Has the Obama Administration declared war on business? Maybe not directly, but if you talk to a number of corporate chieftains—as I did recently in two different settings—you come away believing there is a sense of frustration at the one-size-fits-all approach to business rules and regulations. At the top of the list of initiatives seen as lacking in nuance is the new call for a crackdown on corporate taxes. On May 18, Obama outlined plans to shut down tax havens used by "a small number" of individuals and companies. More important, he outlined plans to effectively increase the U.S. taxes multinationals pay on profits generated outside the U.S.—a move he said could bring in about $210 billion in revenue over a decade. A few days later, I talked with Duncan Niederauer, CEO of NYSE Euronext (NYX), to find out what he's hearing from corporate executives.
The proposals coming out of the Obama Administration are the talk of the business world, particularly the tax on international profits. What are you hearing about this new proposal to tax profits differently?
DUNCAN L. NIEDERAUER
I was in Texas and California in recent weeks and probably met with 100 company executives. The reactions among many could be summarized in the following two observations. No. 1: Doesn't the Obama Administration recognize that most [big] U.S. companies are multinationals that happen to be headquartered in the U.S.? No. 2: Doesn't the Obama Administration appreciate that a multinational headquartered in the U.S. doing business overseas does not mean the company is evading taxes? If somebody who's operating in the U.S. has an overseas business with a mailbox in a tax haven then obviously that is bad behavior and should be dealt with. Companies that have overseas businesses in legitimate tax jurisdictions, who pay taxes in those jurisdictions on the business they do there, that is not in the same category. And what I'm hearing from executives is that this proposal suggests we're all behaving badly, when, in fact, I would imagine very few of us are.
What's the reaction going to be?The initial sense we're getting—and we plan to survey our listed companies in the coming days to get a more accurate read—is that these companies will find ways to cut expenses to compensate for this increase in taxation, and that will probably be largely in the form of jobs. And companies might continue to be headquartered in the U.S. but would perhaps incorporate in another G-20 jurisdiction.
Besides job cuts, are there other implications?As a student of the market, you'll appreciate this. If $210 billion is coming out of everybody's aftertax net incomes over the next decade, put whatever multiple you want on that, and that would tell you trillions of dollars should rationally come out of equity market capitalization were this to go forward. The other implication is probably it's got to have a negative impact on our ability to compete because it almost encourages you to be a localized company, not a multinational.
How heavily are corporations taxed? Klaus Kleinfeld told me corporations today pay a 31% tax. Bill Gates said it's 8%. What do you think?Boy, I certainly think it is much closer to the former than the latter. I will tell you, our corporate tax rate is just under 30%, and that's a blend of what we pay here and what we pay on our overseas businesses.
Are you getting the sense that many proposals coming out of the Administration are anti-business?The companies I talk to feel that the reregulation regime that seems to be in place right now...appears to be anti-business. The public's anger is largely at the financial services industry. But your observation is correct, it does seem to be spreading to business big and small, and I think that's unfortunate.
Let me ask you about trust in the markets. I recognize that while Chrysler bondholders are not getting what they expected, that is a small subset of a larger issue, which is healing the auto industry. But how worried are you that investors will lose trust in the public markets because they are afraid the rules are going to change in the middle of the game?I'm not too worried about that because other than isolated instances in specific industries, the idea you just raised is not widespread. I'm more concerned about the uncertainty that has companies nervous. If part of what we're trying to do is get on the road to recovery, I think a lot of companies are hesitant, if not paralyzed, because they don't know what the new regime is going to bring. That is eroding confidence.
How do the markets feel right now?I don't think we have seen enough change in the fundamentals for me to believe we're in the beginning of a bull market, but it obviously feels better than early March. It seems like things are in the process of settling down.
We've seen a little burst of IPO action lately. Rosetta Stone (RST) was obviously a highlight. What does this tell us?I wouldn't read too much into it yet. The few IPOs we've had have gone very well. There is money on the sidelines that's going to be put to work, but the last thing we want now is to have the floodgates open, have a lot of deals that don't trade well come to market. That would be very damaging.
But in the next six or eight months, which sectors do you think will generate IPOs?Generally high-tech, clean-tech.
One last question: Reuters (TRI) reported on May 20 that there's talk of a merger between the NYSE and Deutsche Börse. Have you or any of your associates been in talks with Deutsche Börse?No. And there's no truth to that rumor.