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Wall Street Journal: CEOs Press Congress on Debt

Washington, May 11, 2012 -

Wall Street Journal: CEOs Press Congress on Debt
Executives Step Into Deficit Debate Amid Fears of Looming Tax, Spending Measures
By Damian Paletta
May 11, 2012

WASHINGTON—Top business executives, many of whom sat on their hands during last year's frantic debate about raising the federal debt ceiling, have begun mobilizing and plan to be more vocal in urging Congress to reach a bipartisan deficit-reduction deal by the end of the year.

Executives have been meeting privately with lawmakers, urging them to start laying the groundwork now so they can reach an agreement after the November elections to avoid the large tax increases and heavy spending cuts scheduled to take effect in January. They worry those measures could tip the economy back into recession and create turmoil in financial markets, according to people who have attended some of the meetings.

J.P. Morgan Chase JPM +0.25%& Co. chief executive James Dimon hosted a lunch for several dozen chief executives and two U.S. senators late last month, one of the latest in a series of private meetings aimed at drumming up support for a political agreement.

Several executives left the J.P. Morgan lunch, held at the company's headquarters in New York, resolved to speak more forcefully in favor of a deal. Many believe both Democrats and Republicans will have to compromise on a deal that includes both tax increases and spending cuts, and several have pointed to the 2010 Simpson-Bowles deficit-reduction plan as a model Congress should begin working on immediately. Mr. Dimon, in public remarks last week, called for Republicans and Democrats to come together to enact such a plan. "We've got to get it done," Mr. Dimon said. "Our problem is we don't have the will. We can't seem to get our act together."

In separate initiatives, chief executives such as Laurence Fink of BlackRock, Terry Lundgren of Macy's Inc. M -0.58%and Mark Bertolini of Aetna Inc. AET -0.57%have told lawmakers over meetings and dinners they should start discussing a deal soon, people attending the meetings said.

The executives' efforts are nurtured, but not necessarily coordinated, by the Committee for a Responsible Federal Budget, a non-profit, bipartisan group urging deficit reduction which has brought chief executives to Washington to meet with lawmakers and urge them to act.

The CRFB recently finished drafting an 800-page bill, modeled on the 2010 package put together by the deficit-reduction commission headed by Republican Alan Simpson and Democrat Erskine Bowles, in hopes it can be a template for a deal later this year. That package includes some tax increases many Republicans resist and some cuts to Social Security that the White House and many Democrats opposed.

The corporate involvement is "an acknowledgment of the political reality that to get something done everyone is going to have to come together and get out of their boxes," said CRFB's president Maya MacGuineas.

Without a deal, the Bush-era tax cuts and this year's payroll-tax cut will expire at year's end, and about $1.2 trillion in spending reductions—half from defense programs and half from domestic programs—will take place over the next decade. Of those cuts, $98 billion are scheduled to take effect next year.

J.P. Morgan Chase—which Mr. Dimon announced Thursday has taken $2 billion in losses in the past six weeks stemming from derivatives bets gone wrong—has estimated the combination of the automatic spending cuts, tax increases and other measures would reduce gross domestic product by 2.75% next year. In a research note, the firm said the economy would go "head first into the fiscal meat grinder."

Members of both parties want to stop the spending cuts taking effect, but President Barack Obama and congressional leaders have said they won't make changes without some other deal to cut the deficit. And the two parties are at odds:Democrats want to use tax increases and spending cuts; many Republicans want to rely on cuts alone.

The House of Representatives on Thursday approved a Republican plan by a vote of 218-199 that would prevent the military cuts and make deeper cuts in antipoverty programs and some of the White House's signature domestic initiatives. But the legislation has virtually no chance of approval by the Democratic-controlled Senate, highlighting the standoff that is worrying the executives and many lawmakers.

Adding urgency to the discussions are credit-rating firms, which could downgrade U.S. government debt in the absence of a significant accord. Standard & Poor's officials haverecently held private talks in Washington with think tanks and others to discuss how U.S. leaders might address the deficit after the elections, people familiar with the meetings said. Standard & Poor's declined to comment.

S&P downgraded long-term U.S. debt last year after Congress's protracted debate over the government's borrowing limit. Another rating agency, Moody's, MCO -0.03%said last year that it could downgrade U.S. debt if "further fiscal consolidation measures are not adopted in 2013."

Lawmakers say the main hurdle to a deficit deal was "the polarization of the parties," recalled Mr. Bertolini of Aetna. "They said, 'the polarization is such that we can't step that far away from the party in an election year.' They know what needs to be done. They know how difficult it's going to be. They just prefer it happen some other time."

Virginia Democrat Mark Warner, one of the senators hosted by J.P. Morgan along with Saxby Chambliss (R., Ga.), said, "There is very little institutional support in this town for folks to get out of their fox holes. Maybe the business community can help give people some cover."

Some of the executives getting involved now think the business community erred last summer by not pressing harder for a swift resolution of the debt-ceiling debate.

Their efforts this year have not yielded progress on a deal so far, but have begun a dialogue. Participants in the meetings between lawmakers and executives describe an occasionally awkward dance between the corporate and political worlds. Many of the chief executives are used to issuing orders and getting things done, and some have come away from the meetings frustrated that lawmakers can't get in a room, agree on a deficit-reduction plan and then put it in motion. The lawmakers have explained that Congress isn't run that way and that trying to build agreement on polarizing issues like taxes and spending in an election year can be near impossible.

The dinners and meetings with business executives "are almost like interventions to get people off of their drunken spending sprees," said Rep. Jim Cooper (D., Tenn.), a frequent participant.

Mr. Cooper and Rep. Steve Latourette (R., Ohio) tried to advance a measure in the House modeled after Simpson-Bowles but it was defeated 382-38. A few days later, Senate Budget Committee Chairman Kent Conrad (D., N.D.) abandoned efforts to reach a budget agreement before the elections.

Now, some members of both parties, including House Budget Committee Chairman Paul Ryan (R., Wis.), have begun openly discussing finding ways to delay the tax increases for at least three or six months because they doubt there will be enough time between the elections and Jan. 1 to reach any sort of substantive deal.

The shape of any post-election deal would likely be influenced by the outcome of the November vote, which has led both parties to hold back on substantive bipartisan talks. But the business executives and lawmakers involved in the effort said Congress can't wait until after the election to start looking at options.