Predictions For 2018 And Beyond: Taxes, M&A, Cordray For Veep, Etc.

Find out what this deputy general counsel thinks will happen in the legal profession and beyond in 2018.

For the last several years, I’ve devoted my first column of the new year to making predictions for the year ahead.

predicted for 2017 that law firms would begin to focus on the amount that they paid for real estate, the economy would prosper for 12 months (an unusual prediction at the time), and we would see the first product liability lawsuit involving 3D printing.  I’d say I’m right on numbers one and two and I’m uncertain about number three (because you can’t check the dockets in state courts to see what lawsuits have been filed).

(I also made predictions for 2016 and earlier, but you’ll have to decide for yourself how I fared on those.)

But the past is easy; what of the future?

2018, here I come!

Prediction number one:  The recent spate of allegations about sex harassment will spread to corporate America, which includes law firms.  We’ve seen allegations of sex harassment made against high-profile men in politics, and entertainment, and the news media.  But we haven’t seen (or read about) nearly as many incidents involving corporate America.  Why not?  The boys everywhere pursue money and women. Why haven’t there yet been scandals on Wall Street or within law firms?

You don’t have to be too old to have grown up in a time when sex harassment was widely tolerated.  Or to remember that the boys, historically, protected the boys.  I assume that corporate America and law firms historically treated allegations of sex harassment the same way the worlds of politics and entertainment and media did:  You protected influential men and worried less about the women.

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When I worked at law firms, I certainly heard reports — from harassed women, from the rumor mill, from being alive — that senior partners were behaving badly.  (This wasn’t necessarily at the firms at which I worked; it seemed as though harassment was pervasive in the industry.)  I’m convinced those rumors were not all wrong, and I believe those chickens will begin to come home to roost in the coming year.

I have only one reservation about making that prediction:  If a woman accuses a politician, or an entertainer, or a famous reporter of sex harassment, the woman may receive the protection, such as it is, of press coverage.  Famous people are being accused; the story of harassment goes viral; that publicity helps protect the accuser (and condemn the accused).  If a woman reported sex harassment by a prominent guy in corporate America, the press would yawn:  The incident isn’t newsworthy.  Perhaps women are reluctant to make these allegations because the women won’t get the protection afforded by media attention.

Be that as it may, I’ll stand by my prediction:  We’ll see more allegations of sex harassment in 2018 in corporate America, which includes the legal business.

Prediction number two: Merger and acquisition work will boom for the next six months.  Tax reform has passed.  Corporations will shortly have a lot of extra money, both from reduced tax rates and repatriated income. There are only four things corporations do with extra money:  Share buybacks; dividends; organic growth; and inorganic growth (M&A).  What should corporations do with all their new, extra money?  The investment banks will have an idea, I’m sure:  Buy something!  And those who buy early, before the multiples are bid up, will pay less! 

Litigators may continue to sit on their thumbs for the next few months, but corporate lawyers are going to be busy.  Take your vacations now!  I’m predicting that at least the first half of 2018 will be hectic for M&A lawyers.  

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Prediction number three:  I have one prediction about the law that doesn’t affect law firms directly.  In 2018, Congress will begin to rein in the imperial presidency.  Arthur Schlesinger published The Imperial Presidency in 1973, arguing that the presidency was too powerful and had exceeded its constitutional limits.  The presidency has of course only increased in power in the half-century since.  The expansion of power seems to be accelerating recently, with a Democrat using executive orders to enact his policies over Congressional objection and a Republican then using executive orders to undo what the Democrat had done.

I understand that Americans are deeply skeptical of Congress.  We seem to elect people who worry more about getting re-elected than pursuing what’s good for the country; national politicians veer to the extremes instead of trying to compromise for the common good; politicians vary their principles to suit the situations.  (Are executive orders good or bad?  First tell me if the President is a Democrat or a Republican.  Is sex harassment terrible or excusable?   Who’s accused — a Democrat or a Republican?  Should important national legislation be enacted only with broad bipartisan support?  Are you talking about Obamacare or tax reform?  If politicians acted by principles rather than politics, politicians could tell you the rule before they learned the identity of the players.)

But I think that members of both parties have now seen the pendulum swing too wildly without any Congressional input at all.  I predict that in 2018 we’ll begin to see Congress rein in the imperial presidency.

Now, the most speculative of all my predictions, looking nearly three years into the future.  I predict that Richard Cordray will be the Democratic nominee for vice president in 2020.

You’re insane, I hear you whisper.  (You should have whispered more softly.)

But, no; here’s my logic:  Assume Cordray defeats Mike DeWine for Governor of Ohio in 2018.  (That will be no mean feat.  DeWine has previously been elected senator from Ohio, and he’s raised a bundle of money for this year’s campaign.  But assume Cordray pulls it off.)  The Democrats must decide whether to nominate someone who will motivate the base — we must nominate a woman! we must nominate an African American! — or someone more traditional.  Whatever they decide about the top of the ticket, the bottom of the ticket must carry a Midwestern swing state.  Let’s look around for Democratic governors of Midwestern swing states with name recognition and the ability to raise money nationally.  Presto!  The Governor of the swingiest state of them all, Ohio!

Richard Cordray will be the Democratic nominee for vice president in 2020. You read it here first.  (You may also read it here only, but that’s another story.)

I’ll close with two final things:  I made another legal prediction recently over at the Oxford University Press blog:  2018 will be an important year in resolving the on-going debate over whether a person injured by taking the generic version of a drug can sue the manufacturer of not the generic, but the innovator, version of the product.   If you’re interested in that question — or, indeed, if you’re simply struggling to understand what my last sentence meant — that’s why those fancy academic press blogs exist. 

Finally, the dog that didn’t bark:  I considered predicting that, in 2018, a surprising number of partners would move from the New York, Chicago, San Francisco, and LA offices of big firms to those firms’ Houston or Miami offices.  Here’s why:  As David Lat has noted, the new tax law will dramatically raise the taxes of rich law firm partners who live in states with high state and local taxes.  (Those partners can currently deduct state and local taxes on their federal returns.  Under the new law, that deduction is capped at $10,000.  Partners who are making two or three million bucks (or more) a year are paying a lot more than $10,000 in state and local taxes, so their tax bill is going way up.)  

How do you fix that?  If you work at a firm with multiple offices, and if you have a national practice, move to an office located in a state with no income tax!  Houston or Miami, here I come!

But, no.  First, you’d have to take another bar exam if you moved — neither Texas nor Florida offers reciprocity.  But Tennessee!  Open an office in Memphis or Nashville, waive into the bar, and take advantage of extraordinarily low state taxes!

But, no.  Folks living in New York could already live in low-tax states if they cared to.  And those folks are choosing to spend several hundred thousand dollars (or more) to buy homes in New York that would cost much less in other cities.  If you don’t choose to live in Houston to save on the cost of real estate, would you really choose to live there to reduce your taxes?

There are other problems, too.  Although it makes no sense, a lawyer located in New York generally commands a higher billing rate than the identical lawyer located in a different city.  New York lawyers might kill their practices by moving to Houston.  And for many lawyers (those in firms that remain pure partnerships, rather than LLCs, I think), partners pay taxes based on where the firm as a whole earns income, rather than where an individual partner lives.  (For years, I lived in Cleveland, but paid taxes in New York, California, Illinois, Georgia and many other states.  I think that’s because my firm was a pure partnership, although I’m sure I’ll hear from you if I’m mistaken.)

Anyway, for those reasons, among others, I’m not predicting a stampede of people changing offices from New York City to Houston.

But you have all my other predictions — in public, in writing, and for all to review next year and again in 2020.

I have just one more thing to add about the new year:  I sure hope you have a happy one!


Mark Herrmann spent 17 years as a partner at a leading international law firm and is now deputy general counsel at a large international company. He is the author of The Curmudgeon’s Guide to Practicing Law and Inside Straight: Advice About Lawyering, In-House And Out, That Only The Internet Could Provide (affiliate links). You can reach him by email at inhouse@abovethelaw.com.