Industrials

Brooke Sutherland is a Bloomberg Gadfly columnist covering deals. She previously wrote an M&A column for Bloomberg News.

FedEx Corp.'s attempt to play the adult in the room on tax talks is unusual, but the package-delivery company is right to give it a try.

The $58 billion company's founder and CEO Fred Smith has been pitching his own version of tax reform -- sans the border-adjustment tax that's stymied congressional overhaul efforts -- to other corporations and government leaders, Bloomberg News's Matt Townsend reports. Trade associations will sometimes submit proposals on behalf of an entire sector and specific companies take sides on one detail or another, but it's unprecedented in tax expert Robert Willens' experience for a single corporation to take the lead on a complete package like this.

It's also a bit presumptuous, and any plan Fred Smith and FedEx come up with is likely to get a healthy dose of skepticism from anyone not named Fred Smith and FedEx. But someone had to do something, and it might as well be them.  

Hiring Mode
FedEx's total and U.S. employee count has been rising, which may help it curry favor with a job-focused president
Source: Bloomberg
Final data is not yet available for FedEx's fiscal 2017, which ended in May.

There's an impasse in Washington right now as Republican leaders try to salvage tax reform pledges that have become mired in a debate over a repeal of the Affordable Care Act and over that BAT proposal, which is essentially dead after fierce opposition from the retailers and other importers it would penalize. President Donald Trump's team has submitted a one-page tax reform proposal that is heavy on hopes and short on details -- like how the government will pay for it. Stacked up next to those examples, FedEx's plan is credible and worth a look. 

FedEx's vice president of tax Bobby Brown says details of the company's proposal are still being finalized as it gets more feedback, but here's where it stands now:

  • 10 percent minimum tax on offshore passive income in locales with a tax rate below that threshold.  
  • Preserve half of the current write-off for net interest expenses on future loans. (The plan propagated by House Speaker Paul Ryan would have eliminated this deduction in full.)
  • Allow an immediate deduction of only half the cost of capital investments, rather than the full write-down proposed by Ryan's plan.

To help pay for those cuts, FedEx proposes:

  •  Raising Medicare taxes paid by employers.
  •  Limiting the tax cut proposed by President Trump for pass-through entities, which include both small businesses and hedge funds.
  •  Increasing gasoline taxes to help pay for needed infrastructure improvements.

What's interesting to me is that not all of these suggestions are necessarily good for FedEx. The company had 271,000 full-time and part-time employees in the U.S. at the end of fiscal 2016, so presumably it would have to bear some of the brunt of increased employer Medicare taxes. The nature of FedEx's business requires it to make hefty capital investments in planes, trucks and (more recently) automation and network upgrades necessary to keep pace with the surge in e-commerce shipments; it would probably appreciate getting a full rather than partial tax break on that spending.

Big Spender
FedEx's investment costs have been rising and are expected to stay elevated over the next few years
Source: Bloomberg

And then lastly there's the gas tax. FedEx is in an interesting position here because fuel is one of its biggest costs, but it also needs halfway-decent roads and infrastructure to deliver goods. It's admittedly a short-term fix; sooner or later we'll all be ferried around by robots that don't need gas. But it could be a major revenue driver in the interim. Other big-name companies reportedly don't share FedEx's willingness to increase this cost, nor do many Republicans who see a gas tax as a regressive levy that hits rural drivers with longer commutes hardest. 

At the end of the day, FedEx is in a better position than a smaller transportation company to swallow higher gas costs and pass on some of those expenses to its customers. Its intentions aren't totally pure here. But there's something to be said for its willingness to give and take on tax reform and for Smith -- historically a big fundraiser for Republicans -- to show openness toward traditionally Democratic policies like a higher gas tax.

Trump's persona as the "businessman president" is debatable, but his unorthodox handling of policy decisions has given companies a bigger voice, and they're taking advantage. Perhaps politicians can learn something from their leadership.   

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. Ironically, Smith also pitched this idea to President Barack Obama who was receptive but pointed to how "politically frightening" the prospect was for Congress. President Trump is also studying the idea. 

To contact the author of this story:
Brooke Sutherland in New York at bsutherland7@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net