The high jobless rate provokes a fight between corporate America and the White House over regulations, taxes, and trade
This confrontation had inevitability written all over it. The only question was: When would the White House and Big Business really start to rumble?
Both sides are certainly clashing now over a crush of new rules to overhaul industries ranging from health care to financial services to offshore drilling. Verizon Communications (VZ) CEO Ivan Seidenberg says business leaders must make sure the Obama Administration's regulatory cures aren't "worse than the disease," adding that the Administration hasn't done enough to pry open foreign markets and keeps trying to raise corporate taxes. Mort Zuckerman, chairman of commercial real estate firm Boston Properties (BXP), calls the coming regulatory explosion "an economic Katrina."
President Barack Obama isn't being subtle, either. On July 7, he said new regulations are needed to control "unscrupulous and underhanded businesses who are unencumbered by any restrictions on activities that might harm the environment, or take advantage of middle-class families, or threaten to bring down the entire financial system." (Zuckerman calls the remarks "totally gratuitous.")
As Obama signed the financial regulation reform bill on July 21—only a handful of bank CEOs were invited to the elaborate signing ceremony—he said the new law will "make sure that everyone follows the same set of rules, so that firms compete on price and quality, not tricks and traps." The measure will require 520 new rules, 81 studies, and 93 congressional reports, figures the U.S. Chamber of Commerce.
On the surface, worries over taxes, trade, and regulations are driving the Obama and business split. Yet both sides are also playing a rhetorical blame game over the weak economy. The jobless rate is 9.5 percent, and corporate America and the Administration think the other side is not doing enough to create new jobs. Obama wants companies to spend part of their $1.8 trillion cash stockpile to create new products and open factories to generate employment. If the President wants to create jobs, business executives counter, then he should back off the regulatory onslaught and give business more certainty about the future.
While both sides say they want to tone down the rhetoric, the disagreements aren't likely to disappear: Their policy differences are too fundamental. There is also ill will left over from the health-care reform battle and a White House attempt to tax companies' overseas earnings.
In late spring, at a series of White House meetings, Business Roundtable executives told Obama aides they felt betrayed when they learned they would lose a subsidy under the Medicare prescription drug program. The group had supported health-care reform and believed the Administration, in return, would continue to support the $5.4 billion, 10-year subsidy that companies get for providing prescription drug benefits to retirees and workers over 65, saving the Medicare program money.
Weeks later, Seidenberg, who chairs the Business Roundtable, an association of large-company CEOs, sat on a panel with Budget Director Peter Orszag and told him "that the cost of regulation wasn't accurately factored into some of the policies that were coming out," Seidenberg says. Orszag asked for a memo detailing his concerns. The Business Roundtable and the Business Council, a separate group of CEOs, obliged with a 49-page compilation of dozens of regulations.
Thanks for the list, let's talk, White House aides responded, while signaling that most new regulations are not up for discussion. In a July 14 letter to the Chamber, Obama Chief of Staff Rahm Emanuel and Senior Adviser Valerie Jarrett said they would not "accept the lax regulation of the financial industry that led to the greatest economic crisis since the Great Depression." Ditto for the oil and gas industry, given the ecological disaster in the Gulf of Mexico. "It's one thing to say generically 'regulations are bad,' " says Jarrett. "It's another thing to come in and to explain to us very specifically why they are an impediment to competition."
Some of the differences are rooted in economic dogma. The White House says it is open to business proposals on cutting taxes—only if it doesn't reduce the overall corporate tax burden, Seidenberg says. "Our view is if we can expand work and create jobs we'll create new tax revenues" even if tax rates don't go up.
Business will never be satisfied, says Dean Baker, co-director of the Center for Economic & Policy Research in Washington. Companies always want lower taxes and less regulation, he says. "It doesn't matter where the tax is, they want to pay less."
The discord "is unhealthy for each side," Roger Altman, founder of Evercore Partners (EVR) and a former Deputy Treasury Secretary under President Bill Clinton, told Bloomberg Television on July21. "I think it can suppress just that level of business confidence that's necessary to create investment and jobs," Altman said, suggesting that each side bury the hatchet, with business going first.
The bottom line: The White House and Big Business are unlikely to end their spat soon because their differences are too fundamental.