Individual letters sent to the following on October 30, 2008
Congressional Leadership
Senators McCain and Obama
Federal Reserve Chairman Bernanke
President Bush
Re: Liquidity Crisis and Economic Stimulus
Dear _______:
On behalf of Business Roundtable, I am writing to express our strong support for new bipartisan legislation to address the severe financial credit disruptions in order to restore stability to the credit markets and the U.S. economy, which will help American workers, families and companies recover from the current economic downturn.
We applaud the actions of the Congress, the Administration and the Federal Reserve to date that are intended to restore confidence in the banking system and additional efforts within the G-7 countries to deal with this problem on a coordinated basis. However, the problems facing the credit markets are unprecedented, and additional legislative actions are required to assist the economy.
Business Roundtable believes that for legislation to be truly successful it must address two fundamental concerns.
First, policies must address the problems of liquidity confronting U.S. companies in order for the U.S. economy to return to growth.
Second, to promote a more rapid recovery, the economic stimulus package has to accelerate job creation and speed the return to work of unemployed workers.
The enclosed recommendations will assist in resolving the immediate liquidity problems and will support a more rapid recovery. These proposals will enable the U.S. economy to return to full strength more quickly and minimize job losses. Our recommendations are based on the front-line experience of our members. Business Roundtable is a CEO-led organization of over 160 leading corporations, with a combined workforce of more than 10 million employees and more than $5 trillion in annual revenues. Business Roundtable's highest priority is to sustain growth of the U.S. economy in order to achieve higher living standards for all Americans.
As leaders of many of the largest American companies, Business Roundtable members know personally that the ongoing turmoil in global capital markets is placing great stress on business throughout the American economy – both financial and non-financial companies – as well as on workers and consumers. For non-financial businesses, the reduced access to credit markets is constraining the ability of American business to stock inventories, purchase new equipment, meet payroll and pay vendors. Left unchecked, this breakdown in lending may lead to a deep and sustained recession both at home and abroad, with significant job losses.
We are cognizant that additional measures will likely increase an already significant deficit in 2009. Business Roundtable has always placed a high priority on deficit reduction as a means to enhance sustained economic growth. However, in order to avoid a prolonged and potentially deeper recession than the country has experienced in recent times, we believe a short-term increase in the deficit is an acceptable, although unfortunate, outcome at this time. This does not mean that Congress can ignore deficits now, nor when the economy recovers. Measures to control future spending will be even more important given the increased debt this nation is now incurring.
Business Roundtable offers assistance to work with you to closely evaluate these and other proposals that you may consider to resolve the current credit crisis and bring about a quick and robust economic recovery for American workers, families and companies.
Sincerely,
Harold McGraw III
Enclosure: Business Roundtable Recommendations to Promote Liquidity and Economic Stimulus
BUSINESS ROUNDTABLE RECOMMENDATIONS TO PROMOTE LIQUIDITY AND ECONOMIC STIMULUS
Accelerate Economic Recovery by Promoting Liquidity for Businesses
America's businesses fund their ongoing capital requirements through access to capital from equity markets, debt markets and retained earnings. To date, legislation passed by Congress and actions taken by the Administration and the Federal Reserve have resulted in a number of significant and historic steps to restore the functioning of debt markets, but these markets still remain in severe distress. As noted in a recent speech by Federal Reserve Bank President Janet Yellen, borrowing rates for most businesses are higher now than at the beginning of the crisis in August 2007 despite a 375 basis point reduction in the federal funds rate over this period.
Short-term Regulatory and Federal Reserve Actions to Promote Liquidity:
- Additional measured actions should be considered by the Federal Reserve and Treasury under existing authority to lower the cost of funds to business. One immediate step is for the Federal Reserve to expand its purchases of commercial paper through the Commercial Paper Funding Facility to all investment grade instruments ('A' and 'BBB' or higher securities) rather than just the most highly rated securities currently eligible and to extend the program to indirect issuers.
- Treasury should use some of the funds provided under the Emergency Economic Stabilization Act to provide direct infusions to auto finance and auto companies.
Short-term Legislative Stimulus Recommendations to Promote Liquidity for Business:
- Temporarily allow foreign subsidiary earnings of U.S. companies to be brought back to the United States. This will immediately provide more capital to U.S. companies for their capital needs. As a result of the current liquidity crisis, the importance of these funds is even greater at this time and, appropriately structured, this measure can bring about meaningful changes in liquidity and economic activity in the United States.
- Temporary relief from pension funding requirements. Stringent new funding rules adopted in the 2006 Pension Protection Act (PPA) are still being phased-in. Recent market declines and the shortage of available credit require a reevaluation of the transition to those new rules. The volatile and unexpected cash flow demands on plans caused by the recent economic downturn should be smoothed, with those plans prudently returned to full funding status over a reasonable period. Without temporary funding relief, the economic recovery will be slowed as available resources are diverted from job creation. Moreover, retirement security will be eroded as some employers will be forced to freeze or terminate their pension plans in order to meet the unanticipated and immediate increase in required plan funding.
- Temporarily extend the carry back period for net operating losses from 2 years to 5 years through 2009 and waive 90% limitation for AMT. Businesses with current losses may carry back these losses for 2 years, but if losses exceed profits in these years they must carry the losses forward to offset future income. Extending the carry back period from 2 years to 5 years and temporarily waiving the limitation on use of net operating losses against alternative minimum tax (AMT) (as was done in 2002) will enhance liquidity of businesses with current losses.
- Extend bonus depreciation and adopt a temporary investment tax credit. The 50-percent bonus depreciation provision enacted earlier this year is set to expire at the end of 2008. This provision should be extended, including the provision to monetize credits for companies in a loss position. Additionally, an investment tax credit should be considered for new investments . First adopted under President John F. Kennedy, an investment tax credit of 10 percent applied to most equipment purchases by businesses until 1986. This credit was frequently employed on a temporary basis throughout the 1960s to promote investment during economic downturns and was credited with having a significant investment response. Today, during this period of reduced liquidity, an investment tax credit can help stretch scarce capital by lowering the cost of undertaking new investment.
- Temporarily extend and expand the ability to "monetize" existing tax credits. Under the Housing and Economic Recovery Act of 2008, enacted on July 30, 2008, companies can accelerate a portion of their unused pre-2006 research credits and alternative minimum credits in lieu of claiming the temporary 50-percent bonus depreciation allowance. Expanding the provision to provide immediate monetization regardless of investment amount, cover all general business credits, as well as increasing the amount of unused credits that may be claimed or refunded through this provision or similar mechanism, will enhance liquidity of businesses with current losses or otherwise unable to claim these credits. Companies in a loss position are an important component of the companies that need access to capital and allowing for utilization of their already existing credits will help increase their liquidity and ability to fund new investments. These companies should be allowed to immediately monetize all of their prepaid AMT credits and earned but unused general business credits.
- Loosen restrictions on capital losses for corporations. Currently, corporations can deduct capital losses only to the extent of their capital gains, and excess capital losses can be carried back three years and carried forward five years. Easing the restrictions on capital losses by, for example, allowing corporations to treat losses on the sale of stock or debt securities as ordinary would be an effective way to bolster liquidity in difficult economic times, when losses of all types tend to increase.
- Allow financial services companies to accelerate bad debt deductions. Until 1986, companies generally could deduct reasonable additions to bad debt reserves rather than postpone the deduction until such time the debt was written off. After 1986, the so-called reserve method is available only to small banks. Expanding the reserve method to the broader financial services sector including large banks would be an effective means of improving liquidity for companies that have been particularly hard hit in the current economic downturn.
- Temporary reduction in required estimated tax payments of corporations to 90% of current liability. A temporary reduction in estimated tax payments can provide companies with additional short-term liquidity without creating any revenue loss to the federal government over the 5-year or 10-year budget periods.
- Temporarily exclude debt repurchases from cancellation of indebtedness income. The current credit crisis has depressed the value of debt issued by many companies with sound balance sheets. Companies that issued such debt may wish to repurchase their own debt to strengthen their own balance sheets and, since some of this debt is also held by financial institutions, such repurchases would also strengthen bank balance sheets in a manner similar to that intended under the Troubled Asset Repurchase Program. Companies can be encouraged to re-purchase this debt by temporarily relieving such repurchases by issuers (and parties treated as related to the issuer) from rules treating these repurchases as giving rise to discharge from indebtedness income.
Accelerate Economic Recovery by Supporting Workers, Promoting Employment and Moving toward a More Efficient and Sustainable Energy Future
Jobs are the source of strength in the American economy. Job creation, as well as maintaining employment during a declining economy, is vital for economic growth. The cost of job dislocation can be reduced by getting dislocated workers back to work more quickly. Helpful policies include reducing employment-based taxes on a temporary basis, offering job training for employees and dislocated workers, and maintaining incentives for workers to regain employment.
Our economy also is facing unprecedented energy challenges and the need to address these challenges through use of clean and efficient energy strategies. Measures aimed at creating green jobs motivate creation of capacity in an area vital to both our short-term economic health and our longer term energy security.
Short-term Legislative Stimulus Recommendations to Support Workers, Promote Employment and Move toward a More Efficient and Sustainable Energy Future
- Expand energy efficiency initiatives. Expansion of the labor intensive Weatherization Assistance Program to retrofit homes with additional insulation (currently about 70,000 homes) would not only create additional jobs, but also save consumers on their utility bills. Energy efficiency block grants to states would enable states and localities to upgrade building efficiency requirements and/or match current state programs to finance efficiency retrofits of existing buildings.
- Fund green technology job training programs. The Energy Independence and Security Act of 2007 included training for green jobs, but nothing was appropriated for FY 2008. Labor shortages exist right now and demand for workers with these skills is growing.
- Temporarily extend unemployment benefits for workers who exhaust standard unemployment benefits. Consider also offering personal re-employment accounts that provide unemployed workers with funds for training, child care, transportation, moving costs, or other expenses associated with finding a new job. Recipients who take a new job within a defined period would be allowed to keep the funds remaining in the account as a re-employment bonus. Studies of experimental programs find these accounts help workers regain employment faster and at wages similar to those ultimately attained by unemployed workers without such accounts.
- Focus infrastructure investments. Infrastructure spending should focus on projects that can be undertaken quickly to repair critical infrastructure as well as build a more efficient, sustainable energy future. In addition, funding currently approved, but unfunded federal laboratory and university research infrastructure modernization and major research instrumentation procurement through existing federal programs would rapidly stimulate new construction and equipment purchases.
- Temporarily reduce the Social Security tax rate by one percentage point for both employees and employers. This enhances labor market incentives by reducing labor costs for employers and providing increased after-tax wages for employees. A worker earning $50,000 would receive tax savings of $500 over a year, with the employer receiving similar savings. The Social Security trust fund would be made whole by a transfer of funds from general revenues to cover the temporary reduction in payroll taxes.
- Provide a worker training tax credit for employers. During an economic downturn, there is an increased need for workers to find new employment in areas for which they may be poorly trained. A tax credit for employers can increase the ability of employers in growing sectors of the economy to take on workers displaced from contracting sectors and help these workers quickly regain productive employment.