Businesses turn to tax fight, some stung by Romney bets

WASHINGTON Tue Nov 13, 2012 11:17am EST

U.S. Republican presidential nominee Mitt Romney gives his concession speech after losing the election to U.S. President Barack Obama, at Romney's election night rally in Boston, Massachusetts November 7, 2012. REUTERS/Shannon Stapleton

U.S. Republican presidential nominee Mitt Romney gives his concession speech after losing the election to U.S. President Barack Obama, at Romney's election night rally in Boston, Massachusetts November 7, 2012.

Credit: Reuters/Shannon Stapleton

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WASHINGTON (Reuters) - As major U.S. businesses dive into the Washington tax policy debate now that the presidential election is over, some are finding themselves in an awkward position after betting heavily on Mitt Romney.

The Republican, who lost in last week's vote, was backed overwhelmingly not only by Wall Street, but also by the oil and gas, agribusiness, construction, private equity and transportation sectors, according to data from the Center for Responsive Politics.

That puts some businesses on the outs with President Barack Obama and his fellow Democrats, who tightened their grip on the Senate after reelection to a second term, some corporate lobbyists said.

"For most businesses, this wasn't necessarily their desired outcome ... There's some patching up that needs to be done," said Pam Olson, a tax lawyer at PricewaterhouseCoopers and a former senior tax official under President George W. Bush.

Alone among major segments of Corporate America, the high technology and communications sector wagered heavily on Obama.

Tax breaks that are central to businesses, both in and out of favor with Democrats, will be in play as Washington deals with the year-end "fiscal cliff" and as lawmakers edge toward a possible full-scale overhaul of the tax code in 2013-2014.

The president is expected to meet with business leaders on Wednesday to talk about fiscal issues. Top of the agenda is avoiding the fiscal cliff, a volatile mix of tax increases and spending cuts that, in the absence of a deal in Congress to avert it, could tip the United States into recession.

Among those slated to attend the White House meeting are General Electric Co Chief Executive Jeffrey Immelt, already a top Obama adviser, American Express Co CEO Kenneth Chenault and Aetna Inc CEO Mark Bertolini.

"I really don't think it's any secret that the business community has had some reservations about the agenda in Washington over the course of the last four years, but that is now history," Jay Timmons, head of the National Association of Manufacturers, said last week on a conference call with reporters.

The tax aspects of the fiscal cliff mostly apply to individuals, but some corporate breaks are involved. One is a provision that lets companies accelerate depreciation of new equipment. That is scheduled to expire at the year end, potentially raising tax costs for capital-intensive businesses.

Similarly, the research-and-development tax credit cuts across multiple sectors. The R&D credit - one of many items on the "tax extenders" list - expired at the end of 2011. It is up for renewal and has wide political support.

Divisions will emerge as the tax debate unfolds among businesses based on the actual tax rates paid by each sector. Retailers such as Wal-Mart Stores Inc tend to pay higher rates, while drug makers such as Pfizer Inc pay a lot less than the 35 percent corporate tax rate that is on the books.

Further, businesses organized as "S-corps" - which pay taxes through the individual tax code and not the corporate tax code as "C-corps" do - will see tax rates rise if Congress agrees with Democrats to lift rates on income above $200,000.

Case in point: JPMorgan Chase & Co CEO Jamie Dimon's recent statement that he would be willing to pay higher personal tax rates in exchange for a deficit-cutting deal at year's end. As a C-corp CEO, Dimon's personal tax situation does not affect JPMorgan. That is not the case for an S-corp executive.

FENCES TO MEND?

Other corporate tax provisions are more specific. Some have been targeted for repeal by the Obama administration, possibly to help pay for lowering the overall corporate income tax rate from 35 percent and potentially paring the deficit.

Private equity firms have fought for years to protect the "carried interest" tax benefit that lets senior partners pay the 15 percent capital gains tax rate on a big slice of their gains, rather than the top 35 percent income tax rate.

The Obama administration has targeted the carried interest break for repeal, but the industry so far has fought this off.

Oil and gas companies have several tax provisions - such as the well depletion allowance and expensing of intangible drilling costs - that they have defended for many years. Obama would like to remove these, too.

"We certainly don't want to be used as a pay-for," said Brian Johnson, a senior tax adviser at the American Petroleum Institute, the industry's trade group, using Washington short-hand for a tax provision that would raise revenues if repealed.

He said the industry has no fences to mend with Democrats and that raising taxes on energy companies would be "a short-sighted solution." The institute is set to kick off a multi-state advertising campaign within days.

Silicon Valley and the communications business are in a better position than energy and finance companies in defending their tax positions, said Dean Garfield, president of the Information Technology Industry Council, which represents technology companies.

Regarding the general state of relations between businesses and the White House, Garfield acknowledged: "There are some feelings that have been hurt."

Looking to 2013, lawmakers are aiming for a full-scale revamping of the tax code. Carrying out this politically dicey task is far from certain, but the effort will reveal big fault lines.

For example, curbing the value of big breaks such as the home mortgage write-off is among the options being floated to minimize the code's special favors. That would hurt homebuilders and banks that finance housing, but it would leave export-heavy industries such as technology and aerospace relatively unscathed.

ENERGY LEANED TO ROMNEY

An analysis by the Center for Responsive Politics, a campaign finance watchdog, showed that executives and family members of energy and natural resource companies gave $8.6 million to Romney and $2.2 million to Obama.

The figures, drawn from Federal Election Commission records, are current up to October 25 so they exclude the campaign's last days before the November 6 election.

The energy sector's nearly 4-to-1 bias toward Romney exceeded Wall Street's. The finance, insurance and real estate sector donated $52.1 million to Romney and $18.7 million to Obama, a nearly 3-to-1 ratio, the data showed.

Other sectors that backed Romney included agribusiness at 3-to-1; construction, by about 2-to-1 and transportation, 4-to-1.

Conversely, Obama was supported by the communications and electronics sector by about 3-to-1.

"An election is really a reset button and the American people have spoken. They have chosen their leaders. The business community will respond to that," Timmons said.

(Additional reporting by Sarah Lynch and Patrick Temple-West; Editing by Howard Goller, Andre Grenon and Bernadette Baum)

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Comments (27)
McBob08 wrote:
Reuters, why are you talking about “mending fences”? Obama got a mandate; reject the failed policies that the big businesses want, and raise their taxes. They’re paying less tax now than they have at any time in American history. Time for them to start paying their fair share for everything that made their businesses successful; the people and the government. It’s time to raise taxes on high-income entities across the board. Enough of this nonsense of big business not paying any taxes at all — that’s ridiculous. Corporations over 250 employees should be paying over 90% of the nation’s taxes, with the rich pay almost all of the rest of it.

Those companies want to ride on the backs of the hard-working people of the nation and get a free ride. Enough of the Takers gasping for subsidies and tax breaks. Time to tell them that they’re not going to take any more money out of the pockets of the Middle Class!

And time to take serious action to end poverty entirely in America. Enough screwing around, already! If any American is suffering, then ALL Americans are suffering!

Nov 13, 2012 4:45am EST  --  Report as abuse
hotmess wrote:
Do you really think that if you just “raise taxes” on big business, they’re just going to say “Who do I write the check to”? No, big business has a responsibility to its shareholders to make a profit and pay dividends to its owners. Raise their taxes, and they have three choices. Close their doors, move to a country with a friendlier tax code, or raise the prices of the products they sell. Corporations don’t pay taxes. The consumer who buys their product does. It’s a cost of doing business just like the electric bill or insurance or labor. Better idea. Why don’t we just have government take over all corporations with over 250 employees? They could use the profits from operating the corporations to fund operation of the government, and none of us would have to pay taxes. Since the government wouldn’t have to pay taxes to itself, it could also lower the prices on everything it makes..

Nov 13, 2012 5:49am EST  --  Report as abuse
McBob08 wrote:
@hotmess: Perfect. Let them close shop and move away to another country. The opens an opportunity for Small Business to take their place. In fact, all of the big corps desperately need to be broken up into small-business size to bring real competition back to the market. This who nonsense of owing profits to stockholders is abusive the the nation. Taxes should be the first and foremost priority; customer service second. Stockholder returns should be a distant 3rd. Companies have gotten away with abusing the relationships between businesses and the government, as well as the relationships between businesses and employees.

They should be listening to their employees long before they listen to what stockholders want.

Nov 13, 2012 6:28am EST  --  Report as abuse
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