Business Sees the Devil in the Policy Details

Business responses to President Obama’s State of the Union address reflected praise for his rhetorical commitment to “winning the future” and his support for innovation, education and infrastructure, while raising concerns about the details of his policy proposals.

President Barack Obama
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President Barack Obama

The sharpest division was in the energy industry, where supporters of renewables welcomed the president’s new target to derive 80 percent of America’s power from “clean” sources by 2035, while the American Petroleum Institute warned that the reiterated plan to cut tax breaks for oil and gas companies would “stifle” jobs and investment.

Jay Timmons, president of the National Association of Manufacturers, captured the mood of business groups, saying: “The president’s comments on increasing our exports, opening new markets and passing pending free trade agreements are all important elements to achieving job creation, economic growth and competitiveness. However, to unleash the power of innovation, we cannot continue to place costly, unnecessary burdens on businesses and put them on an uneven playing field with our global competitors.”

He warned: “We also cannot pick winners and losers and pit industry sectors against each other in order to achieve our goals. To enhance our competitiveness, businesses cannot continue to be faced with higher energy costs, higher taxes and government overregulation.”

Tom Donohue, chief executive of the US Chambers of Commerce, dubbed “Obama’s tormentor” last year, was similarly supportive of the president’s central themes.

“Tonight President Obama highlighted the urgent need to revitalise our economy, create jobs, build a world-class infrastructure system,and strengthen America’s competitiveness,” Mr Donohue said.

“America must move swiftly to create millions of jobs, unshackle entrepreneurs and small businesses, and restore America’s economic leadership around the globe or we will be left behind.”

He added: “While there will be differences on how to achieve these goals, we must find enough common ground to ensure America’s greatness into the 21st century. Our country and our economy will succeed only when the administration, Congress, the business community and active citizens work together. The US Chamber will work with anyone who shares our goals and we don’t care who gets the credit.”

The Business Roundtable, an association of the chief executives of leading US companies, likewise said it was “heartened” by Mr Obama’s focus on American competitiveness, but said “the priorities laid out tonight by the president must now be analysed closely to ensure they will promote, rather than stifle, an environment where the private sector can create jobs and expand the economy.”

John Engler, the Roundtable’s president, welcomed what he described as “important steps” taken by the US president since November, when the midterm elections gave the Republican party control of the House of Representatives.

Mr Engler said the moves, including his recent order for a comprehensive review of business regulations were “signalling that he is ready to change direction and focus on what is necessary to drive a vigorous recovery with job opportunities for American workers.”

The difficulty of realising Mr Obama’s vision of a country that can “win the future”, with investment in new technologies, education and infrastructure such as trains, broadband connections and power grids, at a time when the government is under severe financial pressure was shown by his proposals on corporate taxation.

Corporate tax rates could be cut for the first time in 25 years, reducing one of the highest company tax rates in the world he said, if there was a move to “simplify the system [and] get rid of the loopholes.” Such a reform would be strongly welcomed by many business leaders.

However, Mr Obama said that reform along those lines would have to be done “without adding to the deficit”, suggesting the overall tax burden on business could not be reduced.

Energy was a central subject in the president’s address, the focus of his argument that “this is our generation’s Sputnik moment” the modern equivalent of the Soviet Union’s leap ahead in the space race with the Sputnik launch in 1957.

Mr Obama said: “In a few weeks, I will be sending a budget to Congress that helps us meet that goal. We’ll invest in biomedical research, information technology, and especially clean energy technology – an investment that will strengthen our security, protect our planet, and create countless new jobs for our people.”

In general, it was unclear how any of this investment might be funded.

Mr Obama also insisted that cutting the budget deficit was “a critical step in winning the future”, and launched a plan to freeze non-defence discretionary spending for the next five years.

However, there was one firm proposal for raising money to fund that investment: a repeat of the administration’s call for a cut in tax breaks for oil and gas companies.

“I don’t know if you’ve noticed, but they’re doing just fine on their own,” he said, adding: “Instead of subsidising yesterday’s energy, let’s invest in tomorrow’s.”

That drew strong criticism from Jack Gerard, president and chief executive of the American Petroleum Institute, which represents those companies.

“The American people spoke loud and clear in the last election and directed the president and new Congress to focus on one main issue – job creation,’’ he said.

“It’s unfortunate that the administration seems poised to stifle what remains one of America’s strongest job creating industries.”

Mr Gerard added: “Tonight was a missed opportunity. The president focused on job growth through federal spending, but was silent on one of the best ways to create jobs: allow more energy development.’’

Conversely, the suggestion was welcomed by the renewable energy industry.

Denise Bode, chief executive of the American Wind Energy Association, who was in the Congressional chamber for the speech, said: “Wind energy can deliver right now on its promise to deliver new electricity to Americans more affordably than any other energy source, if we have a level playing field to compete with the permanent entitlements that fossil fuels have enjoyed for over 90 years.”

She added: “It is true that fossil fuels receive five times more in federal incentives than renewable energy. We don’t believe that is in line with Americans’ current priorities. The predictability of the permanent incentives for conventional energy sources is as important as the amounts.”

“Renewable energy currently suffers from the inability to predict whether incentives will be extended every year or two. It’s time to reorient the tax code to predictable policies that allow energy sources that will never run out, to thrive – instead of keeping renewable energy on a constant one-year footing.”

Renewable energy executives argued that while it sounded ambitious to set a new target for the US to derive 80 percent of its energy from clean sources by 2035, the industry could reach that objective in less than the two-and-a-half decades allowed by Mr Obama.

Clean energy, under his definition, would include renewable sources such as wind and solar, nuclear power, gas-fired generation and “clean coal”. Today those sources provide about half of America’s electricity.