| BUSINESSWEEK ONLINE : JUNE 26, 2000 ISSUE | ||||||||
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| COVER STORY
Dog Days, Lame Ducks--and Tricky Issues You can't afford to take your eyes off the Hill The lame ducks have landed. President Clinton is taking nostalgic world tours. Hillary moved out of the White House months ago; Bill will be packing soon. Members of Congress are just counting the days until adjournment so they can take on their real work: getting reelected. But the city has hardly shut down. Congress continues to debate taxes and the budget as surpluses mount. Regulators are wrestling with antitrust policy in an era of massive mergers and dramatic technological change. Lawmakers are tackling questions of how to regulate the Internet. And the Presidential candidates may actually confront the critical issues of Social Security and tax policy. The biggest news for the rest of the year, though, will come from the Federal Reserve Board. With growth slowing and elections looming, the question is: How much more is the Fed going to squeeze this year? Although factory orders, retail sales, and home sales are cooling, Fed hawks are not satisfied. And many economists expect one more rate hike this year. But, says Cary Leahey, senior economist at Deutsche Bank Securities: ''The last time the Fed will want to move is in August. They don't want to be a factor in the election.'' BUSY WORK. Congress, on the other hand, can think of nothing but the election. It is wrestling with a slew of bills that could matter to investors, but only a few are likely to become law. The biggest issue is trade. The House approved a controversial proposal in May to expand trade with China. Business supporters want the Senate to pass the same version. But Senate Majority Leader Trent Lott (R-Miss.) has threatened to drop House provisions to hold China accountable for human-rights abuses--a step that would reduce support among Democrats. He also may try to drag out the debate to deepen the split between Vice-President Al Gore, who backs the bill, and the AFL-CIO, which opposes it. Still, when the games end, the China bill should be approved--good news for shareholders in computer companies, auto makers, and other companies that hope to do business with China. Big tax cuts won't see such swift action. Bills to slash taxes by some $650 billion over 10 years are floating around Capitol Hill. One would expand individual retirement accounts. Another would repeal the estate and gift tax--such a measure passed the House on June 9. But with Clinton and the Congressional GOP at loggerheads, it's hard to see any significant tax changes becoming law. At best, they could agree to a modest cut, including a small one in estate taxes. The real tax debate will be slugged out between the Presidential hopefuls. Texas Governor George W. Bush has proposed a massive, $1.7 trillion, 10-year tax cut built around rate reductions for the wealthiest taxpayers. Gore favors more modest cuts targeted to improving access to health care and educational reform. The other big campaign issue: Social Security. Bush wants to let workers invest up to $80 billion a year in private accounts, which would partially replace the current retirement system. Gore wants to maintain the existing program. The outcome could be the single most important fiscal policy decision since the 1986 Tax Reform Act. While such grand changes are thrashed out, huge surpluses--as much as $200 billion this year--will fund new spending. One beneficiary: the defense industry. The Administration wants to hike the acquisition budget from $60 billion this year to $70 billion in five years, and Congress may add more. That makes some analysts bullish, but not all. ''I'm not sure how much is going to show up on the bottom line of the companies,'' says Byron K. Callan, an aerospace analyst at Merrill Lynch & Co. High-tech industries, by contrast, are in line for all sorts of goodies. Congress is likely to expand the use of electronic signatures, which could sharply cut transaction costs for businesses and pave the way for financial services to be handled entirely online. It may also boost the number of visas for foreign tech workers and holders of other hard-to-fill jobs. And Congress may extend the ban on taxes on Net access, but it won't act to bar sales taxes on e-commerce. The biggest issue is one that the industry would prefer to see shelved: privacy. Senator Ernest F. Hollings (D-S.C.) and nine other Democratic senators introduced a bill spelling out national Internet privacy standards. The Federal Trade Commission backs new regulation, and Senate Commerce Committee Chairman John McCain (R-Ariz.) may push for new rules. Passage of legislation this year is a long shot. With Bush endorsing privacy standards as well, the issue will be a potent one on the campaign trail and in the next Congress. TRUST BUSTERS. One issue that's not waiting for the election is antitrust. The Administration is fighting a multipronged offensive against the likes of American Airlines (AA), Microsoft (MSFT), and Visa and MasterCard. ''The changes that the Clinton people have brought to antitrust enforcement have been truly dramatic,'' says Donald J. Boudreaux, president of the Foundation for Economic Education. And they may be permanent. Mergers are getting increased scrutiny, in part because prior deals already consolidated certain industries. That will be a big issue when the Justice Dept. considers United Airlines Inc.'s (UAL) plan to buy US Airways Group Inc. (U) It also may stop the pending merger between MCI WorldCom (WCOM) and Sprint (FON), a marriage that would leave almost 80% of the long-distance market in the hands of only two players--WorldCom and AT&T (T). Still, Washington has O.K.'d most communications-industry megamergers. On June 5, it approved AT&T's purchase of cable operator MediaOne Group (UMG). And it is giving Bell Atlantic Corp.'s (BEL) acquisition of local phone carrier GTE Corp. (GTE) the go-ahead. Regulators are also mulling America Online Inc.'s (AOL) proposed acquisition of media giant Time Warner Inc. (TWX) ''Big is not bad; anticompetitive is bad,'' says Scott C. Cleland, telecom analyst with Legg Mason's Precursor Group. Antitrust enforcement will remain on the front burner, and some policy debates--like tax cuts and Social Security--will heat up during the campaign. But none will be resolved until after a new President and Congress take office next year. In the meantime, it won't hurt a smart investor to keep an eye on them. By HOWARD GLECKMAN _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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