Business Roundtable is an association of chief executive officers of leading U.S. companies working to promote a thriving economy and expanded opportunity for all Americans through sound public policy.
The Honorable Barack Obama
President‐elect of the United States
Washington, DC 20007
Dear President‐elect Obama:
Re: Economic Recovery Guiding Principles and Emergency Legislation
We are facing one of the most difficult periods in the history of the U.S. economy. With more than two million jobs lost in 2008 – and accelerating job losses in the past three months – decisive action is needed if we are to return our economy to a path for growth and full employment, and provide American workers and families with the opportunity to enhance their standards of living.
On behalf of Business Roundtable, I am writing to outline the general principles we believe should guide the rebuilding of our economy and to reaffirm our support for bipartisan efforts designed to provide stabilization, stimulus, recovery and growth to our economy.
New legislation needs to focus on areas of the economy that provide maximum effects in terms of new jobs and investments that will enhance our nation’s ability to compete in the global economy. At the same time, we must reject any policies that would lead to further net job loss or cause additional economic deterioration.
Building on these principles, Business Roundtable believes that emergency action needs to be taken to accelerate economic recovery, and should include provisions to:
- Provide middle class tax relief, which will increase American families’ net incomes and bolster consumer confidence;
- Repair and modernize our infrastructure, which will help put Americans back to work and enhance American competitiveness;
- Stabilize the deteriorating housing market;
- Enhance access to education and training so American workers can develop the skills needed to take on new jobs and more effectively compete in the global economy; and
- Stimulate business investment.
It is also important that the economy’s response to any stimulus initiatives be carefully measured to ensure we are on a path to long‐term, sustainable growth before the initiatives are withdrawn.
We believe the enclosed legislative recommendations will help achieve these critical objectives and help build a strong foundation for sustained, long‐term economic growth.
We also recognize that such measures will increase an already significant deficit in 2009. Business Roundtable always has placed a high priority on deficit reduction as a means to achieving sustained economic growth. However, an increase in the deficit is an unavoidable outcome if we are to avert a prolonged and potentially deep recession. That said, high deficits are unacceptable over the long‐term. Once we return to solid economic footing, we must immediately implement measures to control future spending, including a comprehensive “top down” review of all federal spending.
Business Roundtable's highest priority is to drive sustained growth in the U.S. economy in order to achieve higher living standards for all Americans. Our membership includes the CEOs of more than 160 leading corporations. With a combined workforce of nearly 10 million employees and $5 trillion in annual revenues, our recommendations are based on the front‐line experience of our members, and we are committed to working with you to create an emergency economic package that will work for all Americans — our workers, families, communities and companies.
Harold McGraw III
Enclosure: Business Roundtable Recommendations for Economic Recovery Legislation
BUSINESS ROUNDTABLE RECOMMENDATIONS FOR EMERGENCY ECONOMIC RECOVERY LEGISLATION
Middle Class Tax Relief
A growing economy requires consumer confidence supported by good jobs and stable incomes. Providing tax relief to workers and consumers will bolster consumer confidence, help reduce economic uncertainty, and provide support for economic recovery.
- Provide permanent middle‐class tax cuts: Consumer confidence is bolstered through permanent tax relief that workers and consumers can depend on year in and year out. Consumer demand increases measurably in response to permanent tax reductions.
- Temporarily reduce the Social Security tax rate for both employees and employers: A payroll tax holiday would be a quick and effective way to get additional dollars into the hands of American workers while simultaneously reducing labor costs for American employers. Lower payroll taxes reduce the cost to employers of maintaining their workforce and increase their ability to hire additional employees. The Social Security trust fund would be made whole by a transfer of funds from general revenues to cover the temporary reduction in payroll taxes.
- Continue providing federally funded extended unemployment benefits for workers exhausting regular unemployment benefits: Every effort must be made to help unemployed workers find training and jobs. In the interim, unemployment benefits provide essential support.
Focused and targeted infrastructure investments can promote job growth while at the same time providing transformative investments that will enhance the nation’s long‐term competitiveness. In addition to improving our physical infrastructure, we also need to focus on such areas as energy, health care and the modernization of our scientific research facilities.
- While energy prices have temporarily declined, our economy faces unprecedented energy challenges and the ongoing need to adopt clean and efficient energy strategies.
- Health care costs are a major financial strain on both individuals and businesses, and the latest advances in health information technology could significantly reduce these costs.
- Cutting-edge research facilities are imperative if the U.S. hopes to compete in a global economy driven by technological innovation.
- Public-private partnerships can play a significant role here. Through tax credits and other funding sources, they can effectively leverage federal dollars with private investments and know-how.
Focus infrastructure investments: While there will be numerous demands for new infrastructure projects, we must listen to the recommendations of transportation, technology and infrastructure experts to select projects that not only create jobs, but also help build an infrastructure that will support the economy of the future. As such, a mechanism should be established to ensure that these investments:
- Are made in systems and structures where the investments are critical to improving the nation’s productivity; and
- Are made in projects that are far enough along in the planning process that they can create incremental new jobs within 24 months.
- Encourage production of renewable sources of energy and expand access to oil, natural gas and coal resources: Congress should continue to support the production of renewable sources of energy through targeted tax incentives. The tax code provides either production tax credit or investment tax credit subsidies for a variety of renewable fuels, including wind, solar, biomass, geothermal and small hydroelectric resources. In October, Congress extended solar investment tax credits through 2016. However, wind production tax credits (currently equal to 2 cents/kWh) were only extended through 2009. Wind holds the potential of providing as much as 20 percent of our electric generation by 2030, given the right incentives and investment in infrastructure. Business Roundtable supports extension of these tax credits. In addition, we need to use energy more wisely and become more efficient because, despite the fact that renewables could help lead to a secure and sustainable energy future, the reality is that the U.S. will continue to rely heavily on oil, natural gas and coal resources for many decades to come. Therefore, as we transition to greater use of renewables and more sustainable forms of energy, we also will have to produce more oil and gas to avoid crippling increases in energy prices in the future. We no longer have the luxury of writing off or ignoring any sources of energy that can be developed in a cost‐effective and environmentally responsible way. Our Outer Continental Shelf oil and gas resources certainly can be, and in the process, these activities will generate many billions of dollars of federal revenues and help create thousands of good‐paying, high‐technology jobs.
- Modernize the electric grid: The most abundant renewable resources, including wind, solar and geothermal resources, often are located in remote locations, far from existing load centers. Without a substantial expansion and modernization of the transmission system, the U.S. will not be able to realize the full potential of our renewable resources. Unfortunately, multi‐state high voltage transmission lines are difficult to site and build, in part because of a balkanized planning, cost allocation and siting process designed for a different era. The American Wind Energy Association, American Electric Power and others have called for new legislation that would expand the role of the Federal Energy Regulatory Commission to include (1) overseeing the planning of long‐distance, high voltage transmission facilities; (2) allocating costs; and (3) ensuring the siting of these facilities. Business Roundtable supports legislation embodying these principles. In addition, a “smarter,” more controllable transmission and distribution system will help utilities and their customers more optimally use electricity and generation resources. BRT supports full funding for the Department of Energy’s (DOE) “smart grid” demonstration programs authorized in the Energy Independence and Security Act of 2007.
- Expand energy efficiency initiatives: Expansion of the labor intensive Weatherization Assistance Program to retrofit homes of low‐income Americans with additional insulation and other energy saving modifications would not only create additional jobs, but also save consumers on their utility bills. In addition, increased funding for Energy Efficiency Block Grants to states would enable states and localities to increase building efficiency and/or match current state programs to finance efficiency retrofits of existing buildings.
- Transform the health care system by financing uniform, interoperable health information technology systems: Health care costs are a major financial strain on both individuals and businesses. Implementing the latest advances in health information technology could significantly reduce these costs. That’s why we strongly support the development of uniform, interoperable standards for health information systems and the extension of loans and grants to providers, suppliers, and plans so they can purchase systems that meet these standards. In addition, strong security protections should be included so that personal health information is not breached.
- Upgrade U.S. science research infrastructure: Additional funding for the modernization of federal laboratory and university research infrastructure, as well as major research instrumentation procurement through existing federal programs, would rapidly stimulate new construction, manufacturing of scientific equipment and equipment purchases. Approved, but unfunded, projects at the National Science Foundation, the National Institute of Standards & Technology, and the DOE’s Office of Science are positioned to move forward quickly.
The ability to own a home has always been part of the American dream. For most Americans, their home is their most significant asset, which is why consumer confidence cannot be restored until stability to the housing market also is restored. In addition, with housing and housing‐related industries accounting for more than 20 percent of U.S. gross domestic product, restoring stability to the housing market would go a long way to putting Americans back to work.
- Reduce mortgage rates to 4.5 percent or lower, in order to directly stabilize the housing market and stimulate housing investment.
Education and Training
For workers who have lost their jobs, ensuring a quick return to employment can reduce the cost of job dislocation. Helpful policies include job training, incentives for workers to regain employment and expanding opportunities for workers to participate in education and training programs for new jobs in high‐growth careers. At the same time, we also need to invest in incentives and education programs to create the next generation of scientists and engineers.
- Fund green technology job training programs: Title X of the Energy Independence and Security Act of 2007 (“The Green Jobs Act”) included authorizations for “green jobs” training. Unfortunately, no monies were appropriated for this program in FY 2008 or FY 2009. Demand for workers with these skills is growing and will grow even more with an increased commitment to efficiency and renewable energy infrastructure.
- Expand federal dislocated worker training programs: The program should be directed toward training workers for high‐need occupations and targeted to regions with unemployment rates significantly higher than the national average. In addition to training, adversely impacted workers should receive intensified re‐employment services.
- Provide a worker training tax credit for employers: During an economic downturn, there is an increased need for workers to find new employment in areas for which they may be poorly trained. A tax credit for employers can increase the ability of employers in growing sectors of the economy to take on workers displaced from contracting sectors and help these workers quickly regain productive employment.
- Fully fund America COMPETES Act: Congress should fund annually the science and engineering research and the math and science education programs authorized in the America COMPETES Act and permanently extend a strengthened R&D tax credit.
BUSINESS ROUNDTABLE RECOMMENDATIONS FOR EMERGENCY ECONOMIC RECOVERY LEGISLATION cont.
America's businesses are the engine of growth for the U.S. economy. Business investment stimulates the economy and provides lasting value, allowing each generation of Americans to achieve a higher standard of living. To enable a faster recovery and return the country to a path of growth, tax impediments to business investment must be addressed. Tax incentives and other measures can stimulate business investment and enhance liquidity, which is vital to the business community’s ability to stock inventories, purchase new equipment, and meet payrolls.
- Reduce the corporate tax rate: The U.S. corporate tax rate of 39.6 percent in 2008, including average state and local income taxes, is the second highest in the 30‐nation Organization for Economic Co‐Operation and Development (OECD) and is 50 percent higher than the average rate of the other 29 OECD countries. This high U.S. rate serves as a disincentive to undertaking investment and creating jobs in the United States. Significant and permanent reductions in the corporate rate would speed economic recovery by increasing the incentive for companies to expand and invest in the United States, immediately boosting jobs. Over the longer term, increased business investment will lead to greater U.S. economic growth and a higher standard of living of U.S. workers.
- Allow further modifications to pension funding rules: Stringent new funding rules adopted in the 2006 Pension Protection Act are still being phased‐in. Recent market declines and the shortage of available credit require an ongoing reevaluation of the transition to those new rules that reflects the evolving economic reality. The unexpected cash flow demands on plans caused by the recent economic downturn should be spread over time, with plans prudently returned to full funding status over a reasonable period. An excellent first step in addressing this problem was taken in the Worker, Retiree, and Employer Recovery Act of 2008, a bill that passed by unanimous consent in both the House and Senate in December. Still, further action is required or the economic recovery will be slowed as available resources are diverted away from job creation and capital investment and toward pension funding. In particular, changes to allow plans to fully smooth recent asset losses, minimize funding volatility, and reduce the pro‐cyclical nature of plan funding obligations are needed to preserve a robust defined benefits system.
- Temporarily allow foreign subsidiary earnings of U.S. companies to be brought back to the United States through either a temporary holiday or extended loan: This will immediately provide more capital to U.S. companies. As a result of the current liquidity crisis, the importance of these funds is even greater at this time and, appropriately structured, this measure can bring about meaningful changes in liquidity and economic activity in the United States.
- Temporarily extend the carry back period for net operating losses from two years to five years through 2009 and waive 90 percent limitation for the Alternative Minimum Tax (AMT): Businesses with current losses may carry back these losses for two years, but if losses exceed profits in these years they must carry the losses forward to offset future income. Extending the carry back period from two years to five years and temporarily waiving the limitation on use of net operating losses against the AMT (as was done in 2002) will enhance liquidity of businesses with current losses.
- Extend bonus depreciation and adopt a temporary investment tax credit: The 50 percent bonus depreciation provision enacted earlier this year is set to expire at the end of 2008. This provision should be extended, including the provision to monetize credits for companies in a loss position. Additionally, an investment tax credit should be considered for new investments. First adopted under President John F. Kennedy, an investment tax credit of 10 percent applied to most equipment purchases by businesses until 1986. This credit was frequently employed on a temporary basis throughout the 1960s to promote investment during economic downturns and was credited with having a significant investment response. Today, during this period of reduced liquidity, an investment tax credit can help stretch scarce capital by lowering the cost of undertaking new investment.
- Accelerate increase in Domestic Manufacturing Deduction: Under present law, in 2010, the Internal Revenue Code, Section 199 deduction for domestic manufacturing activities is scheduled to increase by 50 percent — from 6 percent of U.S. manufacturing income to 9 percent. When enacted in 2004, the purpose of Section 199 was to encourage manufacturing activities and job creation in the U.S., but it was phased in over a six‐year period for budgetary reasons. To maximize this incentive for U.S. manufacturing activities, Congress should now accelerate the effective date of the last scheduled increase in the tax deduction to January 1, 2009.
- Temporarily extend the carry back period for general business credits from one year to five years through 2009 and permit credits to offset the Alternative Minimum Tax (AMT): Congress created the general business credit to provide incentives to engage in desired activities that benefit the community and serve other useful purposes. In many cases, taxpayers make multi‐year commitments to projects with the expectations that they will qualify for a general business credit and that there will be sufficient profits to utilize the general business credits. Utilization of the general business credit is subject to several limitations, including the AMT. Businesses may carry back general business credits one year. If the credits cannot be utilized due to the limitations, businesses must carry the credits forward to offset future tax. Extending the carry back period from one year to five years and temporarily waiving the limitation on use of the credits against the AMT will enhance liquidity of businesses with current credits and promote the incentive effects for which the credits are intended.
- Temporarily extend and expand the ability to "monetize" existing tax credits: Under the Housing and Economic Recovery Act of 2008, enacted on July 30, 2008, companies can accelerate a portion of their unused pre‐2006 research credits and alternative minimum credits in lieu of claiming the temporary 50 percent bonus depreciation allowance. Expanding the provision to provide immediate monetization regardless of investment amount, cover all general business credits, as well as increasing the amount of unused credits that may be claimed or refunded through this provision or similar mechanism, will enhance liquidity of businesses with current losses or otherwise unable to claim these credits. Companies in a loss position are an important component of the 6 companies that need access to capital. Allowing for utilization of their already existing credits will help increase their liquidity and ability to fund new investments. These companies should be allowed immediately to monetize all of their prepaid AMT credits and earned but unused general business credits.
- Loosen restrictions on capital losses for corporations: Currently, corporations can deduct capital losses only to the extent of their capital gains, and excess capital losses can be carried back three years and carried forward five years. Easing the restrictions on capital losses by, for example, allowing corporations to treat losses on the sale of stock or debt securities as ordinary would be an effective way to bolster liquidity in difficult economic times, when losses of all types tend to increase.
- Allow financial services companies to accelerate bad debt deductions: Until 1986, companies generally could deduct reasonable additions to bad debt reserves rather than postpone the deduction until such time as the debt was written off. Since 1986, the so‐called reserve method is available only to small banks. Expanding the reserve method to the broader financial services sector, including large banks, would be an effective means of improving liquidity for companies that have been hit particularly hard in the current economic downturn.
- Temporarily reduce required estimated tax payments of corporations to 90 percent of current liability: A temporary reduction in estimated tax payments can provide companies with additional short‐term liquidity without creating any revenue loss to the federal government over the five‐year or ten‐year budget periods.
- Temporarily exclude debt repurchases from cancellation of indebtedness income: The current credit crisis has depressed the value of debt issued by many companies with sound balance sheets. Companies that issued such debt may wish to repurchase their own debt to strengthen their own balance sheets and, since financial institutions also hold some of this debt, such repurchases would also strengthen bank balance sheets in a manner similar to that intended under the Troubled Asset Repurchase Program. Companies can be encouraged to repurchase this debt (including exchanging existing debt for equity) by temporarily relieving such repurchases by issuers (and parties treated as related to the issuer) from rules treating these repurchases as giving rise to discharge from indebtedness income.