With corporate tax rates and tax breaks up for grabs, chief executives are personally stepping forward to lobby Congress and the White House on taxes, seeking to set priorities while conceding that some taxes will have to go up.
The business executives, while unenthusiastic about higher taxes, say that avoiding the “fiscal cliff” is their No. 1 priority and that many other key issues can be taken care of in broader tax reform negotiations they hope would take place next year.
“Most have focused less on the particulars of a tax agreement and more on just the need to get something done to provide certainty,” said Rep. Chris Van Hollen (Md.), the ranking Democrat on the House Budget Committee.
The executives have been coming in waves, starting with a group brought in by Democrats last week to help push Republicans closer to making a deal. Although many of them supported GOP presidential candidate Mitt Romney, who opposed tax hikes, the executives are now ready to swallow higher rates for the wealthy and are leaning on both parties to compromise.
“The idea that you’re going to go over the cliff and work it out later, that is not really thinking about your customers,” said Nicholas Akins, chief executive of Midwest utility giant American Electric Power.
On Tuesday, more than 160 chief executives from major companies signed a letter organized by the Business Roundtable pledging support for a “compromise” that would “result in market-credible spending reductions and revenue growth.”
On Wednesday, several hedge fund executives met with White House aide Valerie Jarrett to discuss how to resolve the budget dispute, according to a person familiar with the meeting.
Power-generation companies jumped in, too, and unlike many groups they offered specifics. The chief executives from half a dozen of the nation’s biggest utilities met Wednesday with Gene B. Sperling, head of the White House’s National Economic Council, and fanned out to see 11 key members of the Senate in an effort to make sure new tax rates on dividends do not exceed the rates on capital gains. Both are now taxed at a 15 percent rate.
A stalemate in talks about the fiscal cliff would mean that dividends start being treated as ordinary personal income taxable at the top marginal rate. That in turn would make it harder for utilities to raise capital for investment, they said, and discourage retirees and others from buying utility stocks for substantial and steady dividends.
But the executives said they would be satisfied if the rate for both dividends and capital gains were raised to 20 percent, the level that has the support of the Senate Finance Committee and that would maintain parity between the two.
Meanwhile, the American Wind Energy Association (AWEA), which is seeking an extension of the production tax credit for wind farms, on Wednesday laid out a plan that would phase out subsidies to the industry by 2018. The group said that the full 2.2-cents-a-kilowatt tax credit should be extended one more year, then be ratcheted down 10 percentage points a year until 2017, then hold steady at 60 percent of current levels during 2018, and then disappear.
The proposal was made as a result of growing congressional interest in phasing out federal subsidies on all forms of energy to level the energy playing field. Foes of the wind credit include oil companies, Romney, libertarians, some conservatives and Exelon, a utility that relies heavily on nuclear plants.
Rob Gramlich, policy director at the AWEA, said, “Here again we are out front embracing the challenge of the day, the fiscal state of the nation, and trying to be part of that.”
Utility companies and wind companies said the delay in reaching a fiscal deal was already hurting the economy.
With less than three weeks to go before the production tax credit expires, wind turbine manufacturers and their suppliers have laid off workers and shut down facilities. More than 3,000 layoffs have been publicly announced, according to AWEA’s chief economist, Liz Salerno, who added that they “may be the tip of the iceberg.”
Akins, the AEP chief executive, said his firm has seen industrial use of electricity fall for the first time in nine quarters. He said the economy was “tenuous at best.”
Akins added that AEP is scaling back spending and bolstering its cash position. “We’ve been working to shore up our balance sheet . . . to make us stronger,” he said. “On the heels of 2008, we learned not to overextend ourselves, and we don’t need this second event. We’ve pared back as much as we can.”
That fear of the adverse consequences of failing to reach a deal has mobilized executives in a way rarely seen.
The Business Roundtable, which represents leading U.S. corporations, published a full-page advertisement in the Wall Street Journal on Wednesday warning of “significant negative economic employment and social consequences” for going over the fiscal cliff. The ad, which reprinted the letter sent by chief executives the day before, urged lawmakers “to turn political swords into governing plowshares” and take immediate action.
The ad said that Congress needs to agree to “more revenue — whether by increasing rates, eliminating deductions or some combination thereof,” and that the administration should to agree to “larger, meaningful structural and benefit entitlement reforms and spending reductions that are a fiscally responsible multiple of increased revenues.”
Though the executives have joined to urge a deal to avoid the fiscal cliff, agreement on corporate tax measures remains elusive. Multinationals care a lot about the treatment of overseas profits, Van Hollen said, while U.S.-based manufacturers want to protect domestic manufacturing incentives.
As a result, many key corporate tax issues probably won’t be addressed until broader tax reform is taken up next year.
“My sense is that their overriding goal is to get an agreement,” Van Hollen said of the business leaders. “When it comes to individual tax issues, they just want to get it done. When it comes to corporate tax issues, they recognize that that is something that would take place over a period of time.”
The White House has welcomed the business community’s support.
White House press secretary Jay Carney said Tuesday that the Business Roundtable letter “adds to the growing chorus of voices from a variety of sectors of both our economy and the broader American public demonstrating a desire for compromise, demonstrating agreement that there has to be a balanced approach, an approach that includes revenues as well as spending cuts.”
Banking chiefs took to the airwaves.
On the individual income tax, JPMorgan Chase chief executive Jamie Dimon said in an interview on CNBC, “I don’t personally care, okay?” But he cautioned that tax hikes had to be “linked together” with spending restraint.
“No one says, ‘Take a higher tax rate but we can still be irresponsible in spending,’ ” he said. “So, you can try to de-link it all you want. No one is going to de-link that in the business community.”
Goldman Sachs chief executive Lloyd Blankfein said Wednesday, also on CNBC, that the business community’s sudden willingness to accept higher tax rates on personal income was a “concession to reality.”
He said that “when you start to look at the possible . . . you have to do it through the rates, to some extent.”
He said business leaders, who showed little enthusiasm for President Obama during the election campaign, have to pay attention “not only to numbers but realities and votes and things and take the world as it is, not the world we’d like it to be.”
Tom Hamburger contributed to this report.