A coalition of corporate chieftains has delivered a tacit endorsement of President Barack Obama’s call for tax increases to fix the deficit, repudiating Republican nominee Mitt Romney’s assertion that the U.S. fiscal mess can be solved without new revenues.
The group, consisting of the heads of more than 80 major corporations, includes well-known Democrats and Republicans. And the timing of its intervention underscores rising anxiety in corporate America over the failure of Congress to reach a comprehensive deal to slow the growth of the $16-trillion (U.S.) federal debt.
On Thursday, the CEOs came together in an effort to pressure Congress to come to a debt deal as soon as possible after the Nov. 6 election. In addition to calling for a reform of Medicare to “limit future cost growth” of the program, the group is arguing for major tax reform that eliminates deductions and “raises revenues.”
“We need to fix the debt now, thoughtfully and proactively, the way a great nation like America should and has throughout our history when confronted by big issues,” said Honeywell chairman and CEO Dave Cote, who served on Mr. Obama’s 2010 debt panel.
The refusal of most Republicans to consider tax increases has been a primary stumbling block to reaching a so-called “grand bargain” aimed at putting the federal government on a sustainable fiscal course. The President and House of Representatives Speaker John Boehner came close to such a deal in 2011, but the plan fell apart after Mr. Obama reportedly asked for more in new revenue than Mr. Boehner had initially agreed to.
While Mr. Romney has vowed to balance the budget, he insists he can do so without increasing taxes or cutting defence spending. He says his plan to cut income-tax rates by 20 per cent across the board, while eliminating unspecified deductions, would be “revenue neutral.”
Mr. Obama has called for a “balanced approach” to deficit reduction that includes income-tax increases on households earning more than $250,000 and higher tax rates on capital gains and dividends. The CEOs did not explicitly endorse the President’s policy, but agreed that tax increases of some sort are essential to fix the fiscal mess.
Indeed, even CEOs who support Mr. Romney dispute his math.
“When you talk about a $16-trillion debt, I don’t see how you can avoid addressing both [tax increases and spending cuts],” AT&T CEO Randall Stephenson, a Romney backer, told The Wall Street Journal. “This is bigger than any one political candidate.”
If Republicans have stonewalled on tax increases, Democrats in Congress have refused to consider cuts to entitlement programs such as Medicare, the government-run health plan for seniors. But the CEOs argue that the cost structure of both Medicare and Medicaid, which covers health costs for the poorest Americans, needs to be reined in.
“We think that having these CEOs come out is useful, especially if they go back home and tell their employees what is at stake,” Steve Bell, senior director of economic policy at the Washington-based Bipartisan Policy Center, said in an interview.
Congress needs to act quickly after the election to avert the so-called fiscal cliff facing the country on Dec. 31. That is when automatic spending cuts and tax increases are set to kick in. A long-term debt deal, which phases in spending cuts and tax increases, is preferable to the wallop the economy would face if the automatic measures were to take effect.
The jury is out, however, on which one of the presidential candidates would be more likely to strike a long-term deal with Congress.
Some analysts are already suggesting Mr. Romney’s promise of a 20-per-cent cut in tax rates is only an “opening bid” in negotiations with Congress. A smaller cut, combined with a cap on deductions, would mean wealthy Americans would face a higher tax bill.
Mr. Obama, meanwhile, insists he will finally get a debt deal done if he is re-elected.
“It will probably be messy. It won’t be pleasant. But I am absolutely confident that we can get what is the equivalent of the grand bargain that essentially I’ve been offering to the Republicans for a very long time,” the President told The Des Moines Register this week.