originally appeared in The Wall Street Journal:
Honeywell International Inc. HON +1.00% chief executive David Cote gives the orders at the $48 billion industrial giant, but lately he has been taking directives from President Barack Obama and congressional Republicans, in hopes of finding a fiscal-cliff solution.
At a recent White House meeting with several CEOs, Mr. Obama told Mr. Cote, seated across from him, "Tell Republicans you will give them cover for tax increases if they want tough entitlement reform."
A few days later on Capitol Hill, House Republican whip Kevin McCarthy told the Honeywell chief, "Tell the White House the impact that failing to cut spending will have on the market."
Mr. Cote (pronounced KOH-tee) is the business executive most in the middle of the fiscal-cliff debate. He and senior White House adviser Valerie Jarrett talk or email several times at all hours every day. At the other end of Pennsylvania Avenue, he visits congressional offices a couple of days weekly, bringing along other corporate titans and a newly funded CEO campaign for a deficit compromise.
Mr. Cote's role shows a big change from last year's messy and inconclusive debt-ceiling debate: Business leaders aren't sitting on the sidelines this time. "We're not confident that our guys can govern anymore," says Mr. Cote, who switches out of the jeans he typically wears into a suit and tie when summoned by lawmakers.
He has received signals from both parties of possible compromises on the fiscal-cliff issues, about which Mr. Obama and House Speaker John Boehner met Thursday. Earlier in the day, Mr. Cote said he was getting "worried" that a sizable, credible deal was looking more difficult. His fear: It might be replaced by an "anemic deal requiring this country to keep fighting over these issues while the rest of the world becomes more competitive."
Mr. Cote's efforts are stirring controversy. To show his personal commitment to a fiscal deal, he says he would be willing to pay income tax at 39.6%—the highest rate in the Clinton administration—instead of the current top rate of 35%, or to lose deductions, provided significant cuts are made in entitlement programs such as Medicare.
Small businesses on the right and safety-net groups on the left scoff that Mr. Cote, whose total direct compensation was $25 million last year, can afford to be magnanimous.
Small businesses are more sensitive to personal tax rates—the rates at which many are taxed, via their owners' personal returns. That helps explain why small business is more closely aligned than big business with the GOP opposition to raising personal tax rates for anyone.
"A higher income-tax rate on us means we can't invest in new equipment or personnel," says Albert Macre, an owner of Triple Play Café in Steubenville, Ohio. "Maybe if I were making five to 10 million dollars a year like the big CEOs, I would be willing to pay higher taxes too."
Rep. Dave Camp, the Michigan Republican who heads the House Ways and Means Committee, says Mr. Cote "has tried to put pressure on the president and on us to get a deal...but I don't agree with all the policy specifics he's advocating." Mr. Camp says he told Mr. Cote the CEOs will be less effective in helping get a deal so long as they focus on higher tax rates, which "aren't the way to get Republicans to buy in."
Mr. Cote's efforts could benefit his business. Absent a cliff deal, deep cuts in federal spending on defense and many other programs will kick in. Success in averting them could help Honeywell, an aerospace and defense contractor that draws 10% of its $38 billion in annual sales from the government.
Mr. Cote also is getting on a first-name basis with power players and earning good will, goals that can take companies millions in campaign cash and lobbying fees to achieve.
"I'm being accused of all kinds of nefarious motives just because I'm a CEO," says Mr. Cote. He also concedes his cause diverts a lot of time from his job but says he tries to make it up from his personal time. In any case, "the best for my shareholders is a robust economy," he says, "which can't happen if the country is gridlocked over debt."
Whatever their motives, Mr. Cote and fellow big-business leaders are bringing some financial muscle to the table. They have funded an organization called "Fix the Debt," set up last summer by a bipartisan group to push for a comprehensive fiscal solution. While it can't contribute to campaigns, it can run glowing ads for members who face political consequences.
Mr. Cote is far from the only CEO pushing for a fiscal deal or willing to see tax rates go higher. But he is a central player. "People on both sides of the aisle are sending messages through Dave," says Senate Finance Committee Chairman Max Baucus (D., Mont.). "He's become an active participant…while warning that companies will continue to hoard cash and cut jobs if we fall off the fiscal cliff."
Mr. Cote says he doesn't "want to get dragged into being just a messenger…I tell each side what I think helps resolve this big problem for our economy."
His new role has been a "revelation," he says, on how dysfunctional Washington is. "I meet people on both sides I like and find reasonable, but they aren't working together."
A onetime cod fisherman, Mr. Cote became a General Electric Co. GE +1.04% executive and was in the running to succeed CEO Jack Welch 12 years ago. Once Mr. Cote realized he wouldn't get the top spot, he moved first to TRW Inc. and then to Honeywell in 2002, where he is credited with leading a turnaround.
He also made the company more of a political player. Its political giving has grown. Roughly 60% went to Republicans and 40% to Democrats in the 2012 election cycle, according to the nonpartisan Center for Responsive Politics.
President Obama named Mr. Cote to the Simpson-Bowles deficit-cutting commission in 2010. The role, Mr. Cote says, impressed him with the depth not only of the country's fiscal but its political problems. Commission co-chairman Alan Simpson recalls a day after months of partisan warfare when Mr. Cote took off his coat and told the group: "Who are you people? Is this the way you do the nation's business? I'd fire all of you."
During the bitter fight over raising the debt ceiling in the summer of 2011, Mr. Cote signed a letter with about 450 other CEOs urging the president and Congress to compromise for the good of the economy. He says the effort fell flat without any follow-up. The debt fight helped set the stage for the fiscal cliff by dictating mandatory spending cuts in January 2013 unless a bipartisan "supercommittee" could agree on deficit reductions, which it couldn't.
This year, with fiscal uncertainty hanging over the economy, Mr. Cote took steps to protect Honeywell from economic weakness. He says he started letting 300 job openings go unfilled each month and cut capital spending 15%, allowing $5 billion to pile up in corporate coffers.
On July 17, he hosted a dinner at Honeywell's Washington office for Mr. Simpson, a former Wyoming GOP senator, and Erskine Bowles, the Democratic former White House chief of staff who co-led the deficit-reduction commission with Mr. Simpson. Also there was Sen. Mark Warner (D., Va.), who was an entrepreneur before running for office.
"How can CEOs make something happen?" Mr. Cote recalls asking. After hearing two hours of debate, he summed up: engagement, money and message. Mr. Cote said he would recruit fellow CEOs and ask each for $1 million in corporate donations to Fix the Debt.
Sen. Warner questioned whether he could accomplish that before Congress returned after the November election. "Mark, you're dealing with CEOs now," Mr. Cote says he replied. "It will be done by Friday."
Mr. Cote started recruiting the heads of big corporations. By week's end, he says, he had raised $12 million. It has since grown to about $43 million.
"Our role is pretty simple: to make sure that every political leader understands the consequences of the fiscal cliff," says Caterpillar Inc. CAT +0.24% CEO Douglas Oberhelman. "If solved, companies will pour jobs and capital into the economy; if not, our economy remains fragile."
Mr. Cote sought a message that would resonate with his peers. His answer: calling for a "market-credible" plan to cut $4 trillion over 10 years from what the national debt would otherwise climb to. "We liked Dave's term," Mr. Oberhelman says. "It shows that this budget deal must address the short and long term to the financial markets."
Once legislators returned after the election, Mr. Cote and the CEOs descended on the Capitol to meet with them. Mr. Cote was in demand by both parties.
When the president invited a few CEOs to discuss the fiscal cliff three weeks ago, the staff seated Mr. Cote directly across from Mr. Obama. Afterward, Mr. Cote did on-camera interviews on the North Lawn.
In late November he led an entourage of CEOs for a flurry of meetings on Capitol Hill. This time, the Republicans told him to deliver a message. Senate Republican Leader Mitch McConnell told him, "You need to tell the president that we're willing to do tax reform if he does significant entitlement reform."
On the House side, Mr. Cote chatted with Republican whip Mr. McCarthy in his office, where they bonded over their interest in history. Mr. McCarthy showed him a window that survived a fire set by the British during the War of 1812.
When they joined the CEO group for a meeting with Speaker Boehner, Mr. Cote observed that "there's a lot of money on the sidelines waiting to be invested," with some estimates of $1 trillion on corporate balance sheets that could be released if CEOs had certainty on the country's fiscal condition.
Some economists are skeptical. "CEOs aren't passing up profitable opportunities waiting for a fiscal deal," says Dean Baker, co-director of the liberal-leaning Center for Economic Policy and Research. He estimates that a new law would spur "modest" investment by U.S. companies of about $30 billion to $40 billion over the next year.
The CEO meetings in Washington got the attention of opponents on the left and right. Small-business groups such as the National Federation of Independent Business launched their own campaigns; some owners pushed for and got separate sessions with House Republicans, who criticized the president for holding a second meeting with big-company CEOs.
Liberal groups, including Campaign for Community Change and Social Security Works, protested outside a hotel where Fix the Debt held a conference last week. They called Mr. Cote "an odd choice for spokesman" with his "retirement assets of more than $78 million and his company's pension underfunded by $2.8 billion." (Mr. Cote says Honeywell's pension will be 85% funded at year-end, with company contributions of more than $5 billion since 2009.)
At the same time as Mr. Cote prods lawmakers to deal with the fiscal cliff, he and his executives are preparing for a possible tumble off it. At Honeywell's Morris Township, N.J., headquarters on Monday, Mr. Cote, wearing jeans and drinking Diet Mountain Dew, led his team through semiannual planning under the assumption there will be no deal and the automatic spending cuts will kick in.
"For months, we've been teeing up our businesses with that assumption," he says, in his office filled with Boston Red Sox mementos and hunting and fishing trophies.
Mr. Cote then flew back to Washington to press more politicians to act. But signs of frustration were starting to show. "Everything they need to know, they know," he said as he boarded a company plane. "I can keep talking about a market-credible fiscal plan…but it's time to say, 'You are the leaders—lead.' "
In Sen. Bob Corker's office, the Tennessee Republican told Mr. Cote that the unity among corporate leaders would evaporate when the "platitudes turn to specifics," particularly on tax changes. "At some point, the CEOs will become divided and fight each other," he said.
Mr. Cote stuck to his script: "If we keep putting the business community off, we wait, we don't invest, we cut jobs."
Through it all, Mr. Cote doesn't make a point of his party preference. One Republican senator suspects Mr. Cote is an independent. Democratic Sen. Baucus expressed surprise when he learned Mr. Cote is a Republican.
Mr. Bowles has urged Mr. Obama to put Mr. Cote in his cabinet for the next term, as Treasury or Commerce secretary. Mr. Cote says he plans to stay at Honeywell. Speaking of his fling with Washington politics, he says, "I can't wait to get out of here and back to my day job."
Showing posts with label Congress. Show all posts
Showing posts with label Congress. Show all posts
Monday, December 17, 2012
Friday, December 14, 2012
Business leaders warn as cliff nears
originally appeared in USA Today:
Business leaders are getting more worried about the fiscal cliff, and urging Congress and President Obama to make a deal before the New Year triggers a series of tax increases and spending cuts that would likely put the nation back in a recession.
The Business Roundtable released a letter signed by 158 chief executives of companies with more than $7.3 trillion in sales and 16 million workers, saying congressional Republicans need to make concessions on revenue, and Democrats need to give ground on entitlements such as Medicare and Social Security.
At the same time, the National Federation of Independent Business said a survey of its members showed a huge drop in confidence after the November election, as the cliff drew closer.
The NFIB survey of business confidence fell almost six points to 87.5, the lowest score since 2009 and far below stock market expectations for 92.5. The drop is a sign that business owners are losing confidence as Congress moves closer to raising taxes on couples making more than $250,000 a year, even though less than 5% of business owners make that much, said UBS economist Drew Matus. Only 9% expect better conditions in six months, compared with 49% who expect things to get worse, the NFIB said.
The United States will suffer significant negative economic, employment, and social consequences for going over the fiscal cliff, the CEOs said in a letter to congressional leaders. In many cases, the damage will be long-lasting, if not permanent. But it does not have to happen.
The chief executive of USA TODAY parent Gannett, was one of the CEOs who signed the letter.
The NFIB survey showed declines in nine out of 10 indicators of confidence, with a slight uptick in hiring plans for early next year, the federation said.
Marginal investments may not be undertaken as the increase in taxes moves some investment from the yes to the no column. The debate is whether that marginal investment is a significant source of innovation or employment.
The survey was more bearish than other indicators of business confidence recently. Moody's Analytics' weekly survey of business confidence, released Monday, said confidence rose slightly but remains at a low level. About a third of respondents expect the economy to get worse in the next few months, Moody's reported. In Moody's survey, government officials were the most pessimistic about the economy.
Like investors, businesses appear to believe that policymakers will come to terms before pushing the economy back into recession, Moody's chief economist wrote in a report. However, business sentiment appears very fragile and likely to turn sour quickly if policymakers do fall short.
Small business owners created 19,000 new jobs in November, payroll processing company ADP reported on Dec. 5.
Business leaders are getting more worried about the fiscal cliff, and urging Congress and President Obama to make a deal before the New Year triggers a series of tax increases and spending cuts that would likely put the nation back in a recession.
The Business Roundtable released a letter signed by 158 chief executives of companies with more than $7.3 trillion in sales and 16 million workers, saying congressional Republicans need to make concessions on revenue, and Democrats need to give ground on entitlements such as Medicare and Social Security.
At the same time, the National Federation of Independent Business said a survey of its members showed a huge drop in confidence after the November election, as the cliff drew closer.
The NFIB survey of business confidence fell almost six points to 87.5, the lowest score since 2009 and far below stock market expectations for 92.5. The drop is a sign that business owners are losing confidence as Congress moves closer to raising taxes on couples making more than $250,000 a year, even though less than 5% of business owners make that much, said UBS economist Drew Matus. Only 9% expect better conditions in six months, compared with 49% who expect things to get worse, the NFIB said.
The United States will suffer significant negative economic, employment, and social consequences for going over the fiscal cliff, the CEOs said in a letter to congressional leaders. In many cases, the damage will be long-lasting, if not permanent. But it does not have to happen.
The chief executive of USA TODAY parent Gannett, was one of the CEOs who signed the letter.
The NFIB survey showed declines in nine out of 10 indicators of confidence, with a slight uptick in hiring plans for early next year, the federation said.
Marginal investments may not be undertaken as the increase in taxes moves some investment from the yes to the no column. The debate is whether that marginal investment is a significant source of innovation or employment.
The survey was more bearish than other indicators of business confidence recently. Moody's Analytics' weekly survey of business confidence, released Monday, said confidence rose slightly but remains at a low level. About a third of respondents expect the economy to get worse in the next few months, Moody's reported. In Moody's survey, government officials were the most pessimistic about the economy.
Like investors, businesses appear to believe that policymakers will come to terms before pushing the economy back into recession, Moody's chief economist wrote in a report. However, business sentiment appears very fragile and likely to turn sour quickly if policymakers do fall short.
Small business owners created 19,000 new jobs in November, payroll processing company ADP reported on Dec. 5.
Thursday, November 1, 2012
Small Businesses Fear Federal Budget Cuts
story first appeared on newsobserver.com
Laura Schoppe’s small Raleigh business gets about half of its revenue from contracts with the federal government. It’s at risk of losing a chunk of that money in 2013.
Schoppe and thousands of other small companies with federal contracts are watching to see whether Congress will stop a mandatory $109 billion in federal budget cuts scheduled to take effect Jan. 2 in what’s being called sequestration. Plans for the cuts were triggered by the failure of Washington lawmakers to strike a budget deal that would begin chipping away at the U.S. deficit.
A group of lawmakers is working on an agreement aimed at stopping the cuts, and many in Washington believe that the budget reductions will be put off. But if a deal falls through, it’s estimated that 10 percent of the federal budget will be cut. No one knows yet where exactly the cuts might be made, but many economists and lawmakers expect they would have a devastating effect on small companies and slow an already lumbering economy. According to one university study, the reductions could mean the loss of nearly 1 million small business jobs. In the meantime, small company owners are trying to find ways to soften any loss of revenue by prospecting for new business, cutting back on hiring and slashing spending.
Schoppe’s company, Fuentek, helps federal laboratories license their technology innovations so they can be sold to companies for use in their own research and development.
Most of the company’s government contracts are with NASA and the Pentagon. It also works with universities.
Schoppe says she believes Congress will find a way to avoid the cuts. But she’s taking no chances and is looking for other business that will make her company less dependent on the government. One snag is that U.S. universities also face the possibility of big cuts in the money they get from the government. That could make them less able to develop and sell their own technologies. In the coming years, Schoppe’s revenue could drop more. So she’s soliciting business from overseas schools.
Congress is in recess and isn’t expected to debate or vote on sequestration until after the election. It’s a thorny issue for small business owners because the planned cuts would coincide with tax increases scheduled to go into effect in January. The combination of steep budget cuts and higher taxes is being called the “fiscal cliff” because of warnings from some economists that it will send the country into recession. A bipartisan group of senators has been working on a plan to avert the cuts by creating a plan to reduce the federal deficit over the next 10 years – but the success of any proposal is uncertain given the sharp divisions in Congress.
The cuts call for a reduction of 9.4 percent in non-essential defense spending, and 8.2 percent in non-essential spending on other programs. The risk to small businesses and the economy could be severe. Small businesses would have to eliminate more than 956,000 jobs if all the cuts were implemented, according to researchers at George Mason University and the economic forecasting firm Chmura Economics and Analytics.
Their findings are based on what they believed would be the most vulnerable agencies. But it goes beyond the job losses likely to be suffered by companies with government contracts. It also includes businesses that benefit indirectly. For example, a company that provides cleaning or catering services to a government contractor might be one of the casualties when a contractor has to cut costs. Or a retailer that depends on a contractor’s staffers for its business may have to lay off workers when sales fall.
Stephen Fuller, a professor of public policy at George Mason in Fairfax, Va. says small businesses would account for nearly 52 percent of the job losses expected from companies. The study forecasts that more than 157,000 jobs at federal contractors would be lost. Nearly 800,000 would be lost at subcontractors, suppliers and the retailers, wholesalers and service providers who sell to contractors or their employees. The exact number of small business federal contractors in the country isn’t known, but the Small Business Administration roughly estimates the number at more than 130,000.
Laura Schoppe’s small Raleigh business gets about half of its revenue from contracts with the federal government. It’s at risk of losing a chunk of that money in 2013.
Schoppe and thousands of other small companies with federal contracts are watching to see whether Congress will stop a mandatory $109 billion in federal budget cuts scheduled to take effect Jan. 2 in what’s being called sequestration. Plans for the cuts were triggered by the failure of Washington lawmakers to strike a budget deal that would begin chipping away at the U.S. deficit.
A group of lawmakers is working on an agreement aimed at stopping the cuts, and many in Washington believe that the budget reductions will be put off. But if a deal falls through, it’s estimated that 10 percent of the federal budget will be cut. No one knows yet where exactly the cuts might be made, but many economists and lawmakers expect they would have a devastating effect on small companies and slow an already lumbering economy. According to one university study, the reductions could mean the loss of nearly 1 million small business jobs. In the meantime, small company owners are trying to find ways to soften any loss of revenue by prospecting for new business, cutting back on hiring and slashing spending.
Schoppe’s company, Fuentek, helps federal laboratories license their technology innovations so they can be sold to companies for use in their own research and development.
Most of the company’s government contracts are with NASA and the Pentagon. It also works with universities.
Schoppe says she believes Congress will find a way to avoid the cuts. But she’s taking no chances and is looking for other business that will make her company less dependent on the government. One snag is that U.S. universities also face the possibility of big cuts in the money they get from the government. That could make them less able to develop and sell their own technologies. In the coming years, Schoppe’s revenue could drop more. So she’s soliciting business from overseas schools.
Jobs factor
If she isn’t able to bring in enough revenue to replace money lost to budget cuts, Schoppe says, some of her staff of 30 would have to be furloughed until more business comes in.Congress is in recess and isn’t expected to debate or vote on sequestration until after the election. It’s a thorny issue for small business owners because the planned cuts would coincide with tax increases scheduled to go into effect in January. The combination of steep budget cuts and higher taxes is being called the “fiscal cliff” because of warnings from some economists that it will send the country into recession. A bipartisan group of senators has been working on a plan to avert the cuts by creating a plan to reduce the federal deficit over the next 10 years – but the success of any proposal is uncertain given the sharp divisions in Congress.
The cuts call for a reduction of 9.4 percent in non-essential defense spending, and 8.2 percent in non-essential spending on other programs. The risk to small businesses and the economy could be severe. Small businesses would have to eliminate more than 956,000 jobs if all the cuts were implemented, according to researchers at George Mason University and the economic forecasting firm Chmura Economics and Analytics.
Their findings are based on what they believed would be the most vulnerable agencies. But it goes beyond the job losses likely to be suffered by companies with government contracts. It also includes businesses that benefit indirectly. For example, a company that provides cleaning or catering services to a government contractor might be one of the casualties when a contractor has to cut costs. Or a retailer that depends on a contractor’s staffers for its business may have to lay off workers when sales fall.
Stephen Fuller, a professor of public policy at George Mason in Fairfax, Va. says small businesses would account for nearly 52 percent of the job losses expected from companies. The study forecasts that more than 157,000 jobs at federal contractors would be lost. Nearly 800,000 would be lost at subcontractors, suppliers and the retailers, wholesalers and service providers who sell to contractors or their employees. The exact number of small business federal contractors in the country isn’t known, but the Small Business Administration roughly estimates the number at more than 130,000.
Small Business Survival strategies
Federal contracts have been vulnerable to budget cuts over the years, even when the government’s deficit wasn’t seen as a crisis. The White House and Congress have routinely cut funding to some programs while boosting funding to others. Amber Peebles’ company, Athena Construction Group, has been a contractor and subcontractor on federal construction projects since 2009. She gets 85 percent of her revenue from the government doing everything from carpentry work to helping build hospitals for the Veterans Administration. She and her co-owner, Melissa Schneider, founded the Dumfries, Virginia-based company nine years ago. The former Marine was wounded during Operation Desert Storm in 1991, giving her company a special status that gives it preference in winning government contracts. It’s also reducing her anxiety over sequestration. Even if Peebles loses some contracts, she expects that competitive advantage to position her company to win others.
Tuesday, August 7, 2012
Can America Survive Without the United States Postal Service?
Story first reported from Yahoo.com
As the United States Postal Service misses key financial payments, critics and supporters speculate about bankruptcy or worse for an institution that predates the Constitution and the Declaration of Independence.
USPS officials have said they will miss two benefit payments mandated by Congress, which has caused a whirlwind of speculation about the future of the Postal Service.
The United State Postal Service is one of the few current government institutions spelled out in the Constitution.
The ability of Congress to “establish Post Offices and Post Roads” is spelled out in Article I, Section 8, of the Constitution, as part of a short list of enumerated congressional powers.
The Framers saw the postal system as critical to facilitating commerce and communications among the 13 states, and it was ranked as a high-priority item, along with the ability to create money, form an army, and ensure fair trade among states.
A lot has changed in 225 years, and today, the Postal Service is in a bad financial way–and subject to the control of a Congress that can’t agree on financial assistance for it.
One problem is the unique charter for the Postal Service: It is a federal institution and Congress has an oversight role (along with the executive branch), but the Postal Service has to pay its own way.
A second issue is that a 2006 act requires the Postal Service to fund its employee retirement plan for decades in advance. That additional cost has places a huge financial burden on the Post Office.
A third issue is that the Postal Service has a heavy union presence, which critics say restricts its ability to cut costs and remain competitive with UPS and FedEx.
And finally, the Postal Service has taken a huge financial hit on profits from first-class mail and package delivery, thanks to UPS, FedEx, the Internet, and mobile devices.
Rand Paul, the libertarian senator from Kentucky, told the conservative website Newsmax that a bankruptcy filing was certainly in the Postal Service’s future.
Paul says the USPS, as a private or public institution, needs to contain union costs, and only a bankruptcy filing would let the Post Office cut expenses related to its unionized employees.
Fredric Rolando, the head of the letter carriers’ union, says it’s an issue with congressional policy that is causing the business crisis.
“Besides bringing the Postal Service to the financial precipice, pre-funding also has prevented the agency from doing what it has done for 200 years–adapt to an evolving society. Instead, this artificial political crisis has focused management’s entire energy on a desperate attempt to pay bills that no one else has to pay,” he said in a statement.
What happens to the Postal Service?
Postal Service critics also want to see the service made into a privately run institution. One idea put out by conservative think tanks is that the USPS could monetize its huge real estate inventory, valued as high as $105 billion, to defray costs, attract investment and remain competitive with other delivery services.
But realistically, could the Postal Service actually shut down, if its problems grow worse and Congress can’t or doesn’t act to help? And how would Americans in rural areas or citizens with a lack of access to digital alternatives survive a postal outage?
No Immediate Shutdown for the Postal Service
For a variety of reasons, the Postal Service doesn’t face an immediate shutdown. For pure business reasons, UPS and FedEx partner with the Postal Service on local delivery, especially for packages ordered via Internet shopping. A shutdown would have a ripple effect on the whole package delivery business, and on businesses that market through the mail.
And then there is the issue of privatization and how the process would work.
Proponents of selling the Postal Service believe it would provide a financial lifeline to the 225-year-old system.
Rand Paul, however, points out one key problem.
“I’ve been trying to find somebody who would buy it. I can’t find anybody who’s interested in buying the Post Office. We’ve talked about this for decades,” he told Newsmax.
One reason is the huge unfunded pension obligation compiled by the Postal Service over the years. A buyer would have to pick up the tab for $46 billion, just in pension costs, according to a Bloomberg analysis.
Peter Orszag, an economist and former Obama administration official, argues that privatization is the only way to go, because it would remove Congress from having any role with the Postal Service.
“The U.S. Postal Service has a long and storied history. Yet it is now struggling because the world has changed and because congressional sclerosis has prevented it from adapting to the new realities. The best way to modernize it now is to move it out of the government,” he says.
Finally, there are a slew of potential constitutional issues related to removing the Post Office from the government system.
Postal Service supporters say it is a constitutionally mandated institution, pointing to the Postal Clause in Article 1, Section 8, but privatization supporters believe Congress was only given an option to establish the Post Office.
Add to the fray all the various interest groups tied to the Postal Service, from unions to local politicians.
Also, some people don’t have electronic communications devices and live in rural locations that only the Postal Service serves. Would there be a legal obligation to provide access to mail that would include government communications, like tax information or social security payments, as well as everyday mail?
And imagine the post office’s fate as argued as a Supreme Court case. The Postal Clause is one of the few enumerated powers in the Constitution. As seen in the recent health care decision, there are a lot of creative lawyers and academics who would certainly like a part of what could be an historic decision.
For now, the Postal Service doesn’t seem to be going anywhere, but there are huge questions about its role with Congress and how it can operate as a self-sustaining business.
As the United States Postal Service misses key financial payments, critics and supporters speculate about bankruptcy or worse for an institution that predates the Constitution and the Declaration of Independence.
USPS officials have said they will miss two benefit payments mandated by Congress, which has caused a whirlwind of speculation about the future of the Postal Service.
The United State Postal Service is one of the few current government institutions spelled out in the Constitution.
The ability of Congress to “establish Post Offices and Post Roads” is spelled out in Article I, Section 8, of the Constitution, as part of a short list of enumerated congressional powers.
The Framers saw the postal system as critical to facilitating commerce and communications among the 13 states, and it was ranked as a high-priority item, along with the ability to create money, form an army, and ensure fair trade among states.
A lot has changed in 225 years, and today, the Postal Service is in a bad financial way–and subject to the control of a Congress that can’t agree on financial assistance for it.
One problem is the unique charter for the Postal Service: It is a federal institution and Congress has an oversight role (along with the executive branch), but the Postal Service has to pay its own way.
A second issue is that a 2006 act requires the Postal Service to fund its employee retirement plan for decades in advance. That additional cost has places a huge financial burden on the Post Office.
A third issue is that the Postal Service has a heavy union presence, which critics say restricts its ability to cut costs and remain competitive with UPS and FedEx.
And finally, the Postal Service has taken a huge financial hit on profits from first-class mail and package delivery, thanks to UPS, FedEx, the Internet, and mobile devices.
Rand Paul, the libertarian senator from Kentucky, told the conservative website Newsmax that a bankruptcy filing was certainly in the Postal Service’s future.
Paul says the USPS, as a private or public institution, needs to contain union costs, and only a bankruptcy filing would let the Post Office cut expenses related to its unionized employees.
Fredric Rolando, the head of the letter carriers’ union, says it’s an issue with congressional policy that is causing the business crisis.
“Besides bringing the Postal Service to the financial precipice, pre-funding also has prevented the agency from doing what it has done for 200 years–adapt to an evolving society. Instead, this artificial political crisis has focused management’s entire energy on a desperate attempt to pay bills that no one else has to pay,” he said in a statement.
What happens to the Postal Service?
Postal Service critics also want to see the service made into a privately run institution. One idea put out by conservative think tanks is that the USPS could monetize its huge real estate inventory, valued as high as $105 billion, to defray costs, attract investment and remain competitive with other delivery services.
But realistically, could the Postal Service actually shut down, if its problems grow worse and Congress can’t or doesn’t act to help? And how would Americans in rural areas or citizens with a lack of access to digital alternatives survive a postal outage?
No Immediate Shutdown for the Postal Service
For a variety of reasons, the Postal Service doesn’t face an immediate shutdown. For pure business reasons, UPS and FedEx partner with the Postal Service on local delivery, especially for packages ordered via Internet shopping. A shutdown would have a ripple effect on the whole package delivery business, and on businesses that market through the mail.
And then there is the issue of privatization and how the process would work.
Proponents of selling the Postal Service believe it would provide a financial lifeline to the 225-year-old system.
Rand Paul, however, points out one key problem.
“I’ve been trying to find somebody who would buy it. I can’t find anybody who’s interested in buying the Post Office. We’ve talked about this for decades,” he told Newsmax.
One reason is the huge unfunded pension obligation compiled by the Postal Service over the years. A buyer would have to pick up the tab for $46 billion, just in pension costs, according to a Bloomberg analysis.
Peter Orszag, an economist and former Obama administration official, argues that privatization is the only way to go, because it would remove Congress from having any role with the Postal Service.
“The U.S. Postal Service has a long and storied history. Yet it is now struggling because the world has changed and because congressional sclerosis has prevented it from adapting to the new realities. The best way to modernize it now is to move it out of the government,” he says.
Finally, there are a slew of potential constitutional issues related to removing the Post Office from the government system.
Postal Service supporters say it is a constitutionally mandated institution, pointing to the Postal Clause in Article 1, Section 8, but privatization supporters believe Congress was only given an option to establish the Post Office.
Add to the fray all the various interest groups tied to the Postal Service, from unions to local politicians.
Also, some people don’t have electronic communications devices and live in rural locations that only the Postal Service serves. Would there be a legal obligation to provide access to mail that would include government communications, like tax information or social security payments, as well as everyday mail?
And imagine the post office’s fate as argued as a Supreme Court case. The Postal Clause is one of the few enumerated powers in the Constitution. As seen in the recent health care decision, there are a lot of creative lawyers and academics who would certainly like a part of what could be an historic decision.
For now, the Postal Service doesn’t seem to be going anywhere, but there are huge questions about its role with Congress and how it can operate as a self-sustaining business.
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Wednesday, November 10, 2010
Baucus, Levin Say Congress Will Keep `Onerous' Minimum Tax From Increasing
Bloomberg
Congress will “do everything possible” to prevent the alternative-minimum tax from forcing 21 million households to pay an additional $66 billion in taxes this year, four lawmakers said in a letter to the Internal Revenue Service.
Max Baucus of Montana and Charles Grassley of Iowa, the chairman and top Republican on the Senate Finance Committee, urged IRS Commissioner Douglas Shulman today to prepare for the 2011 tax filing season by assuming the minimum tax will be adjusted for inflation. A delay in making the adjustment in 2007 held up processing of tax returns and refunds the following year.
“We will work to craft the AMT provision so that, in the aggregate, not one additional taxpayer faces higher taxes in 2010 due to the onerous AMT,” the senators wrote in the letter. It also was signed by Michigan Representatives Sander Levin and David Camp, the chairman and top Republican on the House Ways and Means Committee.
The lawmakers were responding to a Nov. 5 letter from Shulman in which he warned of delays in 2011 if legislation isn’t enacted “until late this year.”
“We will move as fast as we possibly can to implement any late tax law changes and minimize the impact to taxpayers,” Shulman wrote. “However, our implementation timelines are driven by careful planning and risk management. Changes to systems that handle the enormous transaction and dollar volume that the IRS manages cannot be completed without substantial engineering and testing work.”
Lame-Duck Session
Congress plans to act on the tax during a lame-duck session beginning Nov. 15.
The alternative-minimum tax was created in 1969 to prevent 155 wealthy Americans from avoiding any tax by claiming excessive deductions, credits and exemptions.
It replaces deductions such as those for medical expenses and state and local taxes with a flat exemption when the itemized deductions become too large compared to income. Amounts over the exemption are taxed at 26 percent or 28 percent, depending on the amount of income.
The tax wasn’t indexed for inflation and over time has affected Americans of more modest income. Congress has responded with a series of annual “patches” for inflation that raise the exemption amount.
H&R Block
For this tax year, about 21 million additional households would face an average tax increase of between $3,000 and $5,000 unless Congress raises the exemption, said Kathy Pickering, executive director of the Tax Institute at H&R Block Inc. in Kansas City, Missouri, the nation’s largest preparer of tax returns.
The lawmakers said they are drafting legislation to set the 2010 exemptions at $72,450 for married taxpayers filing jointly and $47,450 for singles. The exemptions currently are $45,000 and $33,750.
If lawmakers don’t adopt the patch, Pickering said, a family of five with $50,000 in income and a child in college would pay more taxes.
Without the patch, the minimum tax would have its greatest effect on large families and residents of states with high taxes, such as California and New York, because exemptions for children and deductions for state and local taxes are denied under the AMT. People earning between about $75,000 and $500,000 would be most likely to pay the tax, she said.
Balance Due
“Those who were looking forward to getting a refund wouldn’t be getting one and some would have a balance due they would otherwise not have expected,” she said.
In 2007, Congress didn’t renew the patch until Dec. 26. The leaders of the tax-writing Senate Finance and House Ways and Means committees sent a letter the previous Oct. 30 to the IRS saying they planned to adopt the tax adjustment.
Because of the late change, the IRS didn’t start accepting tax return filings until mid-February 2008, delaying refunds for about 4 million households that usually file tax returns in January.
IRS spokesman Anthony Burke said the letter from the lawmakers “will be very helpful.” The IRS expects to process about 140 million individual tax returns in 2011 and distribute almost $300 billion in tax refunds, Shulman’s letter said.
Tuesday, July 13, 2010
Congress Stalled as 2 Million Lose Jobless Benefits
NPR
When members of Congress return from their Fourth of July break Monday, they'll find a big challenge waiting for them right where they left it. The issue is unemployment — specifically an extension of benefits for people who've lost their jobs. The debate has turned into a high-stakes, election-year stand-off over deficits.
More than 2 million people have had their benefits cut off in the six-plus weeks since lawmakers began debating the bill.
Ever since the Eisenhower administration, Congress has approved jobless benefits that go beyond the usual half-year for up to two years of benefits during times of high unemployment.
Democrats want to extend those now-expired benefits another six months. At about $300 a week per beneficiary, that would cost around $34 billion. All but two Senate Republicans say they won't extend those expired benefits unless Congress cuts spending elsewhere; they say they don't want to add to the deficit.
Shortly before he voted to block consideration of an extension, Massachusetts Sen. Scott Brown said the issue was about "not burdening future generations."
"That will allow us to provide for the needs of our citizens without putting more debt on the credit card," he said. "It's the checking account versus the credit card."
Democrats argue that Brown and 11 other Republicans had no problem adding $33 billion to the deficit to fund the wars in Iraq and Afghanistan.
The other argument Democrats make is a moral one: With very few jobs to be had out there, the larger society should provide long-term unemployment benefits until the job situation gets better.
Plus, they say, you don't get people back to work through austerity measures. As Majority Leader Harry Reid recently pointed out, the money that's paid out for unemployment benefits gets spent immediately — spurring $1.60 worth of economic activity for every dollar that's spent.
"These are monies that are creating jobs," he said. "We are doing something that is very American — very American — and that is helping people at a time of emergency."
There is a ray of hope for people who have already exhausted the standard 26 weeks of unemployment benefits, however. Democrats have enlisted two Republicans to their side and now are just one vote short of the 60 they'd need to break a GOP filibuster. And that one vote could come from the West Virginia seat opened up by the death of Democrat Robert Byrd; his replacement may be appointed as soon as next week.
More than 2 million people have had their benefits cut off in the six-plus weeks since lawmakers began debating the bill.
Ever since the Eisenhower administration, Congress has approved jobless benefits that go beyond the usual half-year for up to two years of benefits during times of high unemployment.
Democrats want to extend those now-expired benefits another six months. At about $300 a week per beneficiary, that would cost around $34 billion. All but two Senate Republicans say they won't extend those expired benefits unless Congress cuts spending elsewhere; they say they don't want to add to the deficit.
Shortly before he voted to block consideration of an extension, Massachusetts Sen. Scott Brown said the issue was about "not burdening future generations."
"That will allow us to provide for the needs of our citizens without putting more debt on the credit card," he said. "It's the checking account versus the credit card."
Democrats argue that Brown and 11 other Republicans had no problem adding $33 billion to the deficit to fund the wars in Iraq and Afghanistan.
The other argument Democrats make is a moral one: With very few jobs to be had out there, the larger society should provide long-term unemployment benefits until the job situation gets better.
Plus, they say, you don't get people back to work through austerity measures. As Majority Leader Harry Reid recently pointed out, the money that's paid out for unemployment benefits gets spent immediately — spurring $1.60 worth of economic activity for every dollar that's spent.
"These are monies that are creating jobs," he said. "We are doing something that is very American — very American — and that is helping people at a time of emergency."
There is a ray of hope for people who have already exhausted the standard 26 weeks of unemployment benefits, however. Democrats have enlisted two Republicans to their side and now are just one vote short of the 60 they'd need to break a GOP filibuster. And that one vote could come from the West Virginia seat opened up by the death of Democrat Robert Byrd; his replacement may be appointed as soon as next week.
Monday, July 7, 2008
Builder Group Shifts Tax-Break Stance
The National Association of Home Builders is playing nice with Congress again.
The trade group, representing thousands of home builders, has switched its lobbying tactics and its political action committee has resumed doling out political donations, after halting them in February to protest what the group said was policy makers' failure to help the housing industry and overall economy.
The association had been pressing for a tax break that would have allowed builders to apply losses to taxes paid four years ago, instead of the current two-year carry-back. But the group has backed off that effort and is focusing now on a proposed tax credit for home buyers to stimulate demand.
"Too much time has passed, too many people have lost their homes and too many home builders have lost their businesses, for us to worry about looking backward," NAHB Chief Executive Jerry Howard said Monday.
The trade group's shift on the tax break comes after the Senate came under fire for including it in its housing-relief plan. Critics said lawmakers were favoring builders over strapped homeowners. The House version of the plan doesn't include a carry-back provision.
The tax-break flap also exposed a split between the NAHB and many of the large, publicly traded home builders that hired an outside lobbying firm to push for the carry-back provision. The tax-relief issue "showed the industry the importance of having a unified message," Mr. Howard said in an interview.
Meantime, the home builders' political action committee, BUILD-PAC, is giving out political donations again. Ed Brady, chairman of BUILD-PAC, said the group lifted the ban last month because, "we felt like people were paying attention to us again."
During the current election cycle, the group has given about $977,000, with 45% going to Democrats and 55% to Republicans, according to the Center for Responsive Politics.
By: Michael Corkery
Wall Street Journal; June 17, 2008
The trade group, representing thousands of home builders, has switched its lobbying tactics and its political action committee has resumed doling out political donations, after halting them in February to protest what the group said was policy makers' failure to help the housing industry and overall economy.
The association had been pressing for a tax break that would have allowed builders to apply losses to taxes paid four years ago, instead of the current two-year carry-back. But the group has backed off that effort and is focusing now on a proposed tax credit for home buyers to stimulate demand.
"Too much time has passed, too many people have lost their homes and too many home builders have lost their businesses, for us to worry about looking backward," NAHB Chief Executive Jerry Howard said Monday.
The trade group's shift on the tax break comes after the Senate came under fire for including it in its housing-relief plan. Critics said lawmakers were favoring builders over strapped homeowners. The House version of the plan doesn't include a carry-back provision.
The tax-break flap also exposed a split between the NAHB and many of the large, publicly traded home builders that hired an outside lobbying firm to push for the carry-back provision. The tax-relief issue "showed the industry the importance of having a unified message," Mr. Howard said in an interview.
Meantime, the home builders' political action committee, BUILD-PAC, is giving out political donations again. Ed Brady, chairman of BUILD-PAC, said the group lifted the ban last month because, "we felt like people were paying attention to us again."
During the current election cycle, the group has given about $977,000, with 45% going to Democrats and 55% to Republicans, according to the Center for Responsive Politics.
By: Michael Corkery
Wall Street Journal; June 17, 2008
Friday, March 21, 2008
Congress Delves Into Bear Rescue
House's Waxman Focuses On Deal-Setting Precedent, Senate's'Baucus on CostsThe bones of Bear Stearns Cos. are going to be picked over on Capitol Hill as lawmakers begin examining details of the government-backed deal that rescued the investment bank from failure.
Leading members of the House and Senate were kept apprised of efforts to shore up Bear Stearns last weekend as the White House and Federal Reserve scrambled to prevent further financial-market turmoil. But the deal is beginning to attract wider interest.
Rep, Henry Waxman, the California Democrat who leads the House Oversight and Government Reform Committee, has begun making inquiries. One focus for Mr. Waxman is determining whether the move sets any precedents for future federal Henry Waxman interventions. ------
On the other side of the Capitol, the Senate Finance Committee, which has broad jurisdiction over the
Among other things, the committee wants to look at the terms of the transaction, in which Bear Stearns is being taken over by J.P. Morgan Chase & Co. with the backing of the Fed, and the potential risk to the American taxpayers.
The inquiries underscore the strengths and weaknesses of how Congress responds to crises of the sort now roiling the financial world.
With so many members, the House and Senate are ill-prepared for rapid action. Earlier this year, it took weeks for Congress to approve an economic-stimulus package, even with House Speaker Nancy Pelosi, the California Democrat, and President Bush working in concert. And lawmakers have been spending months on legislation that would overhaul regulation of the housing industry and help to calm the turmoil created by the meltdown in the mortgage market.
But in exerting their authority to conduct oversight of the government, lawmakers can hold the White House publicly accountable for its handling of the mortgage crisis, and provide a forum for critics of the Bear Stearns deal to air grievances.
The inquiries will likely help to lay the
"Ultimately, Congress has a duty to respond appropriately to increasing bad news in the economy," said Montana Democrat Max Baucus, chairman of the Senate Finance Committee.
Aides in the House and Senate stressed that the inquiries are still at an early stage and are likely to ramp up slowly. Lawmakers are on recess for the rest of the month. Neither committee has yet decided to hold hearings.
What is attracting attention is the maneuvering by the Bush administration and the Fed to prevent the collapse of Bear Stearns. As part of the transaction, the Fed agreed to lend $30 billion to help fund illiquid assets at Bear Stearns.
Among the questions of interest to lawmakers: What should be the tax treatment of losses associated with such a deal? And what is the potential taxpayer exposure? Did the Fed's rescue ensure a better deal for Bear Stearns insiders than bankruptcy? "Insiders shouldn't be treated better than if they'd gone into bankruptcy," said Iowa Sen. Charles Grassley, the senior Republican on the Finance Committee.
A Waxman spokesman confirmed the congressman's "interest" in the deal. A Baucus aide said the Finance Committee is in the "examination and fact-finding stage," and plans to conduct a thorough review of the deal and the larger aspects of the administration's efforts to shore up financial markets. "We want to put a marker down," the aide said.
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