Tuesday, October 17, 2017

[Column] Think Strategically: Our Suffering Strengthens our Soul, Character and Resolve

By on October 2, 2017

Destroyed communities are seen in the aftermath of Hurricane Maria in Toa Alta, Puerto Rico. (Gerald Herbert/AP)

IPO Calendar- Trade date estimate week of October 2, 2017

Company

Ticker

Deal Size

Switch

SWCH

$469mm

Black Ridge Acquisition

BRACU

$100mm

Rhythm Pharmaceuticals

RYTM

$100mm

Gadsden Growth Properties

GADS

$35mm

 

Trump tax reform revealed

As had been anticipated, the Trump Administration, the House Committee on Ways and Means and the Senate Committee on Finance have presented a tax reform that seems to be a unified framework. This reform may very well become a tax code for economic growth, supports middle-class families, defends American workers and supports job creation. On initial review, we noticed that this reform broadens that tax base while focuses on closing loopholes. The tax framework unveiled this week by President Trump and the congressional Republican leadership would reduce federal revenue by $2.4 trillion over the next decade, according to a new analysis by the Tax Policy Center. The plan would cut taxes for low- and middle-income households modestly, while focusing most of its benefits on the highest-income 1%.

We estimate that in 2018, most income groups may see their average taxes fall. Taxpayers with the highest incomes would receive the biggest cuts. On an average basis, most households would get a tax cut of $660 or 1.2%, of their after-tax income. By comparison, it would increase the after-tax income of the highest income 1% by an average of $130,000 or more than 8%. Those making $730,000 or more would receive half of all the plan’s tax cuts while middle-income households (those earning between about $50,000 and $90,000) would get only about 8% of the total benefit.

The tax reform is good news for corporations it lowers the corporate tax rate from 35% to 20% and eliminates the Corporate Alternative Minimum Tax. For pass-through entities, tax reform creates a new maximum tax rate on pass-through income of 25%. Regarding capital investments, it allows for full expensing for short-lived capital investment, such as equipment and machinery. One of the most thought-after items we had been looking for was the international income it creates in a territorial tax system, by which foreign-source profits of U.S. corporations are not subject to U.S. tax repatriation. As for the foreign-income tax holiday, it enacts a one-shot tax on all previously accumulated foreign profits and to prevent companies from shifting profits to tax havens, the framework includes rules to protect the U.S. tax base by taxing at a reduced rate and on a global basis the foreign profits of U.S. multinational corporations.

Puerto Rico Update: Hope is the one thing, that drives our spirit, and pushes us to discover our real limits and purpose

The catastrophic impact of Hurricane Maria to Puerto Rico is a life-changing one, with thousands left homeless, damage to our power grid close to 95%, about 60% of the island without water, gas and diesel lines of more than 12 hours, most groceries stores closed or those open with their shelves empty. Our distribution channels are severely affected, our infrastructure is in shambles and the devastation is widespread. It took many a week to be able to contact loved ones both here and stateside.

We have seen both the best and worst of Puerto Rico on display by the actions of its citizens. During this event, we have seen all the kids play outside until dusk, use their bikes, play ball and many other games.

We need all the help we can get and as it lagged, we have seen many criticize in one way or another both our local and the federal government; the reality is no one could be truly prepared to face a disaster of such magnitude and force. We were hoping for the best and got the worst. Our local government did a great job preparing for the hurricane and after the impact, the lack of resources and liquidity hampered their ability to execute and with the federal government not realizing the magnitude of the devastation, help has arrived in slow motion. After nine days, we have only begun to experience changes. The outpouring of collaboration and acts of kindness coming from celebrities, the P.R. diaspora in the U.S. and many well-meaning fellow Americans has been heart-warming. A measure of the magnitude of an event is the losses created, catastrophe-modeling firm AIR Worldwide indicates the storm could result in $72 billion in losses. These losses do not include those to uninsured properties with this means losses may reach close to $100 billion.

President Trump’s planned visit tomorrow to Puerto Rico provides him with a clearer picture of the magnitude of our disaster and will allow increasing the focus and funds to alleviate Puerto Rico. The job of a president is to unite a nation under all circumstances and if there was a time we needed unity and support from Washington, it is now. One of the ideas that has surfaced is federalizing both the Puerto Rico Power Electric Authority (PREPA) and the Puerto Rico Aqueduct & Sewer Authority (PRASA), allowing for rapid redevelopment and transformation, while providing ample resources and liquidity, while allowing to create the utilities for the future.

Final Word: Friends in good and bad times

Hope is the one thing that drives our spirit and pushes us to discover our real limits and purpose. As trying as this event has been, we have all one way or another received an unexpected act of kindness from neighbors, family, friends or even people we did not know. We for one will forever be grateful to those that went out of their way to help us in our time of need. During these trying times, where we are challenged and pushed to our limits, we should know that our suffering strengthens our soul, character and resolve.

—Francisco Rodriguez-Castro is the president & CEO of Birling Capital Advisors LLC

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