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Enron Mail |
-----Original Message----- From: =09Johnston, Robert =20 Sent:=09Tuesday, October 02, 2001 8:27 AM To:=09Whalley, Greg; Frevert, Mark; Mcconnell, Mike; Hickerson, Gary; Shank= man, Jeffrey A.; McMahon, Jeffrey; Bowen Jr., Raymond; Lavorato, John; Kitc= hen, Louise; Kinneman, Jeff; Gonzales, Eric; Whitehead, Jonathan; Nowlan Jr= ., John L.; White, Bill; Schroeder Jr., Don; Maffett, Randal; Sekse, Per; P= resto, Kevin M.; Belden, Tim; Heizenrader, Tim; Grigsby, Mike; Allen, Phill= ip K.; Kaminski, Vince J; Bradley, Michael; Kean, Steven J.; Robertson, Lin= da; Shapiro, Richard; Fuller, Robert; Tholan, Scott; Roth, Jim; Fitzsimmons= , Brendan; Seigle, Clayton; Whitman, Britt; Aganon, Rommel; Landry, Kimberl= y; Holman, Kelly; Walsh, Kristin; Turner, Nancy; Lawlor, Dave; Kemp, John; = Brindle, John; Cromley, David; Ewald, Laura; Scott, Eric; Reed, Andrea V.; = Garner, Bruce; Lawyer, Larry; Neal, Scott; Woody, Rus; Fraser, Jennifer; Fa= llon, Jim; Imai, Rika; Will, Lloyd; Botsch, Dan; Dimichele, Rich; Shahi, Pu= shkar; Stuart III, William; Hirl, Joseph; Thirsk, Jeremy; Blesie, Brad; You= ng, Steve Subject:=09Competitive Analysis Update #26- US Response to Terrorism Importance:=09High See below for update on situation in Afghanistan as well as fiscal stimulus= plans in Congress. RJ 1. =09The War on the Ground For the most part, the military action in Afghanistan is likely to be the s= pecial forces "inserted" into Afghanistan to locate bin Laden. The special = forces are doing very little in the way of fighting and will instead use th= e collected intelligence from various sources to "snatch" bin Laden and oth= ers, or to find other targets, identify them, and then call in attack aircr= aft. Such attacks are by now well-priced in and would appear to be unlikel= y to have a disruptive impact on financial or energy markets. Over the weekend, the press picked up on our reports from last week that cu= rrently the US has Delta Force, Green Beret, and Army Ranger units on the g= round and some special operation forces "in-country." Also, British Speci= al Air Service units, the French Regiment de Parachutistes d'Infanterie de = Marine, and the German elite KSK special forces will be playing a role. Adv= ance groups of the US 101st and 82nd airborne divisions arrived nearly a we= ek ago at the Pakistani military base of Dar Esmail Khan, which is just wes= t of the Suleyman mountains near Khojastan, a pass into Afghanistan and to = Kandahar. Allied ground troops, backed by helicopter gunships and armored A= C-130 armored planes have been stationed at former Soviet military airbases= near Tashkent in Uzbekistan.=20 The ground forces are backed by a massive concentration of allied airpower,= ranging from nearly 150 US Air Force B-1 and B-52 bombers and F-16s and F-= 14s, as well as the nearly 400 aircraft in the four battle carrier groups t= he US Navy has moved into nearby waters led by the USS Enterprise, the USS = Theodore Roosevelt, the USS Carl Vinson, and the USS Kitty Hawk. In additio= n the British have some 20,000 troops in Oman and a Royal Navy squadron aro= und the HMS Invincible. Allied air power and close ground support gunships are expected to provide = air support to any coordinated attacks by the loosely aligned Northern Alli= ance, the main Afghan opposition to the Taliban. =20 Due to the recognition of the difficult internal political situation in Pak= istan, the US and allied presence is being kept to a very low profile and t= he actual contribution of Pakistani military forces is being kept to a mini= mum. Yet it is the Pakistanis who will play a decisive role using their in= telligence network in Afghanistan to find bin Laden. 2.=09Fiscal Stimulus Outlook By the end of October Congress will have passed a new package of stimulus m= easures totaling somewhere between $100 and $180 billion, if you count the = $55 billion in airplane and reconstruction/defense spending already passed.= =20 Most officials with a dog in this hunt agree that tax-cutting gets preferen= ce over spending, but that there will have to be some direct spending to an= esthetize the center-left crowd in the Senate and in the House where nerves= are beginning to go raw over corporate "bailouts" that have not yet includ= ed anything directly for the employees. So for now, here is a brief list of= the major policy options with equally brief commentary about their prospec= ts: ?=09Payroll tax cut/suspension -- This has emerged as the most likely item = to be on any final list agreed to. As a stimulus item the economics are pro= bably better on this than almost anything else, since it puts money directl= y in the pockets of workers who earn too little to pay income taxes and it = can be implemented very quickly. Although it could add up to a very big num= ber if suspended ($700 bn per year), because this is the money that goes in= to Social Security political leaders of both parties know they have to be c= areful about how the accounting and packaging get done on this. Still, both= the White House and congressional Dems are big on this. Some version is li= kely to pass and the totals are likely to be somewhere around $30 bn.=20 ?=09Accelerate the Bush tax cut -- If the original Bush tax cut was the rig= ht medicine, then why not have some more? The thinking here is that you hav= e already agreed to do these things, and you no longer are watching the bud= get flip from black to red, why not put more money in the hands of those wh= o pay the most taxes? The White House has been putting this idea forward, b= ut not too aggressively, and the Democrats on the Hill have made it clear t= hat they want the next tranche of tax relief to go to someone other than "t= he rich." Chances low, but if there is a broad package, this could get in.= =20 ?=09Capital gains tax cut -- This came on fast and has essentially died. It= is too offensive and too obviously lacking in any stimulative qualities fo= r anyone outside of senior House Republicans to like. Take this one off you= r list.=20 ?=09Unemployment insurance and health care extension plus worker retraining= programs -- These are very big among Democrats and the White House is symp= athetic, but House Republican leaders are deeply split on this topic. There= are some obviously restorative qualities to spending money this way, but t= he totals being batted around (over $30 billion for the retraining and heal= th care components alone) send the Texas components of House leaders into s= hock, complaining of socialism. Democrats argue that Speaker Hastert promis= ed them support for some serious version of these programs in return for ba= iling out the airlines without clogging the debate with "airline worker ass= istance" packages (worth about $4 billion). Hastert is saying he will still= try to deliver, but his second and third in command are leading an in-hous= e rebellion.=20 ?=09Cut in corporate taxes -- A permanent cut in corporate taxes would be v= irtually impossible to wrangle through, but a temporary corporate tax cut i= s something that both Treasury Department and White House officials want to= achieve. This is obviously something Democrats will not be happy about, bu= t if they get the payroll tax relief and substantial amounts of their worke= r assistance package, they have to swallow hard for something. This was an = early favorite of the administration's. As with most of the proposals that = seemed so promising when they were first announced, this one has been runni= ng into some tough reality. There are a few problems with lower marginal co= rporate tax rates that have emerged. For one, many large corporations pay o= n something the IRS likes to call the AMT schedule (that's the Alternative = Minimum Tax), so they would get no break at all. Even more disturbing is th= at companies with large tax-loss carryforwards sitting on the books as asse= ts would take a massive hit on the value of these assets, since the calcula= ted benefit they bring is adjusted downward all at once. For some weakened = companies this alone could be fatal, since their attractiveness to acquirer= s depends on their loss-carry forwards. Finally, many employee expenses tha= t companies can still get are deducted at their full marginal tax rate and = the value of those deductions would obviously drop.=20 ?=09Investment Tax Credit And Accelerated Depreciation Schedules -- The vas= t assortment of cuts that could come under this rubric are all plagued by t= he same problem: just talking about them gives businesses another reason to= delay making investments. Even if the administration were to announce that= all of these breaks will be given retroactively once legislation is passed= , investments would be delayed since the fine print on what qualifies and o= n which schedule would mean huge differences in tax exposure. There is no w= ay to propose these without delaying investment. On the plus side, the acce= lerated depreciation is simpler to describe in legislation, and can be done= for a limited period without the same degree of distortion as the full ITC= . Also, given the speed at which the stimulus debate is going forward, ther= e may be less concern about the investment postponement issue. This item is= likely in some form to make it into a final package, but the details don't= exist yet, and its in the details that the significance of it lies.=20 ?=09Specific sectoral tax breaks -- From the steel industry to the restaura= nt and hotel industry, every trade association has a specific tax break in = mind that would help them recover. This is going to be the hardest to handi= cap since many of the small deals will be shoved in at the last minute on p= ersonal orders from members and they will not be big enough individually to= make a macro difference. Cumulatively, though, these could easily top $10 = billion before the special pleading is done. Programs like high-speed rail= , additional defense money, additional unemployment insurance for hard hit = sectors could be shoved into this catch-all rubric. Some of these will make= the cut others will not, but they can add up fast.=20 ?=09Fast Track Trade Authority -- USTR Bob Zoellick told congressional lead= ers that if we had any chance to win the war against terrorism, the Preside= nt would have to have full and complete fast track authority to cut trade d= eals as necessary. But Zoellick found himself apologizing to enraged Democr= ats for implying that a vote against fast track was a vote for terrorism. I= f he can recover from the politics of that maneuver, this one actually has = some logic behind it as a diplomatic and economic response -- and it doesn'= t cost anything. We will be following this for you with increasingly close focus this week s= ince the real decisions will start to get made later this week and early in= the next. Again, with an end-October deadline, there isn't a lot of time t= o waste and members of Congress are well aware of that fact.
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