Heated public debate surrounding renewal of the Export-Import Bank charter, which expires at the end of September, makes clear that concerns about giveaways to connected corporations have reached a boiling point in the United States. Conservatives point to Solyndra and the Ex-Im Bank while progressives point to powerful lobbying by wealthy companies, such as Boeing and General Electric, as evidence that the relationship between government and business has crossed the line well beyond benign partnership.
Meanwhile, the average citizen, soured by declining real personal income, has become increasingly cynical regarding a system that appears to benefit the big, corporate elite at the expense of small enterprise. “Since 2009, growth has been appalling and these people are struggling. Meanwhile, Wall Street is up. That’s what makes people susceptible to the idea that the system is rigged,” Lawrence Mone, president of the Manhattan Institute, told participants at a CEO roundtable at the New York Stock Exchange in July.
But they’re not necessarily wrong, said Tom Rogers, president and CEO of TiVo. “I don’t think the public is confused. They see it clearly. There’s a reason there is a 9 percent Congress approval rating,” he said, noting that the issues CEOs are facing around growth don’t make it into the public light. “You can draw a pretty straight line from contributions to committees and the positions on those committees.”
As a result of one-sided media coverage, Main Street continues to view capitalism as corrupt. “All we read about in the paper is who is getting fined for what and who is being investigated for what. It’s just negative about business altogether. You don’t see the positives, and that’s a major issue for this country,” said Maggie Wilderotter, CEO of Frontier Communications.
That pressure has led to more inversions, like Medtronic’s proposed acquisition of Dublin-based Covidien, which would give it an Irish address for tax purposes and free up $14 billion of the company’s foreign income that would otherwise be taxed at 35 percent. “Part of competing globally is recognizing that U.S. companies are at a disadvantage on tax,” noted Steve Howe, managing partner for Ernst & Young in the Americas, adding that inversion strategies are not usually driven solely by tax imbalance but that it’s all a part of the equation for maximizing value. “Let’s not put a law in place regarding tax inversions. That’s the symptom, not the problem.”
Fred Hassan, chairman of Bausch & Lomb, agreed. “We are the only major country in the world that taxes foreign income. It’s really out of date and creates artificial patterns of behavior [such as the Medtronic deal]. It has really reflected a lack of leadership for the last several years in terms of not talking about it.”
A lack of introspection is one of the country’s biggest hindrances to growth, added Farooq Kathwari, CEO of Ethan Allen Interiors. “I think one of the challenges that we should think about is, what are the things we are doing internally to ourselves [that are] weakening us? We should spend a lot of time [discussing]—and I think it’s a good debate—what we are doing right here in the United States that’s weakening the country. Russia is doing it. Argentina is doing it. China is doing it. We need to be doing it.”
Although several participants agreed that a 25 percent flat foreign income tax might help U.S. businesses keep their American addresses, Medtronic, as a medical-device company, was also facing a 2.3 percent tax on revenue, pointed out Christine Jacobs, former CEO of Theragenics, also a medical-device maker. “That is a tough hurdle for any $17 billion company.”
Participants also agreed that, taxes aside, lawmakers of both parties and heads of businesses have to start working in partnership to make the U.S. a friendlier place for business. “We need to stop fighting,” said Gregory Cappelli, CEO of the Apollo Education Group, “because if we put our heads together, we could be a much more formidable force.” It’s a problem, he added, that other countries continue to court business much more aggressively. “There’s something wrong with dozens of other governments saying, ‘Come in and make investments. Build our infrastructure. Put in technology. Put it online. We’ll help you. Educate our people.’ Our government isn’t saying that.”
The country may have to wait for the next generation to take the helm, suggested Tom Harrison, chairman emeritus of Diversified Agency Services, a division of Omnicom Group. “The Millennials are a very collaborative group of individuals. They are very co-creative, they are very digitally hooked up and they are very participatory. When we get a Millennial, or Millennials, beginning to run the country and run the government, I think we’re going to have a much more collaborative, open-minded participant of government that we’re not going to get to with anybody [who] now walks the halls of Washington.”
Despite the challenges of cronyism and a hyperregulated, overtaxed climate, participants agreed that the fundamentals of U.S. capitalism will prevail. “Things actually do work in this country,” Wilderotter said. “That’s why we are still muddling along. I mean, we are talking about some fairly major issues here. I think the resilience of business in this country is [that] we go make it work no matter what we’re faced with.”