Dear Director Orszag:
As a follow-up to your request to both Business Roundtable and The Business Council for examples of pending legislation and regulations that have a dampening effect on economic growth and job creation, we surveyed our membership to get their views. Attached are an Executive Summary and detailed description of what they see as government initiatives that will cause slower rather than faster growth.
Obviously the list is long, but we believe the cumulative effect of these proposals will help defeat the objectives we all share - reducing unemployment, improving the competitiveness of U.S. companies, and creating an environment that fosters long-term economic growth.
As business leaders we are increasingly concerned that the political expediencies of the short-term harm our ability to partner with government to create policies that foster growth. Now more than ever we need to work as businesses and as government to make the United States a place where we can attract the investment that is needed if we are to remain the strongest economy in the world.
We would be pleased to meet with you to discuss any and all of these issues.
Many regulations and legislation - both existing and proposed - exacerbate the uncertainty created by today's volatile economic environment.
Virtually every new regulation has an impact on recovery, competitiveness and job creation. Often that impact is negative. On an individual basis, most businesses can cope with each new regulation. But the collective impact on the economy is enormous, and often harmful.
With a massive new health care law and financial reform legislation looming, companies are more worried than ever about the impact new regulations and legislation will have on their operations and their bottom line. Not knowing what to expect from these pending regulations, businesses are acting cautiously to forestall any negative impact. These actions are squelching economic growth and job creation, as companies are forced to freeze investments and hiring until they understand how they will be affected by these new mandates.
Key Regulatory and Legislative Issues
Below is an overview of the key regulatory issues that are impeding economic growth and job recovery:
• Taxes. When American companies expand abroad they also help the economy at home. As an American company expands operations in its foreign affiliates, it has been estimated that for each dollar of additional wages paid in the foreign affiliate, U.S. wages increase by $1.84. Globally, American companies directly employ 22 million American workers and support an additional 41 million U.S. workers through their supply chains and spending by their employees.
The administration and Congress have proposed a number of policies relating to the taxation of foreign earnings that will harm the ability of global American companies to create and retain U.S. jobs. As it stands, the U.S. has the second-highest corporate income tax rate in the Organisation for Economic Co-operation and Development (OECD) and is one of the few countries that taxes U.S. companies on their foreign earnings. The international tax increases proposed by the administration - as well as those contained in the current tax extenders bill (H.R. 4213) - would make sweeping changes to U.S. tax law that would make U.S. companies even less competitive in foreign markets and reduce the potential for job growth at home. The administration should instead encourage U.S. competitiveness by reducing the U.S. corporate tax rate and adopting tax rules on foreign earnings that allow global American companies to compete on a more level playing field with their foreign-headquartered competitors.
Finally, we must continue to promote innovation in the United States by making permanent the R&D tax credit; this will increase U.S. jobs and enhance the global competitiveness of U.S. corporations.
• Financial Regulatory Reform. Financial regulatory reform proposals will impose numerous new burdens on American businesses. For example, the proposed legislation and concurrent regulation on proxy access at the SEC (File No. S7-10-09) that creates a new federal right for shareholders to nominate directors will reduce efficiency, stifle competition and deter capital formation.
Moreover, this proposed legislation would impose a series of new regulations on transactions executed in the over-the-counter (OTC) derivatives market. Business Roundtable recently conducted a survey to gauge the potential effects of proposed legislation- including a margin requirement - on OTC derivatives. According to the results, on a cumulative basis, non-financial, publicly traded BRT companies would likely respond to the imposition of margin requirements on OTC derivatives by reducing capital spending by 0.9% to 1.1%, or about $2.0 to $2.5 billion, assuming no exemptions. Extending this analysis to S&P 500 companies, a 3% margin requirement on OTC derivatives could be expected to reduce capital spending by $5 billion to $6 billion per year, leading to a loss of 100,000 to 120,000 jobs.
• Trade. The administration's failure to move forward on pending free trade agreements and a more expansive presidential trade negotiating authority has emboldened foreign competitors while hurting our economy, global competitiveness and job creation. The administration should swiftly resolve any outstanding issues and move forward with the implementation of free trade agreements with Colombia, Panama and South Korea, and must also seek a new presidential trade negotiation authority.
• Labor. Foremost among our companies' labor concerns is the Employee Free Choice Act (Card Check bill); if enacted, this legislation would have a devastating impact on business, by eliminating secret ballots in union organizing elections and empowering the government to intervene in labor disputes through compulsory arbitration.
In addition to EFCA, Congress is expanding damages for pay discrimination. The Paycheck Fairness Act, passed by the House last year and currently supported by the administration as the successor to the Lilly Ledbetter Fair Pay Act, would open companies to potentially crippling employment litigation without adding significant benefit to workers, since current law already addresses the discrimination issue.
The Vice President's Middle Class Task Force is reportedly considering regulations on federal procurement policy that would call for awarding federal contracts to companies that provide living wage, health care, retirement and paid sick leave; have fewer violations in labor and employment, tax, environment and antitrust; and take a neutral position in union organizing campaigns. If adopted, these regulations would base decisions about awards on factors that could significantly increase the cost to the government and American taxpayers.
The Middle Class Task Force is also reportedly considering mandating Davis-Bacon wage requirements and union labor agreements for all federal construction projects, even those involving non-union companies. These provisions will drive up costs and undermine new initiatives for green jobs and the construction of nuclear power plants.
• Energy and Environment. Legislative and regulatory efforts to address climate change, if done properly, provide real opportunities to develop cleaner and more efficient technologies to reduce greenhouse gas emissions in a way that benefits the environment and U.S. industry. A collaborative approach with government and industry is necessary to develop measurable and sustainable goals.
Mitigating greenhouse gases is a policy goal best left to Congress. However, in the absence of legislative action, the EPA has recently proposed a number of policies that regulate greenhouse gas emissions under the Clean Air Act. As the U.S. manufacturing sector continues to struggle and is shedding jobs overall, the EPA's actions will impose additional expenses, create uncertainty and place U.S. companies at a competitive disadvantage compared with foreign firms.
Energy independence ultimately entails a combination of all viable resources, including oil and natural gas exploration. But recently, the administration has issued sweeping restrictions on drilling in response to the Deepwater Horizon tragedy. The breadth of the administration's response should be promptly reconsidered as the administration obtains definitive information. If proper procedures are followed, tragic events such as the Deepwater Horizon situation should not and do not occur. Delayed exploration and production of oil and gas and reduced access will diminish domestic supplies available to help meet U.S. needs. Moreover, each aspect of the moratorium will have an immediate negative impact on economic activity and thousands of jobs, both directly in the oil and gas industry and indirectly in numerous support industries and services. Much of this impact will be felt in the Gulf of Mexico region, where the economy and employment are already gravely suffering from the spill itself.
• Health Care. By significantly restructuring the country's health insurance marketplace, the new health care reform law is likely to have a substantial impact on the nation's economic recovery. Intended to build on the employer-sponsored system, health care reform must be implemented in a way that ensures the stability of this employer-sponsored framework. During the regulatory process, clarifications to the law must be made in a manner consistent with this intent. Businesses are working to comprehend the complexities of the law. Although many of the more significant changes are not imminent, uncertainty is contributing to some overall anxiety as to increased business costs and requirements. Regulatory clarifications to many of the critical employer-related provisions will be vital in assessing the overall economic impact of the law. Exploring ramifications, consequences and nuances to these legislative clarifications may require even more vigilance than the drafting and passage of the reform law itself.
• Education. In general, we support the administration's efforts to strengthen the U.S. educational system. A quality early childhood education program is critically important to an individual's lifelong success. The "Educate to Innovate" program seems promising to bolster STEM (science, technology, engineering and math) education at all levels.
• Immigration. Our immigration system is broken and must be fixed. Immigration reform must address the need of American businesses to access qualified, highly skilled professionals around the globe to remain competitive. Reforms must also address the current green card backlog for our Chinese and Indian employees and include an H1-B cap that is flexible based on market needs.
In addition to the above, there are a number of sector-specific regulations of which our companies have expressed strong concern because of their potential domino effect on the economy. These are highlighted in the comprehensive report.
We believe that a new, comprehensive assessment of federal policies and regulations is fundamental to the U.S. economy regaining its competitive strength. Regulators should assess the financial impact of individual and collective mandates, remove existing mandates that have become redundant and increase efficiency through market competition. They should also establish a system for creating new regulations that do not impede private-sector investment and job creation.
At the same time, the government must reduce spending to manage down deficit and debt. The current levels of U.S. debt, as well as those required to finance the forecast deficits, will crowd out private capital. If less capital is available for corporate borrowers, it will retard future growth and investment, erode the value of the U.S. dollar, accelerate inflation and, eventually, reduce consumer spending power.
Economic recovery must be lead by the private sector, both large and small, if we are going to create jobs and reduce the unemployment rate. In assessing all regulations, the goal should be to reduce uncertainty, fear and overall cost impact while creating a regulatory system that is business-friendly, cost-effective, and encourages efficiency.