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August 2, 2012 8:55 pm

US politics: Corporates and candidates

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With contenders presenting starkly different visions ahead of the election, much is at stake for the country’s biggest businesses
US elections

Nine months into his presidency, Barack Obama hosted a private lunch for the chief executives of some of the biggest US companies, Amazon and Kraft among them.

The summer of 2009 had been tough. Battles over corporate pay and White House plans to overhaul the healthcare and energy sectors had built an impression among leading industry chiefs that he was “anti-business”.

The president’s effort to mend frayed relationships failed. Less than a year later, as it looked to corporate America to help rescue the economy from the worst downturn since the Great Depression, the White House revealed its frustration. “The stakes are far too high for us to be working against one another,” Valerie Jarrett, Mr Obama’s adviser, wrote to the Chamber of Commerce, a big business lobby. “[Business rhetoric] fails to acknowledge the steps this administration has taken to meet our shared objectives.”

Since then – following rafts of regulation such as the Dodd-Frank finance act and the president’s promotion of the Buffett rule that would set a minimum tax rate of 30 per cent for those earning more than $1m a year – the rift has only grown wider.

Meanwhile, Republican presidential candidate Mitt Romney, co-founder of Boston-based Bain Capital, is campaigning for November’s election on his corporate experience and promises to make life easier for companies big and small.

These competing visions for corporate America coincide with a newly deregulated campaign finance system that allows business, and unions, in some circumstances to give as much money as they want to back politicians – a development that has so far favoured Republicans.

In the longer term, the agenda of the victor will mould fiscal policy, with potential repercussions for a global economy seeking to avoid sliding back into recession, as well as the regulatory environment.

Wall Street companies and executives overwhelmingly favoured Mr Obama in the 2008 election but they have abandoned him for Mr Romney in 2012. By early May, finance industry executives had given to Mr Romney three times as much as they had Mr Obama, according to the Center for Responsive Politics, a Washington-based research group.

In depth

US elections 2012

staff fixes the presidential seal before US President Barack Obama gives a press conference

Republican candidate Mitt Romney takes on President Barack Obama in the race for the White House

John Engler, head of the Business Roundtable, a lobby group for chief executives, says: “There is a belief among many in the business community that there isn’t a deep and abiding affection in the Obama administration for entrepreneurs and business ... that a Romney administration would be much more neutral and respect the role that free markets play in determining successful investments.”

The Republican candidate attacked Mr Obama last month for saying: “If you’ve got a business, you didn’t build that, somebody else made that happen.” Although the president argued the remarks highlighted the importance of government-funded education and infrastructure to growth, his rival said they were “insulting to every ent­repreneur and innovator in America”.

In fact, Mr Obama’s backing of infrastructure investment draws support from many in corporate America. Should Mr Romney win, some are likely to object to sharp cuts in spending set aside to upgrade roads and airports proposed by Republicans in Congress.

Reducing the soaring deficit is the “most important” issue facing the next president, says Roger Altman, the chairman of investment bank Evercore who served as deputy Treasury secretary under Bill Clinton. Mr Obama’s plan – a mix of tax rises and spending cuts – “is vastly more realistic than the one Romney has put on the table,” he says. But most sectors favour the Republican platform of lower taxes and less regulation.

Interactive graphic: Race for the White House

The backgrounds and platforms of the main candidates

Mr Romney’s backers see the election as a chance to usher in an era of co-operation with government, not least in regulatory terms. “There is a sense among directors I talk to that there is a pent-up demand, desire by companies for a lot of spending and investment if everyone thought the signals were clear – and that if you put capital at risk, the game is not going to be changed on you a year in,” says Mr Engler.

Mr Romney’s “trickle-down deregulatory agenda might have some short-term benefits,” says Jared Bernstein, former chief economist to vice-president Joe Biden, “but historically that has been a recipe for bubble and bust as well as significantly weakening the middle class.” For his part, Mr Obama argues that the kind of low-tax, light-regulation policies proposed by Mr Romney are “what caused the [financial] mess in the first place”.

The president has allies in Silicon Valley and some on Wall Street. He is also generally seen as supportive of manufacturing. Jeff Immelt, General chief, has worked with him on policies to boost employment through the Jobs Council – though the body became a political football when it emerged it had not met in six months. He has supporters in Detroit, where he is credited with reviving carmaking with the bailout of General Motors. Mr Romney has said he would not have staged a rescue.

No industry has more at stake than the healthcare-related industry, which makes up one-sixth of economic activity as measured by gross domestic product. If re-elected, Mr Obama will continue to implement the 2010 healthcare law, expanding insurance to cover more than 25m Americans, while a president Romney would seek to dismantle it. The law has been strongly supported by the hospital and pharmaceutical sectors but opposed by the insurance industry, though positions may yet shift in the run-up to November.

But it is on tax that business will feel the result most directly. Both candidates agree the high corporate rate and many loopholes disadvantage US companies – and, whoever wins, an overhaul is virtually guaranteed. The specifics, however, will largely be determined by the next president.

“There is general consensus on where you need to go,” says Chris Krueger, an analyst at Guggenheim Partners, a Washington-based financial services firm, “but no one is quite sure what route you take.”

Additional reporting by Shannon Bond and Aaron Stanley


Private equity

What is at stake The tax treatment of profits earned by industry executives is likely to be determined by the election result. Barack Obama, US president, favours a change that would mean taxing profits as ordinary income instead of at the lower capital gains rate of 15 per cent. Some executives are also concerned about Mr Obama’s proposed elimination of accounting measures that encourage companies to raise capital through debt rather than equity, which are central to the operation of the industry.

Big donors Both candidates have high-profile supporters, but Private Equity International, the research group, has found that private equity and venture capital executives donated $8.2m to the super political action committee backing Mr Romney and just $101,000 to the one supporting Mr Obama.


What is at stake The industry faces the prospect of losing $4bn in tax breaks during a second Obama term, while Mr Romney is more likely to keep them in place. The Republican candidate has also vowed to approve the Keystone oil pipeline from Canada to Texas – an industry priority that has been delayed for further environmental review by Mr Obama. Mr Romney has promised to expand domestic drilling and implement “fast-track” approvals for companies with good safety records.

Big donors Americans for Prosperity, a non-profit organisation that opposes Mr Obama – established with help from the conservative Koch brothers, billionaires who have interests in the oil industry – will spend about $100m in the 2012 race.


What is at stake The sector would face a friendlier tax regime under Mr Romney, who has endorsed a system that makes foreign earnings almost tax-free. Mr Obama aims to discourage “transfer pricing”, allowing intellectual property earnings to be shifted to low-tax jurisdictions. There is concern about the president’s proposal that Medicare, the health plan for the elderly, be given bargaining power on drug prices, which would hit earnings – but support for government spending on, for example, the Food and Drug Administration.

Big donors Pfizer executives have given about twice as much to Mr Obama ($41,000) as to Mr Romney ($24,000). But the industry, which has donated about $10m to candidates and parties in this election cycle, generally favours the Republicans.


What is at stake Companies such as Apple that practice transfer pricing could face a big increase in their tax bill during a second Obama term. Mr Romney has attracted support from some of the industry’s venture capitalists – but Mr Obama is seen as closely allied to social media companies, such as Facebook, which take a keen interest in evolving laws on privacy and ensuring that technology companies are not charged with policing piracy of copyrighted material.

Big donors Microsoft executives are the biggest contributors to Mr Obama’s campaign, having donated $418,000. But Mr Romney has some big backers in the industry, including Cisco chief executive John Chambers, who has given $50,000 to the super-Pac supporting the Republican candidate.


What is at stake Mr Romney’s election would put one of Wall Street’s own in the Oval Office, replacing a man many in the industry see as hostile. The Republican has vowed to repeal the Dodd-Frank law passed in the wake of the financial crisis but has yet to put forward his own plan for regulation. Investment income for the richest Americans is expected to be taxed at a higher rate under Mr Obama, which some fear would damp investment in stock and bonds.

Big donors Wall Street gives heavily to both candidates but this year favours Mr Romney. Executives from Goldman Sachs, JPMorgan Chase, Morgan Stanley, Bank of America and Credit Suisse are the biggest contributors to the Romney campaign. No bank appears among Mr Obama’s top 20 donors.


What is at stake The industry already faces $500bn in cuts to the Pentagon budget over 10 years. And a year-end fiscal negotiation that will be heavily influenced by the election result could lead to the same being slashed again – unless Congress acts to change the terms of last year’s Budget Control Act. Mr Romney has said he would avoid those cuts by trimming elsewhere; Mr Obama, while technically opposed to curtailing Pentagon spending, would prefer that to pruning other government programmes. However, the Republican could trim areas of which the aerospace and defence industries are supportive, such as Nasa and the Federal Aviation Administration.

Big donors Executives at Boeing have donated almost three times as much to Mr Obama ($60,000) as to Mr Romney.


What is at stake Mr Obama has put the promotion of an industrial revival at the heart of his economic platform, recently backing targeted tax incentives to spur the domestic manufacturing base. He also championed a rescue of the automotive industry, which Mr Romney opposed, and launched a trade dispute with China on cars. But Mr Romney would take a more confrontational stance on trade unions – potentially to the benefit of some carmakers – and is less likely to pursue tougher environmental standards on vehicles.

Big donors The automotive industry has given nearly $3bn to the candidates this cycle, but donations favour Mr Romney by three to one. The National Automobile Dealers Association is the heaviest hitter, with $1m given to Mr Romney and $383,000 to Mr Obama.

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