How big, literally, is the National Debt ? 

 

Business is marshaling its forces. The target is the aggressive domestic agenda laid out in President Barack Obama's first budget.

Private health insurers are mobilizing to fend off Obama's plans to cut the fees they receive from Uncle Sam and create a government-subsidized rival that, they fear, would undercut them with lower-cost care for the uninsured. Multinationals are up in arms about the prospect of paying higher taxes on foreign earnings. Real estate agents want to quash efforts to lower the mortgage interest deductions for families earning more than $250,000. Small business owners—many of whom pay personal income tax rates on their companies' profits—fear his plans to raise income, capital-gains, and dividend taxes on those same high-end earners. Many industries accept the idea of paying a price for carbon emissions—but not as quickly as Obama envisions. Private equity players and venture capitalists claim that the higher taxes Obama wants them to cough up will drain away innovation and investment. "There's a lot of activity as people gird their loins for these battles," says longtime Washington lobbyist Patrick E. O'Donnell, who represents defense contractors, potential bank bailout recipients, and insurance companies. Like many others on K Street, his firm, Squire, Sanders & Dempsey, is staffing up.

What's stirring up industry is not only the breadth of Obama's agenda but the strength of his position because of Democratic dominance in Congress. As Peter Orszag, Obama's budget director, puts it: "The President has the bully pulpit, he has strong public support, and these are all things he campaigned on." If Obama faces a tough fight getting his entire budget passed, business faces one, too, warns Stan Collender, a partner of Qorvis Communications, a Washington firm that represents banks, drugmakers, and defense contractors. "A lot of things that could be harmful to industries now have a better shot at being enacted," he says.

LOBBYISTS PLAN PROTESTS

So business is hitting hard on the theme that the budget will squeeze vitality out of the economy. Says Jay Timmons, head of government affairs at the National Association of Manufacturers: "They're taking a tremendous amount of money out of the private sector, which will hamper the ability of business to create and retain jobs."

Lobbyists are already planning public protests, ad campaigns, and more targeted appeals to key members of Congress. On Mar. 3 former Columbia/Hospital Corporation of America CEO Richard L. Scott, contributing $5 million from his own pocket, launched a $20 million advertising and public-relations effort emphasizing free-market alternatives to Obama's health-care plans. Scott plans three weeks of ads on CNN (TWX) and NBC (GE), then video documentaries hosted by former CNN anchor Gene Randall in which doctors and patients in Britain and Canada bemoan their health systems.

Agribusiness interests, startled by Obama's planned subsidy purge—the President voted for the farm bill last year—are already mobilizing for a march on Washington. Lobbyists for the American Farm Bureau Federation are targeting freshman Democrats who make up some 30% of the House Agriculture Committee. Many come from rural areas and depend on support from farmers. Key among the freshmen to persuade: Travis Childers of Mississippi, Bobby Bright of Alabama, and Debbie Halvorson of Illinois.

The American Petroleum Institute plans to battle Obama's Budget proposals to reduce the industry's tax breaks through presentations to newspaper editorial boards and visits to Washington by top oil company executives and employees, plus drop-ins by ordinary shareholders. The messages: Obama will increase U.S. reliance on foreign oil by eliminating the deduction for drilling in the U.S. and put at risk up to 6 million jobs directly and indirectly reliant on the industry. "They are going to push more of the investment offshore," said Mark Kibbe, the institute's chief lobbyist.

 

Obama and his team will also be hearing from health insurers like UnitedHealth Group (UNH), Humana (HUM), WellPoint (WLP), and Kaiser. They are balking at the plan to cut $176 billion in costs out of Medicare Advantage, which combines private insurance with Medicare coverage. The lobbyists aim to send a message to Max Baucus of Montana, the Democratic chairman of the Senate Finance Committee, and Charles Grassley of Iowa, the committee's top Republican. The plan is to show how much rural areas would suffer under the proposal. "By rural areas, we basically mean Iowa and Montana," says one industry lobbyist. "Baucus and Grassley will understand that."

If there is one issue that unites business—and will be the focus of some of the most intense lobbying—it is opposition to the various taxes Obama has proposed. "This [tax] agenda is bold to the point of being horrifying," says Kenneth J. Kies, ex-chief of staff for the Joint Committee on Taxation and managing director of the lobbying firm Federal Policy Group. It's not just the big companies. "Small business is worried sick," says Patricia Felder, co-owner of Felder's Collision Parts in Baton Rouge, La. "Small businesses bear the brunt of the tax structure."

Already, utilities and manufacturers are scrambling to minimize the costs they'll have to bear if Obama creates an extensive program to limit carbon emissions. They argue that tradable permits to emit carbon represent an indirect tax hike, which would force them to raise customers' rates.

Multinationals are homing in on Obama's plans to limit their ability to defer U.S. taxes on income earned abroad. Today, American companies with operations abroad can defer paying the U.S. corporate tax rate of 35% until they bring their profits home; instead, they pay the local tax rate, which is generally lower. But Obama's team argues that such laws encourage U.S. companies to move jobs overseas.

That position has left business apoplectic. Multinationals claim that forcing them to pay the higher U.S. tax rates on earnings from abroad would raise their costs over rivals and leave them vulnerable to foreign takeovers. "Our concern is we don't do anything to harm our competitiveness overseas," says John Castellani, president of the Business Roundtable.

A BLIZZARD OF STUDIES

For much of the past year, the Roundtable has been alerting congressional staffers to the problems they believe eliminating tax deferral would cause. Now, along with the Chamber of Commerce, the National Foreign Trade Council, and NAM, they are going into overdrive. The strategy: Make the case with studies showing how competitiveness would be damaged, then bring in CEOs to drive the point home to their congressional representatives.

Already, lobbyists are talking up a paper arguing that U.S. shipping companies such as American President Lines were acquired by overseas buyers when they lost the right to defer taxes on foreign profits in 1986, a trend that only reversed when the deferral was restored in 2004. In mid-March, the Business Roundtable will release a study claiming that many jobs are gained in the U.S. because of foreign operations. Both will be liberally distributed to Congress and Administration staff. Key targets: conservative Blue Dog Democrats such as John Tanner (D-Tenn.) and Earl Pomeroy (D-N.D.) in the House. In the Senate, Baucus will be targeted. Nor have multinationals given up on the White House: Kies says some believe National Economic Council President Lawrence H. Summers and Orszag "may be possible to persuade." And if a broader campaign is needed, he adds, "the ads have already been written."

Partners in private equity, hedge funds, and venture capital firms are gearing up for what promises to be another explosive tax fight: Obama's pledge to change the rate they pay on the percentage of investment profits they earn on their portfolios, known as carried interest, to the regular income tax rate, rather than the lower capital-gains rate they pay now.

The industry killed a similar proposal in 2007, but this time lobbyists are getting ready for a longer, harder fight. The VCs already have their defensive playbook: Distinguish their breed, which invests in badly needed innovation, from the real estate interests, private equity partners, and hedge funds Obama is targeting. At the same time, they'll underscore the importance of venture capital to the President's quest for technologies to boost lower-cost health care and cleaner energy. "This is just the first pitch in a very long, extra-inning baseball game," says Mark Heesen, president of the National Venture Capital Assn.

PRIVATE EQUITY GEARS UP

Private equity players are practicing their pitch as well. Lobbyists will tell tales of the struggling retirees who depend on private equity's plump returns to pad their public pension funds. "The question is who invests in private equity. It's CalPERS or the pension funds of firefighters," says Moses C. Mercado, managing director of Ogilvy Government Relations, which represents Blackstone (BX) and Carlyle Group. Change those returns, he adds, "and you're changing Grandma's pension from her years as a schoolteacher."

With so much opposition building, is the President's support among business weakening? Obama does win high marks among some executives for decisive leadership, particularly in pushing through the stimulus package and grappling with the economy's problems. "We're very pleased to see the kind of vigor and discipline that's being brought to bear," says Brad Smith, a senior vice-president at Microsoft. (MSFT) Like many executives, he's happy Obama has pledged to make the research and development tax credit permanent and to pour funds into education. There are clearly areas of common ground. But in health care, energy, manufacturing, and other industries, the battle is already joined.

 

The House and Senate approved their versions of a fiscal 2010 budget that included President Barack Obama's biggest priorities, giving the president a significant victory as he works to shift the government's direction from the Bush era. Democrats made some changes in Mr. Obama's $3.6 trillion budget, but kept intact the core of Mr. Obama's plans for increased spending on health care, energy and education, setting up fierce fights on those issues later this year.

The House vote was 233-196, with 20 Democrats dissenting. House Speaker Nancy Pelosi (D., Calif.) made a point of announcing the results herself. As with the economic stimulus package, no House Republican voted for the Democratic plan.
Thursday's vote marked the first time since 1997 the House passed a budget with more than 230 votes. Democratic leaders had notable success keeping the support of their members, including fiscally conservative ones, in the face of scorching Republican criticism.
In the Senate, the final vote was 55-43, taken with Vice President Joseph Biden serving as presiding officer, an unusual occurrence.
The House and Senate now must craft a compromise. Along with the $787 billion stimulus enacted in February, the approval of the 2010 budget by both chambers is a substantial boost to the president's agenda.
Both House and Senate trimmed the budget submitted by Mr. Obama, who proposed increasing spending on basic domestic government by just over 10%. The House version would increase such spending by 9.5% and the Senate by 7%.

The congressional budgets also eliminate the president's request for $250 billion for further bank bailouts. They extend Bush-era tax cuts on the middle class, but not the wealthy.
In the ebb and flow of debate Thursday, the Senate approved by 51-48 an amendment that would open the door for action on deficit-neutral legislation exempting couples with $10 million estates from paying estate taxes, up from $7 million. The measure also would lower the tax from 45% to 35%.
Senate Democratic Leader Harry Reid (D., Nev.) denounced this as "outrageous," saying it would help only the very wealthy. But he lost 10 Democrats, as supporters argued it would aid small business owners.

Mr. Obama has proposed making the current $7 million exemption permanent. Under existing law, the estate tax is set to disappear entirely in 2010 and return the following year at levels last seen in 2001, when the tax rate was 55% on the largest estates and the amount that could be exempted was $1 million.
The House budget envisions a $1.2 trillion deficit for 2010, forecasting a steady decline through 2014 when the deficit is projected at $598 billion. The Senate budget projects a somewhat lower deficit of $507.6 billion in 2014.
As the Senate debate stretched into the night, lawmakers amended the budget several times. They went on record against a proposal to reduce tax deductions for charitable contributions as a way of paying for expanded access to health care. They also took several votes reflecting concern over climate change proposals made by the White House.

Some of these amendments are likely to disappear in coming negotiations with the House. But they reflected the tensions roiling Capitol Hill. That includes unease over aid flowing to Wall Street. Among the amendments was a measure requiring the Federal Reserve to disclose the companies receiving aid from it.
The budget debate unfolded amid the most serious economic crisis in decades, and lawmakers vied to express concern for Americans' suffering.
Rep. Paul Ryan (R., Wis.) denounced the Democrats' budget for its deficits. "We are spending like drunken sailors," Mr. Ryan said. "Wait, I apologize to the drunken sailors of America for that comment."

Democrats responded that the government must invest in long-neglected priorities like health care, education and energy. Republicans, they said, were wedded to the policies that had prompted a recession, a financial crisis and a series of budget deficits.
"Their carping, I think, is disingenuous at best and dishonest at worst," House Majority Leader Steny Hoyer (D., Md.) said in an interview. Americans, he said, "know the policies pursued by the crowd that is talking on the floor today have failed."

 

Senate Budget Committee approval by a party-line vote sets the stage for floor debate next week, where moderate Democrats unhappy with deficits wield more influence. The Senate measure is a nonbinding road map for major legislation later this year on health care, energy and education.

But general agreements on fighting global warming and boosting health care promise to be severely tested later in the year as details are penciled in.

The Senate plan and its House counterpart will both go to the floors of their respective chambers next week over passionate protests from Republicans, who warn of big spending increases and record deficits.

Senate Majority Leader Harry Reid, D-Nev., armed with a comfortable 58-41 Senate majority, said a handful of Democrats will oppose the budget plan next week but that "I feel very comfortable that we're going to be able to pass the budget."

Unlike regular legislation, the annual budget resolution-which doesn't get signed by the president-can advance with a simple majority vote.

House Majority Whip James Clyburn, D-S.C. expressed confidence that the House plan would pass in that chamber. "It's looking good," he said.

Both the House and Senate budget plans lack specifics for any of the administration's signature proposals on global warming and clean energy or even clues on how Democrats plan to accomplish goals like raising more than $1 trillion over the next decade to provide universal health coverage.

Curbing global warming is welcomed as a general goal, but both budget panels were careful to avoid endorsing Obama's controversial cap-and-trade system for auctioning pollution permits, which will raise energy costs for consumers and businesses.

Under Congress' arcane budget legislative process, lawmakers devise a nonbinding budget resolution that sets the terms for subsequent legislation. As a practical matter, the budget provides a pot of money to the appropriations panels to fund Cabinet agencies' annual budgets. But it also serves as a way to define party goals.

The House and Senate plans both call for spending less than Obama's $3.7 trillion proposal for next year, mostly by ignoring his request for an additional bailout of the financial industry, with additional savings plotted for future years.

The House plan foresees a deficit of $1.2 trillion for 2010 but would cut that to $598 billion after five years. The comparable Senate estimates are $1.2 trillion in 2010 and $508 billion in 2014.

Obama's budget would leave a deficit of $749 billion in five years' time, according to congressional estimates-too high for his Democratic allies-and would grow to unsustainable levels exceeding 5 percent of the economy by the end of the decade.

For their part, House Republicans unveiled their response to Obama's budget plan Thursday in a glossy pamphlet short on detail and long on campaign-style talking points. Among the few details was a promise to simplify the tax code and cut income tax rates to 10 percent for people making $100,000 or less.

Republicans pointed out budgetary sleights of hand in the congressional plans, such as abandoning Obama's promises for permanent relief from the alternative minimum tax and other politically essential legislation, such as money to shelter doctors from cutbacks in payments they receive for serving Medicare patients.

During Senate panel debate Thursday, Democrats shot down a series of GOP amendments, including a plan by Sen. Jeff Sessions, R-Ala., to save $200 billion by freezing spending on non-defense domestic programs for the next two years and allowing modest increases in the future.

The panel also defeated an amendment by top panel Republican Judd Gregg of New Hampshire to block Democrats from passing a health care reform bill that uses deficit dollars to finance a health care reform bill in the first six years of the plan.

On taxes, the Democrats followed Obama's lead in agreeing to extend many of the Bush-era tax cuts that were enacted in 2001 and 2003. An exception was made in the case of cuts that applied to upper-income wage earners.

 

Obama's Health Care Reform Platform