WASHINGTON (Reuters) - Major U.S. businesses are plunging into the Washington tax policy debate now that the elections are over and some are in an awkward position after betting heavily on Mitt Romney.
The Republican, who lost in last week’s presidential vote, was backed overwhelmingly not only by Wall Street, but also by the oil and gas, agribusiness, construction, private equity and transportation sectors, according to data from the Center for Responsive Politics.
That puts some businesses on the outs with President Barack Obama and his fellow Democrats, who tightened their grip on the Senate in last week’s elections, some corporate lobbyists said.
“For most businesses, this wasn’t necessarily their desired outcome ... There’s some patching up that needs to be done,” said Pam Olson, a tax lawyer at PricewaterhouseCoopers and a former senior tax official under President George W. Bush.
Alone among major segments of Corporate America, the high technology and communications sector wagered heavily on Obama.
Tax breaks that are central to businesses, both in and out of favor with Democrats, will be in play as Washington deals with the year-end “fiscal cliff” and as lawmakers edge toward a possible full-scale overhaul of the tax code in 2013-2014.
The president is expected to meet with business leaders on Wednesday to talk about fiscal issues. Top of the agenda: avoiding the fiscal cliff, which is a volatile mix of tax increases and spending cuts that, absent a deal in Congress to deal with it, could push the United States into recession.
Among those slated to attend the White House meeting are General Electric Co Chief Executive Jeffrey Immelt, already a top Obama adviser, American Express Co CEO Kenneth Chenault and Aetna Inc CEO Mark Bertolini.
“I really don’t think it’s any secret that the business community has had some reservations about the agenda in Washington over the course of the last four years, but that is now history,” Jay Timmons, head of the National Association of Manufacturers, said last week on a conference call with reporters.
The tax aspects of the “fiscal cliff” mostly apply to individuals, but some corporate breaks are involved. One is a provision that lets companies accelerate depreciation of new equipment. This is scheduled to expire at the year end, potentially raising tax costs for capital-intensive businesses.
Similarly, the research-and-development tax credit cuts across multiple sectors. The R&D credit - one of many items on the “tax extenders” list - expired at the end of 2011. It is up for renewal and has wide political support.
Divisions will emerge as the tax debate unfolds among businesses based on the actual tax rates paid by each sector. Retailers such as Wal-Mart Stores Inc tend to pay higher rates, while drug makers such as Pfizer Inc pay much less than the 35 percent corporate tax rate that is on the books.
Further, businesses organized as “S-corps” - which pay taxes through the individual tax code and not the corporate tax code as “C-corps” do - will see tax rates rise if Congress agrees with Democrats to lift rates on income above $200,000.
Case in point: JPMorgan Chase & Co CEO Jamie Dimon’s recent statement that he would be willing to pay higher personal tax rates in exchange for a deficit-cutting deal at year’s end. As a C-corp CEO, Dimon’s personal tax situation does not affect JPMorgan. That is not the case for an S-corp executive.
Other corporate tax provisions are more specific. Some have been targeted for repeal by the Obama administration, possibly to help pay for lowering the overall corporate income tax rate from 35 percent and potentially paring the deficit.
Private equity firms have fought for years to protect the “carried interest” tax benefit that lets senior partners pay the 15 percent capital gains tax rate on a big slice of their gains, rather than the top 35 percent income tax rate.
The Obama administration has targeted the carried interest break for repeal, but the industry so far has fought this off.
Oil and gas companies have several tax provisions - such as the well depletion allowance and expensing of intangible drilling costs - that they have defended for many years. Obama would like to remove these, too.
“We certainly don’t want to be used as a pay-for,” said Brian Johnson, a senior tax adviser at the American Petroleum Institute, the industry’s trade group, using Washington short-hand for a tax provision that would raise revenues if repealed.
He said the industry has no fences to mend with Democrats and that raising taxes on energy companies would be “a short-sighted solution.” The institute is set to kick off a multi-state advertising campaign within days.
Silicon Valley and the communications business are in a better position than energy and finance companies in defending their tax positions, said Dean Garfield, president of the Information Technology Industry Council, which represents technology companies.
Regarding the general state of business-White House relations, Garfield acknowledged: “There are some feelings that have been hurt.”
Looking to 2013, lawmakers are aiming for a full-scale revamping of the tax code. Carrying out this politically dicey task is far from certain, but the effort will reveal big fault lines.
For example, curbing the value of big breaks such as the home mortgage write-off is among the options being floated to minimize the code’s special favors. That would hurt homebuilders and banks that finance housing, but it would leave export-heavy industries such as technology and aerospace relatively unscathed.
An analysis by the Center for Responsive Politics, a campaign finance watchdog, showed that executives and family members of energy and natural resource companies gave $8.6 million to Romney and $2.2 million to Obama.
The figures, drawn from Federal Election Commission records, are current up to October 25 so they exclude the campaign’s last days before the November 6 election.
The energy sector’s nearly 4-to-1 bias toward Romney exceeded Wall Street’s. The finance, insurance and real estate sector donated $52.1 million to Romney and $18.7 million to Obama, a nearly 3-to-1 ratio, the data showed.
Other sectors that backed Romney included agribusiness at 3-to-1; construction, about 2-to-1 and transportation, 4-to-1.
Conversely, Obama was supported by the communications and electronics sector by about 3-to-1.
“An election is really a reset button and the American people have spoken. They have chosen their leaders. The business community will respond to that,” Timmons said.
Reporting by Kevin Drawbaugh, Kim Dixon, Sarah Lynch and Patrick Temple-West; Editing by Howard Goller and Andre Grenon