to increase and that highlights the fact that in my own view it is advisable that we gradually remove Monetary Policy accommodation over the course of the next 1. 5 year. Alix st. Louis fed president jim bullard said something different. The current level of policy rate is appropriate given current data. U. S. Inflation has supplied downside and the surprise unlikely to reverse during 2017. He did mention at revaluations being high. Well get a slew of fed speakers continuing. Still with us is greg davis, vanguard cio. What kind of movement have you noticed in things like tips in etfs for treasuries . What has been the rotation . Greg we have seen Inflation Expectations continue to rise. Think we have seen recently a shortterm rise in terms of Interest Rates. We have not seen much in terms of investors moving from treasuries into pure Corporate Bond funds. That is not been the case. No major changes from our flow perspective. Alix interesting when chair yellin spoke on tuesday. Is one of the three reasons their consumptions their nothing theut inpu fed can do can really jolt them to the upside. What do you think . Greg the fed at some point, if they are ultimately over accommodative, you will get Inflation Expectations to rise. We have this tax reform proposal on the table that should be good from an enomic th and inflation boosting standpoint. We have to wait and see how data evolves over the next several months. What the market is expecting in terms of rate hikes, the market is pricing in 1. 5 rate hikes over the next 12 months. Two rate hikes over the next 24 months. That seems pretty conservative if you get any kind of follow through in terms of his tax proposal. We think there is risk on the upside in terms of rate hikes. Alix you seem very skeptical about the tax reform. Greg its going to be dependent upon whether or not the proposal goes through, but also Economic Conditions that evolve. We see Economic Growth at about 2. 5 and we see peak core pce going to about 2 sometime in 2018. In that kind of environment, we expect the fed to continue to be gradual in terms of Balance Sheet normalization and the ability to raise Interest Rates at a measured pace. David how much is the fed freed up to stay on this normalization path because of what places like the ecb and doj are doing and boj are doing . Greg starting to see greater global Economic Growth. I think it provides the fed some cover to continue to normalize Interest Rates and we are expecting the ecb to start to pare back some of the quantitative easing. We are not going to see much change in terms of reduction in their approach trouble before a number of years. David do you see vulnerabilities in Global Growth . Secret eyes global synchronized Global Growth . Greg we think there is potential for stable growth. 2. 5 growth for the next year or so. If we get any of this with positive results out of washington dc, because most of that has been taken out of the table, i think there is risk to the upside. Alix here is the scenario. They get tax reform passed before february. Do you think that cohen takes the job . Greg i have no idea. Alix the idea being we have no idea what the feds rate hike path will be over the next two years will be get a new fed president and seats that will be filled. Do you have an assumption . Greg the way we try to look at the world is ultimately what do we see the fundamentals being. If you have strong or economic pce andsigns of core inflation starting to pick up, we think the fed will have the ability to be a bit more aggressive than what is currently being priced in the market are you we do not believe at this point in time we are seeing enough that the fed will be able to hike rates three times next year. We are still skeptical that their longterm rates of fed funds that they will be able to reach 2. 75 over the next five years. Jonathan you look at the forecast for things like inflation, they trim them. Forecast for the right path, they did not do anything with it. Do you think things are changing with the fed where the data does not mean as much as it once did . There is a greater sense of uncertainty in terms of what is driving inflation, why is it being so contained. I think there is some concern and realization that the market, at relatively low levels of employment, we still have not seen that pickup in inflation that many folks who follow phillips curves would think we would see by this point. It has not materialized. David you said you like to look at the fundamentals, the longterm. Longterm fundamentals, demographics are not encouraging. Productivity is not encouraging. Where do you see longerterm that would justify an execution of growth . Greg a few things. One would be technology. We have not seen much in terms of productivity growth. When you think about the Impact Technology is having, that could be a contributor. One of the other key things would be whether or not we get change in policy when it comes to taxes. We are not sure if this will go through but that would be another boost to Economic Growth. Jonathan greg davis, always great to get your insight. Hope to catch up with you soon. In the United States ahead of Economic Data in the u. S. , futures are a little softer. And s p1 on the dow 500 as we grind toward a week of gains. Still some negativity, the global bond market. In skied climbing higher. Treasury yields up to basis points. T of two basis point treasury yields up two basis points. Read was three Percentage Points so we come in a little higher at 3. 1 . We hold onto that three handle for secondquarter u. S. Gdp. Whipping through the other bits and pieces, Second Quarter reading of core pce comes in a 0. 9 for the quarter. , 272,000 from a revised 260,000 previously. 70,000 te was to was 270,000. Joining us is Michael Mckee. Alix looking at corporate profits. Of 7 10 of 1 in the Second Quarter. Take a look at industries that are doing pretty well domestically. It seems to be the nonfinancials. Manufacturing corporate profits up over 5 . Of 33 . Financials not holding up as well. A lot of the materials, doing quite well when it comes to corporate profits. Another good read of what parts of the economy are leading. Jonathan inventory for august coming in at 1 . The survey, 0. 4. Michael you will see a higher thirdquarter growth rate. Third quarter will be messed up because of the hurricanes. It will be hard to tell when we are going to end up. Theres going to be a lot of automobile inventory that was probably destroyed in houston. Hard to get a clean read on that. 3 growth in the Second Quarter is good news and pushes us forward into the Third Quarter with growth momentum. It looks like business spending is the biggest revision in the numbers. Higher inventories in the quarter. At this point, we are set up for a better Third Quarter, absent harvey and arm a. Alix Consumer Spending grew on revised. 3. 3 rate. We are shifting toward business sentiment. Mckee not so much shifting as business is picking up. Consumers are hanging in there. Not getting a big jump in Consumer Spending but businesses are starting to increase investments and that is good news. Something we have been waiting for for some time. Did they hang out and wait until they get tax reform . It appears at this point they are not. Alix what about exports . Points added to growth. That was a weaker dollar story and now we have a stronger dollar story. Is there a potential lag . Mckee this does not look like it in terms of this report because exports were lower. Imports were lower and that makes up the difference in the change. Not a lot of change in the trade picture at this point. We will see what goes on from here. You have heard the headline numbers in the United States. What is your initial take for the u. S. Economy . Michael i would agree with the comments just made. We came out of the Second Quarter with a pretty good momentum from the consumer and the business sector. We are going to see a slowdown in the Third Quarter, mostly storm related but history says he will get that back. Moving activity around. I think business spending is responding mainly to two factors. One is that the stabilization on the industrial side of the economy last year but then also a better Global Growth backdrop. Im not sure it has much to do with expectations of policy changes now. That could be the case next year but i think it is growth getting growth. Better growth outside the u. S. , weaker dollar coming through on exports helping out the u. S. Now. Jonathan this magic 3 , i want to fold in the tax plan as well. Number,ainable is that three, and what kind of distance is the plan will come a difference would it make . Michael you may be able to get that for calendar year. In terms of getting potential growth of 23 , i dont think up to 3 , i dont think that is what happened. You have mentioned in your previous section about labor force and population growth. That may get you. 5 over time. You would need productivity to root to return to peak levels we saw in the tech boom of the 1990s persistently. We only hit that for a couple years in the 1990s. Getting potential growth of to 3 , it is not in the math. You could get it to 2 , perhaps 2. 25 overtime. We need to downplay the notion that we will hit 3 sustainably overtime area tax cuts may allow you to get there for one year. The carbonation of reform versus cuts matter. Is it supplyside oriented or is it a boost to demand that will fade out after four to five quarters . David whether we can sustain 3 or not, but we have heard from fed speakers this week by and large says they are on a path to normalize unless something knocks them off the path. In these numbers you see nothing that would knock them off the path. Michael inflation is a bit of an open question but her speech was clear they look at this and will beughly 85 transitory and fade out after three or four quarters. Their message is looks ok. We will continue to normalize. If you put a tax boost on top of that perhaps you can get the three hikes next year. We think they go in december. Looking at two next year. I agree with the commentary on the show that getting the terminal right up to 2. 75, i think that is tough. Maybe 2. 5. The 2019 dots will be coming down as they did in the september meeting. Alix we dont have that far to go in theory. For the data we got today, where do you stand on inventories . Michael i would probably view this as a bit of noise around the storm. Perhaps things got built up ahead of the storm. Or we did not consume and therefore it gets stuck in inventories. If we imported a little more. I would not read too much into that inventory data. I think the August September data is going to be messy. The october november data will show a rebound off of that. In thehe reason i ask, first quarter, inventories were a drag on growth and it seems like economists were waiting for that to reverse three at factories have to work to rebuild inventory to meet demand. Is that thesis we were talking about months ago no longer in the cards to the back half of this year . Michael not necessarily. Youre getting that catch up in this number. The activity data around these events is tough to take a signal from. So inventories get distorted. Bunchrial production, a of data gets distorted in a way that sometimes is hard to draw a clear message from. Jonathan always great to catch up with you. Gapen and bloombergs Michael Mckee. Thats the story of the u. S. Economy. Lets get you headlines outside the business world. Emma President Trump and Congressional Republicans have unveiled the first major rebound of the nations tax code in generation. The nearly 6 trillion tax cut would reduce levies for operations and nearly double the standard deduction used by most americans. Tax reform will protect low and middle income households, not the wealthy and wellconnected. They can call me all they want, im doing the right thing. Its not good for me. Emma the tax rates on corporations would fall to 20 , down from the current 35 . The president has authorized waiting the jones act at puerto ricos request. Prohibits foreign flagships from shuttling goods between u. S. Ports. Trump was urged supplies can be delivered to the island a cheaper cost and more quickly. Michel barnier says it could take months before negotiations with the u. K. Progress to trade. He said there is still no agreement on the role of the european call to justice. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. Im emma chandra. David coming up next, kevin mccarthy, House Majority leader will be here telling us how he plans to do his job, getting this tax plan through congress. This is bloomberg. Today,oming up later president and founder at four clock p. M. Eastern time. This is bloomberg. David tax reform is one of President Trumps top priorities. His team has been working with republicans on the hill to bring it about yesterday we got the outlines of that plan and now it is up to congress to fill in the blanks and see what they can pass. At the center of that effort will be House Majority leader kevin mccarthy, republican from california. Congressman mccarthy joins us. Rep. Mccarthy thanks for letting me join you. David give us a sense of how the sausage likely gets made. A copperheads of the tax plan. There are a lot of blanks that need to be filled in. Comprehensive tax plan. There are a lot of blank that need to be filled in. Rep. Mccarthy the house did pass a Health Care Bill that repealed replace back in may. What we did was spent some time to learn lessons from health care. I give a lot of credit to President Trump. He brought the house and senate together and they look at those challenges. The border adjustment tax probably could pass the house but could not pass the senate. We remove that from the process. We spent five hours on every treat with all the members of the republican conference. The Vice President spoke to us as well. The president spoke to the nation. You are finding a more united front Going Forward because we know youve got to bring growth back to this country. We set the principles out. His details that have to be filled in, but that allows voices of all americans to be heard, to have that input. Isid when you say we come that the republican we or the bipartisan we . We hear contradictory things. Senator toomey has said he does not think there will be any democrats. Mark short from the white house says maybe they will get some democrats. Do you expect to do this with democrats . Rep. Mccarthy i believe there will be some democrats voting for this bill. We will do this under reconciliation and you see the first phase of tax reform start next week. If you question whether this will get done this year you will know by next week because we will move our budget. Of the one section seven constitution says all tax reform starts in the house. Ways and means starts that that bill. Move we will move the bill out of the floor in congress this year. David lets talk specifically about republicans. One of the aspects of this proposal is to curtail deductions for state and local taxes. Its often reported that hurt some of the socalled blue states, new yorks and new jerseys. If you look at it, there are a fair number of republican counterparts from districts that disproportionally benefit from those deductions. Can you bring along some of those of your colleagues, republicans, whose constituents would be hurt . Rep. Mccarthy i dont believe they will be heard. I happen to be one of those congressman. I represent california. Youve got to look at the bill in total parts of the bill. It makes it more competitive. Overall, a benefit. Think about why the states of california, illinois, in new york have higher taxes. They havent mismanaged government. They spend too much in california. A train to nowhere in the process. They continue to raise taxes so they have the highest xrate because they make the argument, thedemocrats, that they can make you write it off by the federal income tax. Is it fair for one state to subsidize another . If you look at the total tax package, it actually benefits each american. Instead of the middle income americans only having taxfree the first 6000, we doubled back to 12,000. A family goes to 24. Instead of spending days filling out the tax reform, they will do it in minutes in a postcard. Companies that are competitive around the world instead of being punished by this tax code that says you have to take that money and invest in other countries. Youre going to bring it back in america. It will be a territorial tax. We take a Small Business tax, put it down to 25. The lowest tax it has been in 80 years. I started my First Business when i was 20 years old. More businesses and more jobs are created by Small Business than any other. Corporations dont treat the jobs that Small Businesses do and when i look at the last eight years, our highest growth year was less than under the lows growth year under bill clinton the lowest growth year under bill clinton. We have to get competitiveness around the Global Economy and bring jobs back to america. David i think everyone agrees we need growth. Time, theres two kinds of growth. One is growth for investors who are benefiting because the stock goes up, another is for the everyman, the employee, the person working in the shop. Is there a direct line between the tax cuts you are proposing on the one hand, and the middle class family on the other . Its easy to see how investors will benefit. Its not quite as clear to see how every person will benefit. Rep. Mccarthy i want all the viewers to look at it goes directly to the middle income family. The firstyou now get one to 4000 taxfree the first 24,000 taxfree. You get to fill out your tax reform on a postcard. It is fair in the process. It actually helps the middle income greater than anybody else. It takes the 10 rate to zero instead of having seven brackets, three. Alix are you going to do four brackets . Are you going to make a bracket for the high high earners . Sen. Cardin i think three brackets is the fairest process to go through. Rep. Mccarthy i think three brackets is the fares process to go through. Alix what about carried interest . Rep. Mccarthy that is an area they still have to work on. That is going to roll out in october. Youll see that shortly. Alix what would you vote for for carried interest . Rep. Mccarthy as majority leader, i let committees do their work. Im going to look at what they are producing. David as the majority leader, im sure you put pencil to paper. How much is this going to cost . How much is the deficit going to increase if we put forward this plan . Rep. Mccarthy this is going to be budget neutral. It will not bring a deficit greater. Your viewers know this better than ever. If people are able to keep more of their own money, able to make their own investments, you have a greater ability to have more tax returns coming into the government. More people working, more investment, more job growth. It scores out to be a deficit neutral. David specifically, what Economic Growth number do you need to make that equal . That has to be dynamic scoring that you are doing. Ep. Mccarthy of course dynamic scoring has proved time and again that you are able to bring more revenue into the coffers if youre able to let more people go to work. E have not had 3 growth wes to average 3. 3 growth across america. If you look at the eight years under bill clinton, you take his worst year, it is still higher than the best growth year under barack obama. 1. 4, 1. 8. Eraging we need to get growth above 3 and beyond. What that means for americans, its easier to solve other problems america has. We are going to be not able to solve these problems if we continue on the path we are right now. That is why the tax code is not for republicans for all americans. I believe democrats will vote for it as well. David you have numbers that show you that this plan will get us to more than 3 growth . Rep. Mccarthy i believe this plan will get us to 3 growth when the whole plan is put out. You will see the same thing. David we thank you very much. Covers been kevin mccarthy, kevinn congressman mccarthy, House Majority leader. Alix you can watch us online. Interact with us directly. Go to tv go on your terminal. This is bloomberg. Emma twitter executives on capitol hill today as part of the congressional investigations into russian interference in the 2016 election. The house and senate panel invited twitter, facebook and google to public hearings. The committee is scrutinizing the spread of propaganda on social media. The bank of englands chief economist andy haldane says an Interest Rate increase should be considered good news for the u. K. Rather than a source of fear. Haldane told sky news is among the majority of policymakers who believes the economy is nearing the point where a reduction in some stimulus might be warranted. When a rate hike does come it will be the first in more th a decade. Euro area Economic Confidence surged to a 10 year high. The reading gives European Central bank policymakers more positive news to consider as they decide on the future of bond buying programs. Jonathan thank you. Amazon unveils a range of new products including a smaller cheaper version of its echo speaker. Latest offerings joined the russia text products vying for Consumer Products this season. Intelligence consumer electronic analyst. Whether these products that have been unveiled by amazon can withstand google and apples new attack. If you look at the product line, they pretty much have an echo device for every corner of your house. Amazon has a great head start here. 70 market share integrating new services. The partnership with bmw. A lot of selling opportunities to prime members. All of these products should help them maintain the lead. Jonathan looking at how the market could be, jeff bezos says this could be the fourth pillar for amazon. How big is this market now . Jitendra if you look at a proxy of connected households globally , in the u. S. It is about 100 million plus. By 2020, globally 600 million plus. Its a mega market. Sure younts to make get used to this idea of interacting with devices and shopping on these devices. Once the user base is built, they can sell you more things. Alix i use my phone and a shop on my phone and talk of my phone and amazon tanked when it came to the phone. Why is this strategy going to pan out . Jitendra that is the differentiation here. If you look at the surveys of what people are doing on these devices and what their shopping, musics number one, but number two is household supplies. Repeatable goods, it makes it easi to buy. Integrate that with whole foods and the grocery portion, its going to make life so much easier. Alix this is all about amazon prime. We dont know how many members the acts we have but what is the return rate we can start understand . Jitendra right now, it is still early earnings. Install base off echo users, this year will top 25 million. If you look at the prime member user base, 70 million about and a lot of International Expansion opportunities. The penetration rate amongst prime bookie going up or you saw that on prime day ago was the bestselling product. Continued integration echo was the bestselling product. Continued integration will help them win this war. Jonathan great to have you with us. Coming up on the program, democratic senator ben cardin of maryland will be joining us. Enterprises chairman and ceo joins us coming up soon. The opening bell, around the corner from new york, this is bloomberg. Jonathan the bond market slides amid optimism of the u. S. Economy and the president s tax cut plan. Would pay 20 , down from 35 and the president calls it a revolutionary change that will fuel high wages. House Speaker Paul Ryan says this is a now or never moment. Good morning, this is bloomberg daybreak. To get you set up, 30 minutes away from the open, futures a little bit softer. Down about three or four points on the s p 500. The weaker town in treasuries sticks for another day. Through, and the Dollar Strength, we have seen dominate the fx market, just turning to drain back out of the market a little bit. We are up 2 10 of 1 on eurodollar. 30 minutes away from the open, lets get you some movers. Alix we have your biotech special. Xcom, abbott labs. Approval from the fda for the first glucose monitor that does not need a stick. This winds up putting a wire under your skin and the monitor just gets waved above it. A competings out on product. That playing out in the market, today with dexcom down about 30 . J bill down about 4 . The reason we care so much is it is a good read through to apple who gets one fourth of its revenue from apple. U. S. Steel, up by about 6 , premarket. They reached an agreement with Board Composition with engage capital. The number three shareholder. Capital founder will be among those new members. David we will turndavid david we will turn to our lead story and that is tax reform. The republicans have come out with uniform praise for President Trumps tax plan even if there are a few questions left open and of course, democrats do not like it very much. Markets have reacted and the question is why. Hereto sorted out with us is Isaac Boltansky of compass point. Did any of this surprise you . We knew when it was coming up, we had a sense of what it was going to be. Was there anything in the plan that surprised you . Isaac the paraphrase chris rock, i dont want to give too much credit to republicans doing what they were supposed to do. Step,day was an important nojustrom a psyclogical perspective, but that document was contoured in ay to win the support of the gop caucus in backing the budget reconciliation measure, which needs to clear both houses before conserve is the vehicle for tax reform. Can serve as the vehicle for tax reform. David that is truly interesting. Explain how they are threading that needle. It looks like it is going to run a pretty substantial deficit before they will turn around to positive. On the other hand, it is hurting people from some of the states that tend to be blue, even though the republicans are limiting that deduction for state and local taxes. Isaac they avoided specialist specificity on some of the stickiest points. Over the next few weeks, what will be interesting for us and the markets is how fears will the opposition be . I am looking at the mortgage industry and the states who look to have their tax preferences either completely eliminated or materially diluted. David one of the questions we have had today is is this clearly a republican initiative, or are they going to try to get bipartisan support . The legislative director of the white house said they want to get bipartisan support. Senator pat toomey from pennsylvania saying no, they only want republican support. Isaac they may want democratic support, but that is a pipe dream. The house will have to clear this on a partyline vote and in the senate, there is a shot you can get some of the Democratic Senators up for reelection. You have to look at donnelly and high camp. Donnelly who was part of yesterdays announcement talks. It osill be in play. You throw mansion in as well manchin, as well. David we just had kevin mccarthy, the House Majority leader housman over he says we will have a likelihood of this being connected rent next week as they take a budget resolution forward. We will have a reading next week whether this is viable or not . Isaac there are a number of markers ahead and the next one is the budget resolution and whether they can move that. I think they will be evil to do that. That is a positive sign for the markets. Then we have to get the actual legislative text. Gaugee get that, we can the likelihood and the timing. Pages andde is 76,000 what we got yesterday was nine pages. There is still a lot of work to be done. Jonathan how many people have read that . David zero. Alix isaac did. Jonathan does isaac count . Isaac boltansky, always great to catch up with you. A market boost to small caps. The russell 2000 rose for a second consecutive day. Dominated for most of the year and showing signs of a reversal. Joining us now is michael andurke from jonestrading joining usrom his office is Steven Desanctis. What a weird year it has been for the russell. Back to a record high, and i am wondering how you think of the current tax plan and how it informs your plan, Going Forward. Steven it is the devil in the details. We got nine pages, more they outline. I want to go through it and try to build out how it is going to impact Earnings Growth for Smallcap Companies and i cannot do that with the plan that is currently on the table. You want to look through the earnings numbers and where the multiple of the markets is going and we dont have enough details. Smallcap throughout 9 , that is pretty startling, in my opinion. 1410still holding to my target. We are about 5 above that for this year. Earnings growth is going to drive the market. If it does have an impact, i will be more optimistic. I just dont know if that is going to be the case. Jonathan we are trading on the sentiment about small caps and tax reform. Are going to reverse that . Your last steven guy talked about next week being a red letter week for budget resolution and tax policy. I think you have a possibility of if things start to get delayed or there is serious opposition to this, which is think there is going to be, i think you get a pullback in the market. I think small caps run an awful lot without any fundamental improving picture. Earnings estimates now stand at zero. The Fourth Quarter is 13 which looked a little aggressive to us. Secondquarter reporting season was not that great. I think we have had this really big move, but a lot of it is based on inflows and excitement. I just dont know if we are going to get there. Alix take a look at the bloomberg. Goldman sachss high tax basket versus the s p. The blue line are small caps versus the s p. It shows the depth of the rally that we have seen. Michael orourke, what do you do . Michael it is interesting because that smallcap rally yesterday, we live in this index driven blind buying world where it was an exposure grab. It was up 166 over the previous five days. If you look of the underlying shares of the russell 2000 membership, the volume was only up 15 . People jumping on the euphoria of tax reform and looking to grab exposure and i think they will give it until next week to see how things sort out and decide if they want to stay there or not. Alix Goldman Sachs talked about 1 in tax rate equals one dollar. Need to play the sectors, the effective tax rate sectors if we end up getting a 20 Corporate Tax rate cut . Michael we have seen the success of the high tax rate companies, we have seen many of them perform well. That 21 effective tax rate is key because a lot of those companies with cash towards overseas, a lot of this is predicated on closing tax loopholes. A lot of the growth anticipated as you expect these corporations to bring the cash back on shore and invest in this country and based on the behavior of the major u. S. Corporations over the past decade, im not optimistic about that because they have shown with the low Interest Rate environment and accommodative policy, they buy back stock and has done what is right for their shareholders, but that is not necessarily going to lead to more growth in this economy. David stephen, i would steven, i would love for you to clear this up for me. First it was trade, more trade being protected from a trade war, and then that would away, then it was a matter of regulation. Lack ofefited by a regulation because they are more subject to it, according to how much their basic cost structure is. Now we are told it is taxes. What really drives it . Steven it comes down to earnings and valuation and Michael Orourke picked up on this. Does this actually make companies spend more money and Economic Growth starts to improve . Small caps really trade on Economic Growth. Earnings growth is driven by u. S. Gdp. If you think the tax policy is going to get the gdp to move closer to 3 , and you can see small caps doing well because Earnings Growth is going to be double digits and you can have it grow into the mark the multiple in the markets and move double digits along with Earnings Growth, given where valuations stand. I think youve got pockets were things help. Deregulation definitely helps. Repatriation of cash will help health care and tech because you can have a m a boom. Products. Ollar helps you can pick out specific things that are going to drive different areas of the smallcap market. David many thanks to Steven Desanctis of jeffries. Heard from the republicans, now it is time to hear from the democrats. Senator ben cardin is going to be here with his views. This is bloomberg. Alix central bank should raise rates at a regular and gradual way despite low inflation. If we continue to push past what is sustainable, the risks of higher asset prices or , and thatto increase highlights the fact that in my own view, it is advisable that we gradually remove Monetary Policy accommodations over the course of the next year and a half. Alix a ton of said members speaking later on, today. Joining us is Bloomberg Economics and National Policy correspondent Michael Mckee and Michael Orourke of jonestrading. I will ask Michael Orourke first about the tax reform and fed angle. If we get reform in the way we have seen laid out, what does that do to the rate hike cycle . Michael if it plays out as the administration hopes it will and we decide we start seeing gdp increasing, then theoretically, the hike cycle should speed up. I would not bet on that in any way, shape or form. The fed has laid out their course. Alix we are no doubt going to be talking about the hawks in the doves and the speeches. What do i need to care about . Michael not a whole lot. Politicianat any says about the tax reform plan is wrong because this is going to undergo so many iterations and changes over the next couple of months that by the time you get a bill that could conceivably pass, it mayook completely different and when janet yellen and the folks look at what is going on in the sausage making factory, they are not concerned because they dont have any details. They are going to have to wait until they get a final idea of what the tax plan would be. When does the money hit the economy and how much money is going to hit, before they know how it will affect the rate cycle. Alix breaking news about the management shift happening over at chevron. Who hasthat john watson been ceo since 2010 was stepping down into mandatory retirement age. Worth know that michael will be taking the helm. He was he had been remote it to vicechairman and was seen as a leading candidate and Michael Wirth will now be taking over. What is interesting is what his past was. Big deal with chevrons restructuring of the finance business. We have seen a lot of refiners come in to head big oil companies. They are dealing more with cost structure, dealing more with the business angle versus those longerterm investments because watson did a lot of job cuts and project cancellations, but now you have to grow and the refining angle of the business could be a place where you can grow and it has done really well. It is interesting to see those types of leaders take the helm. Chevron stock not moving so much, but nonetheless, a really Interesting Development for these oil companies. David this is a long time with chevron. Alix a lot of these guys are definitely first. Back to the fed definitely lifers. We talked about the situation in puerto rico and the fed does have some oversight of artery go. Walk me through how that is of puerto rico. Walk me through how that is playing out. Keeping a close eye on the economy, we know that there is no power in most of puerto rico. The atms are out, the banks cannot function. The new york fed sent cash down there, ahead of time and they are trying to keep up with the demand for cash. Bloomberg news has a story out today, that it is pretty much a cash economy. You cannot get anything without cash. Another issue is the Banking System has slowed to a crawl to the extent that any banks arent open and theyre keeping an eye on the fact that there is no economy right now. It is going to be a long time until he gets back up to speed, so banks are exposed with loans that are not going to get paid, so there is another issue for congress to worry about, behold issue of the Banking System on top of puerto ricos debt. A group of bondholders who have been negotiating with puerto rico to try and deal with their debt has made an offer to lend them money, to help pay the debt and qualify for federal loans. Alix thank you so much, Michael Mckee and Michael Orourke of jonestrading. Ara hovnanian of hovnanian prices will be joining us. What this you think 24 hours after the tax reform plan was unveiled . Alix breaking news over chevron ceo john watson retiring and we wind up having Michael Wirth, who is the current vicechairman, taking over. He led the downstream part of thes nest and he joins Companies Like exxon and shell that have replaced a man from the downside downstream part of the business into the top job. Downstream side has been doing well for these companies. It is about minimizing spending and it is hard to not draw a line from that into where the Big Oil Industry is heading. Jonathan we wonder if this is the pivot now, where upstream starts to perform well. A lot of people said once that fun capitulated, the final ball will start rolling. Alix if he could have held on for about two more months. Jonathan a different story in the bond market. U. S. Treasuries, we have ripped off the bottom. We are up about 30 basis points from the lows for september. Ignore the first bit of that screen. We are up about 20 basis points on the 10 year, alone. Still with us is Michael Orourke of jonestrading. Catching an aggressive move. Michael it definitely is. This is back to earlier in the summer when janet yellen gave her Humphrey Hawkins testimony and talked about being close to the neutral rate. The market interpreted that as the fed may be having one more hike. Throughout the summer, everyone was very dovish and then basically, we had the last fed meeting and the fed said we are going to stay on track. You had janet yellen come out and say maybe we misjudged certain aspects of the economy and maybe there have been structural changes. While we still want that 2 inflation target, we could be below 2 for favorable shock, she called it, instead of aftershock. Instead of adverse shock. I think what we are seeing is a slight pivot among the fed where for the past decade, we can see moving the goalposts to make policy easier. Now they are moving it back to say we are not deviating from our normal course. Aggressively short treasuries at the end of of the start of the year. Back through the 200 Day Moving Average on a 10 year. Buying that yield, a lot of people see the backup and yield and think i want some of this. I think what you see is a fed that has laid out a course and they want to stick with it. Where we spent most of the past years expecting the fed to make tightening moves and not doing it. The fed is moving toward regaining credibility with investors so investors feel like they know what their plan is, they can make investments based upon this. You will see people reacting. David i wonder if there is a bit of a shift because throughout this time, the yield curve has gone up and down. It is really it has really steepened. I wonder if there is another factor that may be factoring in. Michael it has only steepened by four or five basis points and when you think about where we were at the beginning of the year, it was about 35 basis points 135 basis points. Every time the 10 year yield rises, people run out and buy financials in hopes of that steepening yield curve. I am actually a little surprised that the relationship remains this tight because despite this move up and yield, we have not seen enough steepening relative to where we were. I think it was the beginning of august, the 10 year yield was around this level, on its way down and the curve was about five basis points. It will be interesting to see how financial stocks react in this market. Jonathan Michael Orourke from jonestrading, sticking with us. The opening bell, just around the corner. Four minutes away. Just a little bit of weakness coming through. We are down about 43 points on the dow. Up by four points on the s p 500. Yields continue to grind higher from lows of 2. 01 , up two basis points. Dollar strength is the story. The open is up next. Who knew that phones would start doing everything . Entertaining us, getting us back on track, and finding us dates. Phones really have changed. So why hasnt the way we pay for them . Introducing Xfinity Mobile. You only pay for data and can easily switch between pay per gig and unlimited. No one else lets you do that. See how much you can save. Choose by the gig or unlimited. Xfinity mobile. A new kind of network designed to save you money. Call, visit or go to xfinitymobile. Com. Jonathan the opening bell just 22nd second 20 seconds away. Weakness, thef dow off by about three or four points. Softer just a little bit out of the cash open. The story in the bond market, wow over the last month. About 30upwards by basis points. Up to basis points up two basis points. Dollar strength the story for most of the week. On the screen, we are heading for one of the weaker gains on the dollar of 2017. Maybe that is helping crude a bit as well. Lets get to some cash open. Alix you are taking a look at weakness across the board. Nasdaq the biggest loser of the day. Still relatively right around record highs. You also have the s p, about four points away from its record high. The dow jones a little bit softer. We also had small caps really leading the way, yesterday. Days foright record the russell. Two areas to watch our Energy Stocks with wti on the move. Lets take a look at what is happening. Andrgan up by 2 10 of 1 hsbc analyst saying any new tax plan could boost banking profits. Morgan stanley could see as much as 16 surge in net income. Goldman can see 10 and the initial impact is going to be reduced tax assets, but the longerterm may rae Investment Banking deal counts. We will be looking to different sectors as tax reform comes through. Lets take a look as we wrap up the end of the Third Quarter. This is my favorite chart of the week. Yellow bar is the performance of the first eight months of 2017 and the orange bars are the months to date return month to date returns. You can see the reversal. Smallcap strengthening, the s p a little weaker, growth coming off its title, text getting very much weaker and banks on the getting very tech much weaker and banks on the front foot. Jonathan was that your chart, Oliver Renick . Oliver mine is very similar. Jonathan what are your thoughts . Oliver i would argue this is one of the more interesting months, this year. Finally some things are happening that are exciting to investors. What has been the overall environment for stock pickers, which a lot of folks that have talked about finally came to permission. That right there characterizes the incredible amount of rotation that has been in the market. It has been churn after churn. Post trumpht of this trade off was a interesting rotation, now it is in every market. All those equity rotations we saw,he dollar showing some strength, it is oil in a bull market for a couple months. Aot of interesting things happening that are probably largely related to moving toward a higher rate environment, but there is a lot of cross currency. Jonathan we talked about the squeeze in small caps and michael, it just makes you think that everything is sentiment driven and the sentiment is just going like that through 2017. Oliver i think oliver nailed it. You are not seeing indexes move that much because it is rotation, but you are seeing people looking for individual ideas. I have said many times, and you have a static Monetary Policy and nobody is baking in any fed changes, everybody puts things on autopilot and it reinforces the indexing. Now you are seeing a different fundamental environment due to Interest Rate changes. People have to start making decisions again and hopefully we see more activity picked up. Jonathan you had this david you had this still surface and all of this churn, below. Is that because of qe . Michael i would say it is. The big Central Banks of the world have taken 16 trillion worth of assets off the market. Again, as investors start making decisions and as we start our normalization, the ecb is supposed to stop there buying and things are supposed to start going back to normal. David people have been taking winners and losers within that still pond. We have the fed starting to roll off their Balance Sheet. The ecb is thinking about talking about it, maybe. Do expect that, volatility to come back in . Michael i think it will. I think it is going to take time. When you have everything on and indexing has become there was always going to be the shift in growth and indexing. I think the policy just accelerated it. That is why we see the rotation and the money keeps coming back into the markets. The tech leaders are being weak, but you are not seeing the market go down. You saw that earlier chart where tech is essentially flat now. Other sectors are taking over leadership, like financials. Clear is what is sentiment around this administration has driven a lot of this. Sentiment shifted around the administration and what they could achieve. All of a sudden, then it was tech. That is what is happening, isnt it . Oliver influences for the market feel like they are coming from three different places. Firstly is the change in Interest Rate policy in the fed. Secondly is a hunt for value and cheapness. Not only is there a movement of one value stocks, there is a movement in straight up cheap stocks, regardless of valuation. People looking to get out of places. There is hesitation that people thought maybe this was a referendum on the iphone or zuckerberg political aspirations or the rush a hoax. More of it was people trying to find better places to put their money. Thirdly comes that passive versus active back and forth and for the first timeit is different where there is a slight editing to the pass passive inflows. It is ironic that we are all one of the most flat market markets overall quiet markets. Jonathan it is the first day that you have come on the set and not talked about wanting to buy europe. Only going to see that swing again from the netted states to europe . Michael you will not hear me say buy the United States, thats for sure. It is interesting. I would say europe still represents value in comparison to the United States. We are going through relative tightening versus the ecb. Of 10 looking at the end years of ultra accommodative Monetary Policy. High valuations and low volatility. That is a dangerous mix to the United States. Technology,ip in two stories came out that are really interesting. Procter gamble, the largest at buyer in the world on their conference call, they said they decreased their internet ad spending by 100 million. They did not see any negative effect. Restoration hardware said they were buying 3300 words from google and Gary Friedman said which ones work and which ones dont. It turned out 98 hits were from 2122 words and the words were Restoration Hardware and the 21 different ways to misspell it. When you think of fmg being the big internet ad players, people are reevaluating their spend. Jonathan Michael Orourke, very good to get your thoughts. Thank you. Alix amazon unveiled a range of new products like smaller, cheaper versions of its popular echo speaker, all at an event, yesterday. The giant is trying to get into the Christmas Holiday spirit a little early. Withng us is james cakmak modest crest be heart and co with Monness Crespi hardt co. James i would take a step back, it is not just about the products, there is a big strategy at play and that equates to alexa and Artificial Intelligence keep abilities, and how can i get alexa into everyday use cases . Yesterday was a partnership with bmw. What you are going to see is increasing bigname partnerships for alexa were you create these cases in and outside of the home which can learn to commerce will lead to commerce. Failed with the phone, so how long does this transition to ai and shopping and buying and managing your life take . James it is going to take a while because it is not overnight. It starts to condition people for it. What you are going to see is amazon start to move into food. That is going to be one of the first iterations of voicebased ordering and then broader capabilities. The future is going to be a voicebased teradyne and not a textbased paradigm. They are doing exactly what google did with android, starting to weave that into a ubiquitous type of Service Across all platforms. Alix who has a better shot of doing this . James amazon definitely has the lead. This is not a hobby by any stretch or measure. Google has superior search capabilities, but amazon knows its strengths and weaknesses and it will partner in the right places, perhaps even with google, even though there is friction, the complement services. Alix talked about partnering and potential, when it comes to food. What about when it comes to drugs . Perhaps they could partner with some pbms, retail drugs. It feels like we have been hearing these rumors for a long time. Is that realistic . Amazon is going to fill so many different buckets. Each one of those buckets is going to be a 500 billion. Opportunity one is going to be food, one is going to be pharmaceuticals, what is going to be advertising, and then you think about the meeting opportunities Media Opportunities and disrupting cable. They are already looking us at sports, as an example. Whole foods deal is kind of game, set, match for amazon. Alix why are you neutral . James because of the regulatory overhang that was there. Getting into potential drugs, if you are getting into the other businesses, wouldnt regulatory overhang be even worse . James the fact that it was rubberstamped with very little scrutiny leads me to believe that the regulatory oversight, if it were to come, will come at a point where the company could theoretically be alix good tsee you, james cakmak. David breaking news out of the United States Supreme Court. The court will try a second time to decide whether or not take a case about government workers paying union fees. The case would aside with a 5 million government workers can refuse to pay fees which would deal a major blow to the union labor unions. 2016, theyn up in split, 44 and they now have nine judges. This could be a major challenge to organize labor. The Supreme Court agreeing to take the case. Moving from the Supreme Court right across the street to capitol hill with congress, republicans were out in force to lay out their plans to reform taxes. A plan includes cutting the Corporate Tax rate from 45 35 to 20 and reducing the tax brackets to three. Now it is time to see what congress will do with that plan and whether or not democrats will do anything with that bill. Joining us now is the product senator ben cardin. He serves on the Senate Finance committee and they have begun hearings on the tax reform. Good to have you here. Sen. Cardin good to be with you. David we have heard from quite a few republicans who say they love this plan. We have heard from democrat saying they have some real doubts. Is there any way the democrats can play nice and come up with a bipartisan approach . Sen. Cardin we certainly hope so. If we are going to get a meaningful bill passed, enacted into law and have staying power, that has to be a bipartisan bill. T principles we have id out are pretty clear. We want to make sure we are not financing it through greater debt. There is not enough details in the proposal that was laid out, to be able to analyze that. Many of the pay fors have not been identified. There has to be an open process. Oh ant do this through what we call reconciliation where it comes in without chances of amendments. Has to be a open process so that people understand what we are doing and we can get feedback before we act. Then we want to make sure it is fair to middle income families. We hope there will be an open process, but to date, we have nothing that. David those are encouraging gold, let me ask you whether the democrats are committed to it, and that is growth. The reason we came up with this thing is President Trump said he wants growth. Many people in congress say they want growth for the economy. In order to address things like the deficit, we are going to have to grow our way out of it. By the democrats committee . Sen. Cardin absolutely, but you dont grow the economy by going into debt. You dont grow the economy by hurting middle income families. We absolutely want growth, and that is why we want to see the full package debated in our committees where the public has a opportunity to understand what we are doing and we dont just put up the good things, but also how we are going to pay for it. David if we are all committed to growth, what is the democrat plan, the alternative plan for growth . We heard the republican plan. Cutting a lot of personal tax rates and Corporate Tax rates. It is a plan they say will grow. What is the alternative . You have to do something more than just say no, right . Sen. Cardin absolutely. I put forward a proposal that wod reduce our income tax rates to the lowest among the industrial nations of the world by introducing a progressive consumption tax. Is more progressive than our current tax credit. We have come up with proposals and we hope there will be an opportunity for us to go over those proposals. Our bottom line is that middle income families have to be treated fairly. Lets talk about how we are dealing with child credits and earned income tax credits and those parts of the tax code that help middle income families. Well so want to make sure we are not adding to the debt because middle income families are the ones who get hurt the most. David i dont expect you to negotiate with me, but to add a point of illustration, when you are doubling the standard principle is that in the sort of thing that the democrats could agree to because that does help middleclass families . Isolation, taken in you are correct, but it has other impacts. What impact does it have on the value of real estate, because you make the itemized inductions less viable. How does it affect the private sector help for charitable dealizations . How does a with affordable housing, because there are lots of provisions to try to bring about affordable housing. You cant look at this in isolation. The tax codes principal purpose should be to raise revenues for the country. How does it deal with a fair way to raise the revenues necessary to support the programs that are important for our country . These are the concerns the democrats will be raising. We can look at these proposals in isolation, but how does it come together . One of theprosals is to eliminate the deduction for state and local taxes. That hurts the state jake the ability to be able to do their work on behalf of the taxpayers. The same people pay state taxes that pay federal. These are issues the democrats will bring to the table. David we have verdasco things you might encourage you that might encourage you. One is your colleague, senator to me saying he does believe this will proceed by regular order. We talked about john mccain and how he would be approving of this, that it would be going through a normal committee process. Is that consistent with what you have heard . Sen. Cardin it is not. Regular order, it would go to our committees. Instead, we know that they are looking at a budget resolution that will allow them to bring with a simpleoor majority, rather than using the regular order that bills would go forward with. We have not seen a commitment to regular order and it is something that we think is extremely important. I do believe that if we can get a broader consensus, bipartisan is not getting one democrat to support the bill. Bipartisan is using a process that can bring a greater consensus between democrats and stand thes that will test of time, that wont be changed every two years. David harkening back to 1986. Thank you so much, senator ben cardin. Jonathan about 20 minutes into the market open. Lets get the action. A slight move to the downside on the dow. Negative not even a single point on the s p 500. The big moves this week ve been ithe bond market. Treasury yields grinding higher throughout the month. Just north of 2 . This is bloomberg. Emma this is bloomberg daybreak. President argentinas sits down for an exclusive interview with erik schatzker. This is bloomberg. Homebuilder showing their support for the new republican tax plan. The National Association of homebuilders say while we firmly believe the plan represents a positive step in the right direction. A key two tax breaks for the sector. The deduction for mortgage Interest Payments and the low Income Housing tax credit. Hovnanian,now is ara chairman and ceo of hovnanian enterprises. Do you see a decrease in demand or material berets about the mortgage deduction potentially being repealed . Ara this has been spoken about for so long. I cant say we have felt customers being concerned about it. If congress thought Health Care Reform was difficult to change, this has been in place for so consumerses, i think feel the odds of it really changing substantial are minimal. Alix that is more of the demand side. The effective tax rate for homebuilders is about 33 . If we go down to 20 , what does that do for your profits . We still have a tax loss carry forward, so it wont affect cash one way or the other. The real key for business is what happens to the business interested, which is all looped in together with the reduction. There are so many moving parts. It is hard to really know how it all playout. Alix are you more optimistic today, then you were three months ago . Ara i am optimistic, not because of the potential tax reform. I am optimistic because our industry has been on a steady and strong recovery. Alix if you wind up getting more money from the lower tax rate, what is your priority . Ara with all the capital we have available, we are reinvesting in the business and reinvesting to grow. Our business is very capital intensive. Expensive commodity, so we take all the capital and reinvest in land and work and process our actual homes. Alix lets talk about the hurricane impact. 30 percent of your area is in texas. What are you noticing in terms of the rebuilding effort . Land development, consumer development, pay . Ara our company and other new homebuilders did not sustain much physical damage because some of the new developments are primarily on Higher Ground with different standards than some of the older areas that were affected. Obviously it was a major and devastating hurricane for the residents of houston. People are just getting out of the cleanup mode. However, texas is incredibly resilient. We have seen buyers come back to the marketplace literally the next week. I am not worried about demand. If anything, demand should get stronger for new developments as people say i am going to get out of these flood prone areas. That is on the demand side. That is a little more challenging, over the long term because every painter, sheet rock or, carpenter, roofer, many of them are distracted by helping the people that were affected, rather than building new homes. Not one wehallenge, have not seen, before. Azwe have been in texas through the storms. You learn to get through. Jonathan great to have you with us on the program. Session,s into the equities in a slight move lower. The big story over the last month, in the bond markets. Yellenom fed chair janet with a bit of a hawkish speech earlier. Treasury yields are a little bit higher off session highs. Full coverage of the Market Action continues with bloomberg markets, up next. Its 10 a. M. In new york, 3 p. M. In london, and im vonnie quinn in new york. Live from london, im mark barton and welcome to bloomberg markets. Bonnie here are the top stories on the bloomberg and around the world. The tax reform plan as out there. President trump says it will dramatically reshape American Business for decades to come. Under the framework we will dramatically cut the business tax rate so that American Companies anrkers can beat foreign competitors and start winning again. So, what are the main obstacles to passing tax reform in congress . Theave an interview with House Budget Committee chairman, diane black. In europe, how are banks commissioned now that Angela Merkel has clinched a fourth term
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