Risk Management

Which Changes Will Business Believe In?

With Democrats in charge of both the White House and Congress, CFOs worry about the impact on taxes, labor, and health care.
Alix StuartDecember 1, 2008

As President-Elect Barack Obama prepares to take office next month, many are wondering what a Democratic Administration and Congress will mean for the business climate in the United States. “Everyone knows the pendulum is swinging, but many CFOs are concerned it might swing too far,” says John Graham, professor of finance at Duke University’s Fuqua School of Business. While there is no shortage of policies that might be affected, here’s the prognosis for some top concerns of CFOs:

TAXES: Few details currently exist, but the good news is that aside from the oil-and-gas industry, experts don’t expect corporations to take big tax hits. With the U.S. corporate tax rate already topping those in European countries, Congress is unlikely to raise it further and may even consider lowering it “to remain competitive,” says Matt Miller, director of tax for Financial Executives International. Certain industries could benefit through Obama’s vow to make the R&D credit permanent and to support alternative-energy projects. Of concern for multinational companies is the vague campaign promise to curb current policy allowing income taxes on overseas earnings to be deferred until they are repatriated. Don’t expect comprehensive changes until 2010, though, when big items like capital gains and dividend tax rates expire.

LABOR: Obama’s policies in this area could hurt business interests the most, according to some. He co-sponsored last year’s Employee Free Choice Act, which fast-tracks union formation and then binds a company to continue union negotiations through arbitration, if all else fails. “We’re expecting to see that pass in some form in 2009,” says Todd Steenson, a partner in the labor and employment practice at law firm Holland & Knight. Service industries, namely retail, and small businesses are most likely to be affected, he says. Obama’s platform also calls for raising the minimum wage to $9.50 per hour by 2011 and guaranteeing paid sick days for low-wage employees.

HEALTH CARE: “Change is certainly imminent,” but it could take a couple of years to unfold, says Thomas Lerche, leader of Aon Consulting’s U.S. health-care practice. On the plus side for employers are Obama’s proposals to improve the transparency of medical costs, which could lower prices on drugs and services, and the possibility of federal reinsurance for costs associated with catastrophic employee illnesses (though “catastrophic” is as yet undefined). Potentially adding to costs would be a mandatory “pay-or-play” model, in which companies would be fined for not providing a certain level of health-care benefits to employees, and the possibility that each state could tailor the model, which could create an administrative nightmare for the many multistate employers that self-fund benefits under ERISA, Lerche says.

Hail to the Advisers

Obama’s Transition Economic Advisory Board includes:

Warren Buffett Chairman and CEO, Berkshire Hathaway

Roel Campos Former SEC commissioner

William Donaldson Former chairman of the SEC, 2003–2005

Roger Ferguson President and CEO, TIAA-CREF; former vice chairman of the Board of Governors of the Federal Reserve

Anne Mulcahy Chairman and CEO, Xerox

Richard Parsons Chairman of the board, Time Warner

Penny Pritzker CEO, Classic Residence by Hyatt

Robert Reich University of California, Berkeley; former Secretary, U.S. Department of Labor, 1993–1997

Robert Rubin Chairman and director of the Executive Committee, Citigroup; former Secretary, U.S. Department of Treasury, 1995–1999

Eric Schmidt Chairman and CEO, Google

Lawrence Summers Harvard University; managing director, D.E. Shaw; former Secretary, U.S. Department of Treasury, 1999–2001

Paul Volcker Former chairman, Federal Reserve, 1979–1987