“We’re going to spend whatever it takes,” said Brigitte Schmidt Gwyn, senior director of congressional relations for the Business Roundtable, which represents CEOs of the nation’s largest companies.
Obama last week announced a “Leveling the Playing Field” plan aimed at overseas tax shelters and other provisions that he calls loopholes for corporations. Combined with other international tax reforms planned by the administration, the crackdown would raise $210 billion over 10 years.
The most hotly contested issue is known as “deferral” — a provision in the existing tax law that allows companies to “defer” paying U.S. taxes on the profits they make from overseas investments until the money comes back home. Obama’s plan would curtail deferral rules.
The tax fight pits Big Business against a popular president — at a time when the American public is still seething with anger over Wall Street bailouts, unemployment and the housing meltdown.
Obama has a much easier sell, touting his plan — which he discussed repeatedly during the campaign — as an effort to close “loopholes that let companies ship jobs and stash profits overseas,” meaning that you “pay lower taxes if you create a job in Bangalore, India, than if you create one in Buffalo, N.Y.”
“He doesn’t have to explain anything,” said Bruce Josten, chief lobbyist for the U.S. Chamber of Commerce, a major opponent to Obama’s tax proposal. “We have to explain.”
Business and the administration have been working together on many issues, most notably health care reform. But the tax battle will be public and is likely to be messy.
“This really is the mother of all schisms between the business community and the administration,” one top lobbyist said. “It also could create massive fractioning among the business community. You have one set of interests for a company that manufactures in the U.S. but sells around the world, another set for one that manufactures abroad.”
And business starts behind: Kearsarge Global Advisors, in a study of ad spending during the 2008 election cycle, found that $20.6 million had been spent on the “tax breaks” issue in spots about global economic issues. The study included spending by presidential and congressional campaigns, political parties and outside groups.
Here’s a look at the business playbook for fighting Obama:
1. Start immediately.
The big companies that would be affected by Obama’s proposed changes have already closed ranks. He revealed his plan in his budget proposal in late March, and a group of about 200 trade associations and U.S.-based multinational firms immediately formed the Promote America’s Competitive Edge coalition. Members range from McDonald’s to computer maker Dell and financial services giant Prudential.
In addition to the Chamber, the coalition includes heavy-hitting trade groups such as the National Association of Manufacturers and the Business Roundtable.
The group has been lobbying against the change ever since, holding nonstop meetings on Capitol Hill for at least a month and a half. Lobbyists describe the meetings as educational: They explain what overseas tax deferral actually is and how it was put into the code to level the competitive playing field for American firms.
That’s because, the pitch continues, the United States is unique among major industrialized nations in taxing profits made by overseas subsidiaries of American firms — a so-called worldwide taxation system — while other nations use a territorial system in which they tax only profits made within their borders and let host countries ta the foreign subsidiaries.
The preparation appears to have paid off. Some key lawmakers immediately expressed reservations about the plan Obama rolled out last week. Among them was Sen. Max Baucus (D-Mont.), chairman of the tax-writing Senate Finance Committee. Baucus said “further study is needed to assess the impact of this plan on U.S. businesses” to make sure it doesn’t hurt global competitiveness.
2. Emphasize the economy.
The main thrust of the business argument is that Obama’s proposed changes would be bad for an ailing economy. The companies argue that, contrary to Obama’s contention that multinationals use the targeted provisions to ship jobs overseas, being competitive abroad allows them to create more jobs here at home.
Their lobbyists come armed with stats: In 2006, the most recent year for which data are available, American multinationals employed more than 31 million people total, and about 70 percent of those jobs were here in the United States. The business lobbyists also explain that they’re overseas not to cheat on their taxes but because that’s where the growth markets are.
“We walk people through that reality,” Josten said. “And the ultimate reality is, in the middle of this recession, do you want to create a completely unlevel playing field?”
Lobbyists warn that the fallout from Obama’s proposed tax changes would hurt American firms facing lower earnings than their competitors, which would decrease their stock value and make them prime targets for takeover by foreign firms. Other multinationals would most likely choose to move their headquarters elsewhere — taking the jobs and capital out of the United States, they say.
3. Go local.
The coalition’s lobbying strategy aims to localize the fear of job losses by having companies reach out to home-state senators and representatives. After that, the companies branch out to lawmakers from states where they have employees.
Caterpillar Inc., which Obama highlighted during his push for economic stimulus legislation, employs more than 54,000 people in the United States, with headquarters in Peoria, Ill., and facilities in Indiana, North Carolina, South Carolina, Georgia, Mississippi and elsewhere in the Southeast, plus dealerships across the country.
Lobbyists are hitting lawmakers from those states, as well as focusing on members of the House and Senate tax-writing committees.
“We’re all out telling our story,” said Chris Myers, manager of Caterpillar’s government affairs office. “We’re telling the story of how some of these tax changes are going to impact us at Caterpillar, our ability to serve our international customers in international markets like we do right now.”
CEOs are writing op-eds, and the coalition plans to have company representatives meet with lawmakers back home, which could drum up positive local media coverage.
4. Go bigger.
Another message PACE members are stressing on the Hill is that any changes to deferral should happen only in the context of a broader rewrite of the tax code. What the lobbyists don’t say is that Congress is highly unlikely to undertake fundamental tax reform anytime soon. Not only are lawmakers strapped with an already ambitious legislative agenda, but the recession means there’s no extra money to smooth out the rough spots that such a major rewrite would inevitably produce.