Kevin Burke, a vice president of finance at Solutia, another specialty-chemicals company, likens rising inflation to a circular reference in an Excel spreadsheet. “The price increase just keeps going around and around,” he says. Burke has seen the cost of a key raw material, sulfur, rise in concert with the cost of oil. “It’s a byproduct from oil refining and we used to get it more or less for free,” he says. “But now it’s gone up quite significantly.” Burke says he worries about fluctuation in the value of the dollar and its impact on the price of oil, and urges the next President to put pressure on speculators.
To boost the dollar, many finance executives say the next President must tackle the budget deficit. Although more than half of federal spending is devoted to mandatory programs like Medicare and Social Security, CFOs note that the Iraq war, projected to cost more than $1 trillion, has put a serious dent in the budget. “The wars [in Iraq and Afghanistan] area key issue because of the tremendous deficit that is building,” says Joe Franzese, head of finance for the Bank of Ireland in the United States. “How do we get out of there in the safest way so that we don’t destabilize the region? That would have so many effects on the deficit and the currency.”
Even CFOs who have benefited from the low dollar by expanding their businesses into international markets acknowledge that the weak currency’s link to inflation is a concern. “Having a deflated currency is not exactly where you want to be,” says Rob BonGiovanni, the recently retired CFO of Curtiss-Wright Flow Control.
Austan Goolsbee, a professor of economics at the University of Chicago and a top adviser to the Obama campaign, assigns blame for the weak dollar to the policies of the current Administration. “We’ve seen flagrant mismanagement of the macroeconomy over the last eight years,” he charges. “The apparent lack of care for huge trade imbalances and deficits has put heavy pressure on the dollar, which sets the stage to make the problems of commodity price inflation far worse.” Obama, he says, proposes to shrink the budget deficit in part by raising the tax rate on capital gains and dividends to 20 percent from 15 percent for those making more than $250,000 a year.
Aware that raising taxes is a sensitive issue, Goolsbee is quick to claim that “taxes as a share of [gross domestic product] in the Obama plan will be the same as they were under Ronald Reagan.” Still, practically any tax hike will face resistance from some CFOs. “If you raise taxes, you will sink the economy,” predicts one survey respondent.
John McCain opposes raising the capital-gains tax and would instead address the deficit in part through job creation, says Taylor Griffin, a senior adviser to the McCain campaign. The Arizona senator also plans to make George Bush’s 2003 tax cuts permanent. (For more on the candidates’ tax policies, see “How Taxing?” at the end of this article.)