Outlook 2006: The State of American Business - Remarks by Thomas J. Donohue

Outlook 2006: The State of American Business Conference
National Chamber Foundation
Washington, D.C. — January 5, 2006

Good afternoon ladies and gentlemen and Happy New Year. I'm Tom Donohue, President and CEO of the U.S. Chamber of Commerce and I'd like to thank you all for coming.

I'd like to thank the National Chamber Foundation and our Media Partner, CQ Weekly for organizing what should be an interesting afternoon – and also let me thank our event partners, the Association of Equipment Manufacturers, the Edison Electric Institute, and the National Association of Home Builders.

Economic and Policy Achievements

Here at the Chamber, we have made it something of a tradition to start each New Year by asking, and trying to answer, the question — what is the state of American business? From that analysis, we craft our policy goals and program agenda for the year.

The current state of American business is very good. There are some exceptions of course – companies and industries that are hurting. But when you consider that we had 4.1 percent growth in the third quarter of 2005, a core inflation rate of 2.1 percent, just 5 percent unemployment, and nearly 2 million jobs created over the past 12 months, we're doing pretty well.

This strong performance should continue throughout 2006. Chamber economists see 3.5 to 3.7 percent growth in the first half of the year, then a bit of slowing for an overall annual growth rate of 3.5 percent.

Core inflation and unemployment will remain low. The Fed will push rates up to 5 percent and then pause. Business investment will be particularly strong. An average of 145,000 new jobs will be created each month.

2005 was also a pretty good year for the business community in Washington. Working together, we helped enact class action reform, a first-stage energy plan, a multiyear transportation bill, bankruptcy reform, renewal of TRIA (the terror reinsurance backstop), and a Central American free trade agreement – just to name a few.

The Chamber's law firm entered and helped win more cases than in any year in its history. And, in a bipartisan vote, the Senate confirmed the nomination of an outstanding new Chief Justice of the United States, John Roberts – a nomination the Chamber applauded and strongly supported.

The Challenges of 2006—and Beyond

Our challenge now is to maintain and build upon the prosperity and progress achieved in 2005. Yet, in many respects, 2006 could be a more difficult year for companies and the business agenda.

Companies face an accumulating burden of rising health care, pension, and energy costs.

Restrictive immigration and visa policies, along with inadequate education and training, have tightened the supply of qualified workers – very bad timing with millions of baby boomers getting ready to retire.

Rising anti-trade sentiments threaten the openness of our markets, while overseas, many markets remain closed and our intellectual property is being stolen.

Growing government deficits make business an appealing target for additional taxes and mandates.

And, a brass-knuckles battle for control of the U.S. Congress is already under way, which could affect our ability to get things done.

Our nation is also facing two fundamental realities that have already begun to reshape our economy and our society. I'm talking about the rise of new economic competitors abroad and changing demographics at home.

We may have a strong economy today, but our prosperity and economic leadership will not last unless we respond boldly to a series of competitive challenges created by these realities.

And so the Chamber's agenda for 2006 and beyond has been designed to address some fundamental questions:

How do we stay competitive in a global economy that is rapidly changing? How do we remove the impediments that are forcing some industries, jobs and capital out of our country, and address not only the competition for markets but the competition for resources, energy and workers?

How do we keep our edge in innovation when nations like India and China are turning out many more times the number of engineers and scientists than we are—and our public schools are failing so many of our children?

When will we get serious about modernizing public and private retirement and health systems — and securing the workers that we need through immigration reform as those 77 million baby boomers retire and claim benefits?

Time does not permit me to cover in detail all the competitive challenges facing us. You can read all about them in the booklet that has been provided to you. Instead, I will touch upon just a few issues to hopefully set the stage for this afternoon's discussions.

Legal Reform

First, there's legal reform. The United States spends twice the amount of GDP on its legal system than many of our competitors. It's a huge drain on capital, innovation, job creation and our spirit of risk-taking.

Therefore, our campaign for legal reform at the federal level, in the states and in the courts will move ahead across all fronts this year. We will not allow recent successes to lull us into complacency.

We will continue to pursue a legislative solution to the asbestos litigation crisis and seek passage of a bill to stop frivolous legal assaults on the food industry.

In the states, we will focus on additional reforms in Florida, Illinois and West Virginia while also working for improvements in California, New Mexico, Oklahoma, Pennsylvania and Wisconsin. Our Institute for Legal Reform will educate voters in states where there are important elections for Supreme Court judges and attorneys general.

And our law firm, the National Chamber Litigation Center, will aggressively represent the interests of the business community in court, focusing on issues of over-regulation, corporate free speech and securities litigation, as well as on class action and punitive damages cases.

Capital Markets and Due Process

The Chamber will also continue to challenge overreaching regulators and stop abusive prosecutors in the aftermath of Sarbanes-Oxley. We have named an independent Capital Markets Commission to address the role that federal and state regulations, as well as trial lawyers, are having in driving companies and capital away from our markets.

We will work with the American Civil Liberties Union, the American Bar Association and others to stop the assault on the attorney-client privilege and other time-honored rights of due process.

And, we're going to work hard to persuade the 70 percent of public companies that still issue quarterly earnings guidance to stop doing so. We must create a more forward-looking business and investment culture in our country to remain on the leading edge of innovation and growth.

Tax Legislation

Another important way to spur innovation and growth is with tax policies that promote saving and investment. Taxation is clearly a competitive issue. The Wall Street Journal recently reported that the U.S. now has the highest corporate income tax rates among the 30 richest economies.

Last month, the House and Senate passed differing versions of tax legislation under the reconciliation process.

As soon as Congress returns, the Chamber will work to bring to the President's desk a bill that extends and in some cases expands important pro-growth provisions such as the 15 percent top rate on dividends and capital gains, Section 179 expensing, AMT relief, and the research and experimentation credit.

We will also press for removal of Senate provisions that constitute double taxation on energy companies through forced bookkeeping gimmicks and denial of longstanding foreign tax credits. These provisions will make us even more vulnerable on energy and potentially drive companies out of our country.

Energy

While I'm on the subject of energy, the Chamber will continue to fight for passage of ANWR and the opening of the Outer Continental Shelf to environmentally sound oil and gas exploration.

The continuing ignorance and in some cases hypocrisy of elected officials who oppose these measures must be exposed – and the Chamber intends to do so. On the one hand, they bemoan the high price of energy and our dependence on foreign imports. On the other hand they vote against virtually all the steps we need to address our energy needs.

In 20 years, Asia will need 130 percent more energy than it uses today, and we will need a third more. If we fail to secure this energy, more plants and industries will have to leave the country. It's that simple.

More than just business and jobs are at stake – so is our national security and global leadership. It is unwise and unsafe to place our country's future in the hands of leaders like Hugo Chavez and unstable countries in the Middle East and Africa. We must increase domestic production — and we must have common sense environmental rules based on performance and sound science.

Trade and IP

The Chamber will also pursue a vigorous international trade agenda in 2006, fighting a two-front battle to knock down trade barriers abroad and keep our markets open at home.

One-third of our economy is now trade dependent. Ninety-five percent of the world's consumers live outside the United States, and we want to sell something to each of them.

Free trade critics are right on one score: too many markets abroad remain unfair and closed to American goods and services. But the answer isn't to close our markets—it's to open other markets and insist upon full adherence to the rules-based global trading system.

I was in Hong Kong last month to see some modest success there on the path to a global trade agreement under the WTO. We will work hard this year to help achieve a comprehensive Doha agreement – as well as bilateral and regional free trade agreements with important markets.

We will continue to push China for full compliance with all its WTO obligations. At home, we will oppose measures that would restrict outsourcing or make it more difficult for foreign investors to insource capital and jobs to the U.S. economy.

Our major global program to stop IP theft, counterfeiting and piracy will be significantly expanded both domestically and internationally – by educating U.S. policymakers and the American public, by disrupting the counterfeiters' supply chain at home and abroad, and through on-the-ground campaigns in China and other countries where the problem is most severe.

Demographics and the Impact on Workforce and Entitlements

While some of our competitive challenges stem from increased competition abroad, others can be directly tied to the compelling math of America's changing demographics.

Very simply, our society is aging and we are running out of the workers we need to power a growing economy. Increases in productivity are important and can address part of the problem — but they fail to address the need for a sufficient number of working taxpayers to finance our largely pay-as-you-go entitlement programs.

Immigration

Immigration is an essential part of the solution, just as it has been throughout our history. The House recently passed legislation which added more resources to border enforcement, but unfortunately did absolutely nothing to address broader immigration issues, such as the need to provide expanded temporary worker programs and to address the 10-11 million undocumented workers in this country.

It would impose sweeping new mandates on employers, covering not just immigrants but all 140 million workers in our economy. It contains provisions that would unreasonably turn business people into criminals and turn workers into felons simply for trying to support their families.

Now the action moves to the Senate. We are going to work with both sides of the aisle to obtain a bill that provides the workers we need and is in keeping with our legacy as a welcoming nation. This immigration debate is about more than a piece of legislation. It is about who we are as a people and a country.

Education

We must also make major improvements in education. Our thinking has changed. The Chamber has traditionally stayed out of school reform at the state and local level but not anymore, given the continuing poor performance of many schools and the rise of global competitors with increasingly well educated work forces.

Similar to our strategy in legal reform, where we issue annual state-by-state rankings of legal systems across the country, we plan to measure and rank the performance of state school systems.

We will disseminate this information widely to the business community, investors, the press and the public. We hope this will be a positive force to motivate further reform.

The bottom line is that this nation cannot rightfully expect to lead the 21st century's information and technology-driven global economy when we have upwards of 30 percent of our young people not even graduating from high school.

And, on the top end of the educational supply chain, we must significantly expand the number of math, science and engineering graduates. The Chamber is working with other leading business organizations to double the number of those graduates by the year 2015.

Health Care, Pensions and Entitlements

Another serious problem related to changing demographics is the growing burden of health care, pensions and entitlements on companies, families, taxpayers and governments at all levels.

It is unfortunate that the political will does not yet exist to make the kinds of changes and reforms that are needed to protect the health and retirement security of our people. People are living far longer than expected when their health and retirement programs were devised – and that's good news. But it is ever more expensive to provide them with pensions and health services.

Yet even in the absence of major reform, there are things Congress can do this year to provide health coverage for more Americans and strengthen retirement savings.

A large percent of the uninsured are employed. There are many others who qualify for government programs but are not enrolled. Congress should pass Small Business Health Plans – or Association Health Plans – to allow small firms to pool and purchase affordable coverage for employees.

A greater effort should be made to enroll eligible Americans in public health programs. Congress should also expand and improve Health Savings Accounts and Flexible Spending Accounts, and also permit increased tax-deferred contributions to retirement savings.

Last month, both houses of Congress passed pension bills, and we will seek early action on a final bill that includes responsible and reasonable funding rules and ensures the continued viability of defined benefit, defined contribution, multiemployer, and hybrid plans.

The Chamber will also continue a drumbeat message about the imperative of entitlement reform as those 77 million baby boomers prepare to retire and claim benefits.

Politics

Let me conclude by noting that 2006 is an election year. We've got every seat in the House up for election, a third of the Senate, and also dozens of important state races where the outcome will have a huge impact on legal reform. In addition to all that, about half of the U.S. Senate is already running for President in 2008.

You can expect to see the Chamber devoting tremendous assets to defending those members of Congress in tough races who have cast the difficult votes on behalf of business. And you can expect us to work to defeat those who have perpetually voted against business.

As we have done successfully in the past, we will work closely with many of you and the broader business community to defend and advance our political interests in what could be a very challenging set of elections.

Conclusion

As you can see, we have a full agenda and many challenges ahead, but we also have the advantage of starting the New Year from a position of strength – a very good economy, profitable companies, and a motivated and engaged business community.

Speaking for the Chamber, this has always been an optimistic institution – and speaking for myself, so have I.

Despite tremendous challenges, we are optimistic about our country, our economy, and the extraordinary ability of our businesses and workers to overcome any hurdle, master any hardship, and seize all the great opportunities that lie ahead.

But we are also realists, and we know that America's place in the world is not a birthright. It never has been. It was earned through the hard work, sacrifice, risk taking, and inventiveness of our people and our businesses.

Only by fully tapping those great American qualities—through policies that reward and encourage them rather than punish and smother them—will our global leadership continue into the 21st century and beyond. And let there be no doubt – we will succeed.

Thank you very much.