Corporations Come Collecting from Bush
By Paul Magnusson
Corporate America is smiling today. At the President's first post-election press conference on Nov. 4, a relaxed and jocular George W. Bush, basking in his popular majority win, dropped talk of cooperation with the depleted Democrats on Capitol Hill and instead vowed to press ahead with his conservative policy goals. "I earned capital in the campaign, and now I intend to spend it," said Bush. "I'm going to spend it for what I told the people I would spend it on."
Bush repeated several of his major campaign themes, as he promised to simplify taxes, shift Social Security toward a partially private system, and cut the budget deficit by half during his second term. Bush pointedly promised to reach out to "everyone who shares our goals." Looking toward a lame-duck session of Congress that will have to wrestle with the past-due federal budget, Bush also warned Congress to keep spending down (see BW Online, 11/15/04, "The Next Four Years").
That was all welcome news to Bush's business supporters, who hoped that fixing economic and budget problems, cutting and simplifying taxes, and partially privatizing Social Security would be at the top of the President's agenda.
Indeed, business groups are already busy claiming considerable credit for Bush's win. Their wish lists now are extensive. Says John Engler, president of the National Association of Manufacturers: "This will be our moment, I believe."
On NAM's agenda: A new round of free-trade agreements, an end to any more litigation involving asbestos exposure, getting conservative nominees on the federal judiciary, tax reductions and shifting the tax burden from business income taxes to sales and consumption taxes, relaxed regulation, and more oil and gas drilling domestically to reduce business' growing energy costs.
But amid the chest-pounding, some business leaders remain worried that the U.S. may be veering off track in fiscal policy, health care, and even the war in Iraq.
"DO NO HARM."
Among the most critical problems bedeviling the second Bush Administration: The $415 billion -- and growing -- federal budget deficit. Execs are split on how to staunch the red ink. "All Americans look at it as, 'Are we going to leave the country better off for future Americans,'" says William J. Teuber, CFO of EMC (EMC ), based in Hopkinton, Mass.
His solution: Let the 10 years of tax cuts passed in Bush's first term sunset or raise revenues in some other way. "We're going to need to be creative and understand what the war on terrorism is going to cost. We've got to bite the bullet on that," Teuber adds.
Not so fast, says John J. Brennan, chairman of Vanguard Group. While he believes the deficit "creates an overhang on the economy, it's a spending problem in many ways." On what Brennan favors, he says, "Savings incentives have been good for the economy."
Cutting spending is clearly more popular with businesses than tax increases are. "I think the economy is doing fine.... We just have to do no harm at this stage" in order to reduce the deficit over the long haul, says Richard Kovacevich, chairman and CEO at Wells Fargo (WFC ). Spending cuts are in order, first and foremost -- and he looks to the White House. "I don't think the President has done a very good job on spending -- that's something he and Congress will have to get done," adds Kovacevich. By Paul Magnusson
MORE GROWTH NEEDED.
Most popular among execs [and Republicans] is the idea of expanding the economy out of the deficit. Growth would boost tax revenues without raising tax rates, they maintain, although some CEOs wonder if that will be enough.
William D. Zollars, head of Yellow Roadway (YELL ), the nation's largest trucking company, thinks the President "has hung his hat on economic growth as a way to start to fill the deficit" but ponders if more will have to be done. "It would work if the economy really picks up speed and stays on a high growth rate, and we have discipline on spending. We'd have to get a little more wind at our back to do that," however.
Matthew K. Rose, CEO of Burlington Northern Santa Fe (BNI ) believes just having a plan to solve the deficit problem will help. "As long as people see a roadmap to fiscal responsibility and spending within our means...the economy will give [Bush] a lot of latitude," he says. If Bush has no plan, "then the deficit will be very harmful for the economy."
VOTING FOR VAT.
However, counsels Corning (GLW ) Chairman and CEO James R. Houghton, extending the tax cuts that are due to expire early in the next decade "should be done very judiciously, since we have a huge deficit.... I'm not wild about any more tax cuts until we see where the deficit goes."
Lest you think all of business is more interested in holding onto four rounds of tax cuts or cutting taxes further, R. Jarrett Lilien, president and chief operating officer of E*Trade Financial (ET ) begs to differ. If Bush "or any other leader would come to me personally and say, 'I need to raise your taxes to help solve the country's problems, I'd be happy to pitch in,'" Lilien says.
Business tax reform especially gets a nod from some top execs. Wilbur L. Ross, CEO of the investment bank that bears his name and chairman of International Steel Group (ISG ), would like to see a European-style value-added tax, or VAT, replace the current corporate tax structure. VAT can be rebated to businesses that export, making the exporters more competitive, he believes. Says Ross: "We have a tax structure that's not suited to the global free-trade environment that the Administration wants."
Allowing workers to divert some of their Social Security payroll taxes into private accounts is also a priority on Wall Street. Chet Helck, president and COO at Raymond James Financial (RJF ), a St. Petersburg (Fla.) brokerage and financial-services firm, says the change would "accelerate the ability of workers to save for their retirement [and] solve the core problem" of Social Security's long-term financial shortfall.
It shouldn't surprise anyone that health-care reform is supported not just by many ordinary Americans but by major drugmakers as well. Schering-Plough (SGP ) Chairman and CEO Fred Hassan favors Bush's proposal for health savings accounts -- savings plans similar to IRAs that can be used to pay for everything from catastrophic health insurance to ordinary doctor visits. Savings can be built up in the HSAs as well, he believes.
However, Hassan warns: "There's not enough money in [the government] to pay for people's health-care aspirations. People want the best, they want it fast. They want it for everybody. The money isn't there." He opposes any attempt to allow U.S.-made pharmaceuticals to be reimported from Canada as "a way to import price controls."
"CYBERSECURITY IS CRITICAL."
Miles D. White, chairman and CEO of Abbott Laboratories (ABT ), offers a bitter pill of his own: Drug prices in other industrialized nations are lower than in the U.S. -- sometimes dramatically so -- because the U.S. is the only such nation without price controls for the general population. That has "left Americans paying a disproportionate share of the development of science and drugs." He's hopeful that the inequity "will get some good attention and focus" in a Bush second term.
Domestic concerns aren't the only worries on the minds of corporate execs. Terrence A. Duffy wants to fight terrorism -- but without the U.S. becoming the world's policeman. "There has been evil in the world forever. I don't think we can clean it up 100%," says the chairman of the Chicago Mercantile Exchange. "I think maybe the President has to take a more realistic approach toward some of the terrorists throughout the world. Terrorism is almost like drugs -- every time you clean up one corner, they're back on another."
Marc Benioff, CEO of Salesforce.com (CRM ), a San Francisco-based Internet software outfit that went public this year, insists that "cybersecurity is critical to our future." After that, he wants the Bush Administration to make good on campaign promises to support accessible health-care records for all Americans through better information technology.
If all this sounds like a wish list, it is. Most business leaders acknowledge they won't get all they want -- or even close. But in the glow of victory, few see any point in holding back now.
With bureau reports
Magnusson is a correspondent in BusinessWeek's Washington bureau