John Campbell
Before I lost my mind and went into politics, this is the question I used to ask before every election when I was running a business: “What will the next Congress do for me, or to me?”
I’m not sure anyone ever knows the full answer to this question in part because you never know how the election will turn out. Even if you knew that, you still never know how the political winds will blow inside the congressional chambers to twist an issue one way or another.
In spite of all those uncertainties, I will make an attempt to give the readers of the OCBJ my best estimation at this time of what Congress and a new president might do in 2009 on the issues of greatest general interest to business.
Caveats
Before I begin, let me make one thing crystal clear. This is not what I want to happen. This is what I think will happen. I will do everything I can to balance the budget by cutting or not raising taxes, increase domestic energy from all sources, strengthen the dollar, not give amnesty to illegals and do some sensible financial regulation. I want John McCain to be elected president. I will work hard to achieve all of those goals.
But as a business person, you have to prepare for what is likely to happen or what may happen, not what you want to happen.
The general view in Washington is that Democrats are likely to hold onto and increase their majorities in both houses of Congress. This is likely because of significantly higher retiring incumbents on the Republican side, more Republican seats open in the Senate, Democrats having raised significantly more money this cycle and a general malaise and lack of direction from Republican leadership.
So, I will assume that Democrats have an increased majority in both houses, but do not have the 60 votes they would need to avoid cloture, a time limit of bill deliberation, in the Senate. That lack of 60 votes will restrict their ability to raise taxes and do other things that generally unify Republican opposition.
As far as the presidency, I believe it could go either way. Obviously, that will make a big difference and I will try to address those differences as we go.
So, with those caveats, the following are my thoughts.
Income taxes: All of the tax cuts made in this decade are scheduled to expire at the end of 2010. That means that taxes will rise on every single taxpayer in America on Jan. 1, 2011, unless Congress acts. The Democrats in Congress have made it clear that, with the possible exception of the child care tax credit, they intend to let all of these expire. And, even the Republican-controlled Congress with President Bush was unable to make these cuts permanent in 2006.
Remember, these increases will occur if Congress does nothing, which is something we do very well. So, those increases are likely to happen, increasing capital gains back to 20% and eliminating the 10% lowest rate. Remember, all limited liability companies, partnerships and S corporations pay taxes at these rates.
The question is will a Barack Obama presidency raise those rates sooner? He has proposed all of these increases and additionally proposes putting Social Security and Medicare taxes on incomes larger than $250,000. That will move the top rate to 55%. This can only be stopped by getting 41 votes in the Senate. If there are at least 43 Republicans left in the Senate (or if McCain is president), I would think that many of these tax increases will be blocked, but not all.
Death taxes: The death tax is scheduled to go down a little in 2009, then disappear altogether in 2010, then return to its pre-cut levels in 2011. This crazy scheme was enacted due to the silly way that Congress does accounting over 10 years in order to reduce the recorded “cost” of the tax cut to the treasury.
Now, everyone on both sides of the aisle agrees that this yo-yo tax cannot be allowed to continue this way. I would expect some action in 2009 no matter who is president to stabilize the exemption ($3.5 million in 2009) and the rate.
Dollar, Energy
The value of the dollar: The current administration has recently pursued or allowed a weak dollar strategy. This has increased exports of some of our goods but has not helped the trade deficit because we still have to buy so much oil and other commodities with a weakened dollar. Still, unions love a weak dollar because of the perception (a wrong one in my opinion) that it creates more union jobs at home and less outsourcing. So, I don’t expect an Obama presidency to change that. But a McCain one could.
Energy: The Democrats are in a real bind here. One of their major constituencies, the extreme environmental left, doesn’t want any kind of energy production (except perhaps solar) anywhere. (Note how they oppose oil, gas, nuclear, ethanol and hydroelectric.)
But the public increasingly wants every kind of energy production everywhere. I’m not sure that Democrats will be able to hold back this avalanche of public opinion for long, particularly against what will be a unified Republican front. A McCain presidency will clearly move faster and more completely in this area, but I think an Obama presidency will have to do something.
Regulation: Reregulation of financial markets is the word of the day in Washington, given the recent turmoil in housing, commodities and financial markets. Expect some new or enhanced regulation.
I hope this helps you to invest, employ people and make lots of money. I’ll do my best to see that you keep more of it.
Campbell is a Republican congressman representing the 48th District covering Newport Beach, Irvine and other cities.
