In his first 100 days in office, President Barack Obama seemed to find at least 100 ways to deliver on his promise of change — or to try to. But while public-opinion polls have given high marks to the nation’s new chief executive, Corporate America has found much to fault. From proposing a cap-and-trade emissions program to dickering over bankers’ bonuses, chastising AIG executives, and firing General Motors CEO Rick Wagoner, Obama did little in his first quarter to endear him to the business community.
Advocacy groups opposed nearly every business-related measure that Obama floated. His budget’s proposed tax changes, which included repealing LIFO (last in, first out) inventory accounting and limiting the current system of deferring taxes on overseas revenue, would cost U.S. businesses “hundreds of billions of dollars,” complained Financial Executives International’s taxation committee in a letter to Congress. The president of Business Roundtable also criticized Obama’s tax-deferral change in his own letter to lawmakers, saying it would “harm this nation’s growth.” Meanwhile, the U.S. Chamber of Commerce described the Employee Free Choice Act, so-called card-check legislation that would make unionization easier, as “poisonous.”
Some critics fretted that intervention in the bank and auto sectors by both Obama and Congress would exact a toll on other industries. “The current witch-hunt by Congress will probably result in the largest exodus of American management talent in our history,” warns Steven Poss, co-chair of Goodwin Proctor’s Securities Litigation and SEC Enforcement practice. “People who want to start and manage companies aren’t going to do it if they’ve got the government looking over their shoulders to judge if they’re paying their executives too much.”
But while the President proposes, Congress disposes, and not all of Obama’s desired changes may become reality. As for taxes, “my guess is there will be a real push to lower the corporate tax rate, but that it will be fully paid for” by reductions in other benefits, like LIFO and deferral, says Hank Gutman, partner-in-charge of KPMG’s Legislative and Regulatory Services. Meanwhile, intense lobbying is likely to lead to a compromise on the Employee Free Choice Act, says Todd Steenson, an attorney with Holland & Knight.
One thing that public companies probably won’t be able to dodge is greater regulatory scrutiny, as Obama’s budget calls for a 13% funding increase for the Securities and Exchange Commission. Poss expects a tougher SEC to focus on how well companies outside financial services disclosed the risks they took on with derivatives and other financial instruments. Now that Obama’s first 100 days are over, “CFOs are in for a tough couple of years,” he says.
On the face of things, President Obama has done very well by Joe the Plumber. The February stimulus package included several tax breaks specifically for small businesses, plus $730 million in loans. In March, Obama announced that $15 billion of TARP funds would be used to buy loans from the Small Business Administration. The Administration’s 2010 budget also calls for eliminating capital-gains taxes on small businesses, at an estimated revenue cost of more than $7 billion.
But is that enough? Not by a long shot, says Bill Rys, tax counsel for the National Federation of Independent Business. Each measure “is certainly helpful, but only to a small number of small businesses, and they’re not hitting at the real problem, which is lost sales,” he says. A better way? The NFIB is calling for a payroll-tax holiday, giving a break to both employers and employees. — A.S.