Why Obama Doesn't Need to Woo Big Business

Nobody has benefited more from Obama’s policies than corporate America.

By SHARE

Those poor CEOs. After clawing their way to the top and laying off millions to survive the recession, they've been forced to endure harsh rhetoric out of the White House and criticism of their lavish pay. President Obama has derided them as greedy "fat cats." Now that hits them where it hurts. Congress has targeted their companies for new taxes. An "anti-business" mentality emanates from Washington, as a chill whips through America's golf and yacht clubs.

[See 11 ways to plan for a double-dip recession.]

Corporate bosses are apparently in such a pout that they refuse to hire new workers, a big problem for Democrats as the midterm elections approach and the recovery they promised is nowhere in sight. So suddenly Obama is every CEO's best friend, inviting business leaders to the White House and asking their advice on fixing the economy. The result is a new set of proposed tax breaks, straight from the corporate playbook, that would refund billions to businesses and suddenly make Obama seem friendlier to corporate America than some Republicans.

This is all about politics, of course, and Obama is proposing costly, pro-business policies that he knows are unlikely to pass. So Democrats might win a few points just by talking a good game. But Obama could just as easily point to real steps his administration has taken that have enriched and empowered big business. Corporate America, in fact, has probably been the biggest beneficiary of Obama's economic policies.

[See 3 ways Obama could boost hiring.]

The bank bailouts, begun under President Bush and continued under Obama, have clearly helped repair damage to the financial system, allowing most big companies to borrow once again on normal terms—at historically low interest rates. The big $862 billion stimulus package came after that, replacing lost private-sector spending with government funds that kept weak demand for goods and services from falling even further. The Federal Reserve has helped immensely by slashing interest rates and taking other steps that have boosted stock prices. And while anti-business rhetoric is sometimes strong, America's labor laws are weak compared with those in Europe, allowing U.S. companies to cut payrolls quickly and deeply to stay in the black.

As a result, profits for firms in the S&P 500 stock index rose by an astonishing 37 percent in the latest quarter, according to Zacks Investment Research. Big companies are also sitting on vast amounts of cash—nearly $2 trillion worth. That's a large war chest that will make U.S. companies strong global competitors. And for all the carping about CEO pay, the recent financial reforms barely touched the issue, requiring nothing more than a nonbinding shareholder vote that will be a rubber stamp at most companies—especially those that are well run. "Corporate America is in its best fundamental condition in decades," says analyst Brian Belski of investing firm Oppenheimer.

[See how to tell if your company's a loser.]

So if Obama were to claim that his actions over the past two years have created boom times for many companies, he'd be right. Voters don't want to hear that, since those profitable companies aren't interested in hiring right now. And it's easy to fault Washington for that. But the main reason companies aren't hiring isn't tax or regulatory policy. They're not hiring because business is down. If companies brought on new workers there wouldn't be any work for them to do. When business picks up, companies will hire.

Companies do have legitimate concerns about tax changes and new regulations, and since it's election season, the "business climate" has become a political battlefield. Healthcare reform obviously will impose new burdens on many companies, and regulators writing the rules haven't yet spelled out all the changes. Financial reform will impose additional burdens on banks, lenders, and financial companies. Obama has a powerful appetite for "reforms," and would target energy and immigration next if Congress would go along, which they most likely won't, after the expected Republican surge in November.

[Find out if you are a "zombie consumer."]

Taxes are another "anti-business" issue. They're going up, sooner or later, on mostly everybody, thanks to huge federal deficits that will never be closed by spending cuts alone. But there's a good chance that taxes on business will rise by more than those on consumers—no matter who's in charge in Washington. The Bush tax cuts are another problem, since Obama's predecessor cut income taxes without coming up with a dime to offset the lost government revenue and left the tax cuts to expire at the end of this year unless Congress decides otherwise. Restoring the prior income-tax brackets (i.e., "raising taxes") would affect some small business owners, whose personal and business income are the same thing. Plus it would upset highly paid corporate executives who tend to feel the world is caving in if their taxes go up.

Obama apparently feels he needs to throw free money at corporate America to prove his pro-business bona fides. But he could accomplish the same thing more credibly through a different approach. The first step would be to point out how bailouts, stimulus spending, and Federal Reserve actions have helped stabilize the corporate sector and saved many companies outright.

[See why unemployment could spike by election day.]

Obama should then acknowledge that healthcare and financial reform have placed added burdens on big companies—and set deadlines by which the regulatory agencies writing thousands of specific rules will have their work finished for all to see. That won't win over people who disagree with his policies, but the fact is that companies adjust well to new rules when they have a clear understanding of what they must do. The sooner Obama can spell it out, the sooner companies will make adjustments and get on with business. And if he could ease the burden of compliance by cutting paperwork or scaling back other regulations, he'd win a few fans.

If Obama wants to pursue other reforms that could affect businesses down the road, he should acknowledge the fact that his plans are stoking economic anxiety. On the other hand, if Obama were to pledge no new regulations for two years, businesses would rejoice. Business leaders are rightly leery of a political process that's unpredictable, arbitrary, needlessly nasty, and sometimes destructive. Nothing simple comes out of Congress and most legislators have never run a business. The laws they produce prove it. With likely Republican gains, Obama may not get any new reforms out of Congress anyway. So what would he be losing if he declared a moratorium on new regulations?

Last, Obama needs to provide clarity on taxes, even as everybody knows this is a battle that will go on for years. Resolving the Bush tax cuts should be a top priority, since it's absurd that the government can't even tell its citizens what their tax rates will be next year. Last-minute planning might work in Washington, but it doesn't work for businesses and families trying to navigate a tough economy.

[Bookmark the U.S. News Business & Economy site for more insight and advice.]

If other business taxes are likely to go up, Obama would be doing business a favor by taking a stand and making specific recommendations, instead of the usual practice of announcing all the goodies in daylight then slipping tax increases into legislation late at night. In their own world, CEOs must routinely do the same thing, in a way: They raise prices sometimes even though their customers complain, and they force suppliers to cut costs to the bone, no matter how uncomfortable it is. Doing that requires conviction and toughness. If Obama showed the same qualities toward business, CEOs would still complain. But they'd do so with a new respect for a chief executive who seemed more like a colleague and less like a politician.