What Amazon’s Union Vote Means for Inflation

With just 0.2% of the total Amazon workforce turning in votes, the impact on the e-commerce Goliath looks insignificant. But a successful unionization effort could have far-reaching implications. The results should be known on Thursday or Friday.

An RWDSU success would be one small sign that some power is shifting from capital to labor, or in less professorial terms, from bosses to the workers. That could push pay higher.

Inflation fears don’t need more stoking. The possibility of higher inflation, spurred by higher growth, has been a stock market story for weeks and one big reason old economy, value-oriented stocks have outperformed growth stocks for a while.

Still, economist Ed Yardeni wrote Wednesday that he sees no sign of a wage inflation spiral, something that could make inflation stickier and more difficult to solve for central bankers.

But the shift toward workers is real, and worth paying attention to, no matter how the vote goes.

—Al Root

*** Uber hoped to be worth $120 billion when it went public. Then investors started asking about profits. Hear about the ride-sharing giant’s costly detour in this week’s The Readback podcast.

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G20 Takes Step Toward Agreement on Minimum Corporate Tax Rate

Finance ministers from the world’s most developed economies said Wednesday they hoped to agree on an overhaul of the way multinationals are taxed as well as on a minimum tax rate by the end of the year.

• Long-running multilateral talks on the question were given a boost this week when Treasury Secretary Janet Yellen signaled the U.S. support for the idea of a global minimum tax rate that would help end the “thirty-year race to the bottom” on corporate taxation.
• The blueprint for an international agreement on the matter was published by the OECD last October but the Trump administration had by then decided to withdraw from the long-running multilateral negotiations.
• The U.S. also put forward this week its own proposal on how to tax the world’s largest multinationals, along lines similar to the OECD’s suggestions. It aims to raise the global minimum rate to 21% although the OECD has suggest it could be closer to 15%.
• The current proposals would see big multinational corporations, regardless of the nature of their business, taxed in part on a national basis, in proportion to the revenue they derive from their respective markets.

What’s Next: Corporate taxes are another major area where the U.S.’s rejoining a multilateral forum helps kick-start stalled negotiations. Obstacles remain on the way to a deal, but the prospect of renewed trade and tax wars in the post-pandemic global economy—at a cost the OECD estimates at 1% of global GDP—could help focus minds.

—Pierre Briançon

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Biden Open to Compromise on Infrastructure Plan as Treasury Lays Out Tax Overhaul Plan

A week after President Joe Biden unveiled his $2.3 trillion infrastructure plan, the Treasury Department has provided details on how taxes could be raised to pay for the president’s economic agenda.

• Facing mounting criticism of his infrastructure package even among some Democrats whose votes are crucial to passing the bill, the president said Wednesday he’s open to “good faith negotiations,” while adding, “inaction simply is not an option.”
• According to the Treasury Department’s Made in America Tax Plan Report released Wednesday, raising corporate taxes and effectively doubling the global minimum tax rate to 21% to keep companies from shopping around for lower rates abroad could raise as much as $2.5 trillion over the next 15 years.
• The plan also narrows the scope of a proposed 15% minimum tax on profitable corporations by aiming it solely at those with an income above $2 billion, instead of $100 million as Biden proposed during the presidential campaign. That means that 45 companies would have to pay it.
• Earlier this week, Amazon CEO Jeff Bezos said he supports a corporate tax increase. Joshua Bolten, chief executive of the Business Roundtable, said however that raising the global corporate tax rate “threatens to subject the U.S. to a major competitive disadvantage.”

What’s Next: Most of the proposals laid out by the Treasury Department will need Congressional approval. In the Senate, where Democrats hold the slimmest of majorities, Joe Manchin (D., W.Va) has already said he prefers a 25% corporate tax rate instead of the 28% rate proposed.

—Janet H. Cho and Barron’s staff

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Fed Holds Steady as Dimon Imagines a ‘Goldilocks’ Economic Moment

The Federal Reserve indicated that it plans to keep its so-called easy-money policy in place for the foreseeable future. The minutes released from its meeting last month came after JPMorgan Chase CEO Jamie Dimon predicted an economic boom through 2023.

• Despite the Fed’s raised forecasts for employment and inflation, board Gov. Lael Brainard said Wednesday, “we are still far from our maximum employment goal.”
• In his annual letter to shareholders, Dimon said that government spending could continue until 2023 and may have lasting positive economic effects beyond the next two years if the outlays are done in a disciplined manner that provides greater economic opportunity.
• “We don’t know what the future holds, and it is possible that we will have a Goldilocks moment—fast and sustained growth, inflation that moves up gently (but not too much) and interest rates that rise (but not too much),” he said.

What’s Next: Noting that the economy hasn’t lost its “underlying momentum” during the pandemic, San Francisco Fed President Mary Daly told Barron’s that the economy could see a “pretty sharp rebound by the fall.”

—Anita Hamilton and Carleton English

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Ride-Hailing Companies Dangle New Incentives to Get Drivers Back on the Road

Uber and Lyft are both offering incentives to attract new hires and bring back former drivers in anticipation of higher demand as reopenings accelerate.

• Uber on Wednesday announced a one-time $250 million stimulus to bring drivers back. “We want drivers to take advantage of higher earnings now because this is likely a temporary situation,” the company said.
• Specific incentives vary by market. Drivers in Austin are guaranteed $1,100 for making 115 trips, while drivers in Phoenix are assured $1,775 for completing 200 trips, the company told CNBC.
• Uber said drivers’ median earnings before tips and expenses are as high as $31 an hour in Philadelphia, with median wages up to 75% higher than before the pandemic. On Tuesday, Lyft said drivers in top markets earn an average of $36 per hour, including tips, up from $20 pre-pandemic.
• Revenue at both ride-share companies fell in 2020 as travel declined overall, with Uber’s falling 14% and Lyft’s down 35%. But things are looking up for the category this year: Lyft said its ridership in the last week of February was the highest it’s been since March 2020.

What’s Next: Uber shares fell 2% on the news but are up nearly 12% year to date. Lyft shares fell more than 5% Wednesday but are up 24% year to date.

—Janet H. Cho

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Cruise-Line Operator Carnival Posts $2 Billion Loss in Quarter

Carnival said it lost $2 billion during its first quarter. The stock touched one-year highs anyway.

• Though Carnival’s adjusted net loss of $2 billion was wider than analysts’ consensus estimate of $1.73 billion, the stock hit $30.63, a 52-week intraday high. CEO Arnold Donald pointed to pent up demand.
• “Booking volumes are accelerating. During the first quarter of 2021 they were approximately 90% higher than volumes during the fourth quarter of 2020 reflecting both the significant pent up demand and long-term potential for cruising,” Donald said in the earnings release.
• Few industries have been hammered harder during the pandemic than the cruise business, but Carnival shares are up 163% from their pandemic lows. Investors are betting the company can bounce back as travel rebounds.

What’s Next: Centers for Disease Control and Prevention spokeswoman Jade Fulce told Bloomberg earlier this week cruises could hopefully restart with restrictions by midsummer.

—Connor Smith

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“I’m confused: when can I deduct business meal and entertainment expenses under current IRS rules?”

The federal income tax treatment of business-related meal and entertainment expenses has been a moving target. If you’re confused about what rules currently apply, I don’t blame you. This column aims to eliminate confusion. That’s an optimistic goal, but here goes.

A taxpayer-friendly change in the CAA—the Covid-19 relief bill that became law late last year—allows you to write off 100% of the cost of business-related food and beverages provided by restaurants in 2021 and 2022. The “provided by” language apparently means the temporary 100% deduction rule applies equally to sit-down meals and take out. Before this change, deductions for business meals at restaurants were limited to only 50% of cost.

However, there are some unanswered questions: Do bars that serve food count as restaurants? Presumably they do. What about airport lounges? What about food trucks? Nobody knows. We await IRS guidance.

For 2018 and beyond, the Tax Cuts and Jobs Act (TCJA) permanently eliminated deductions for most business-related entertainment expenses. Before the TCJA, you could deduct 50% of the cost of most business entertainment. But after the TCJA change, you can no longer deduct any part of the cost of taking clients out for a round of golf, to the ballgame, or for a ride on the Ferris wheel. Rats.

For too long, it was unclear what the impact of the TCJA’S general disallowance of write-offs for entertainment expenses would be on the deductibility of business-related meals. In 2020, the IRS finally issued eagerly-awaited regulations. They were written before the CAA change that now allows 100% deductions for business-related restaurant meals in 2021-2022. So, the regulations will need to be updated. Until then, they still provide the useful guidance summarized in the rest of this column.

Read more here.

—Bill Bischoff

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—Newsletter edited by Anita Hamilton, Stacy Ozol, Mary Romano, Matt Bemer, Ben Levisohn