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“In the Know”
FEI’s Private Company Roundtable Email Update
As the Financial Executives International Private Company Roundtable celebrates the end of its inaugural year, I wanted to update you on a few leadership developments.
This group would not be complete without a great leadership team, and I want to acknowledge Don Robillard and Tim Anglim for serving as the co-chairs of the Private Company Roundtable (PCR). Through their leadership and direction, the Roundtable has held five teleconferences that have put its members’ interests front and center before members of Congress, senior congressional staff, officials from the Internal Revenue Service and the United States Treasury. Don ended his leadership role with PCR on July 1 to take over as chair of the Committee on Private Company Policy, replacing former outgoing chair Mark Smetana. Much thanks go to both Don and Mark for their service to FEI. It is through their insightful leadership that the Roundtable has achieved so much over the last year.
Thank you, too, to Tim Anglim, the current co-chair of PCR and Ann Kaesermann, who has replaced Don Robillard. I look forward to working alongside Tim and Ann as the Roundtable continues to expand in the coming year.
In addition, thanks to each and every participant for helping to grow the Private Company Roundtable in its first year. This dynamic group is currently comprised of 320 members from 43 states and 62 FEI chapters. FEI stands by its commitment to offer new initiatives and programming aimed at private companies that will continue to add to the value of your membership. Going forward, I look forward to many more productive conversations on the critical issues impacting this segment of FEI’s membership.
Sincerely,
Marie Hollein
President and CEO
Financial Executives International
Roundtable Recap: June 29, 2011 Teleconference
On June 29, 2011, the Private Company Roundtable held its fifth quarterly conference call. During the call, members were briefed by Congressman Jason Altmire (D-Pa.) and Scott McCandless, tax counsel to Sen. Olympia Snowe (R-Maine), ranking member in the Senate Committee on Small Business and Entrepreneurship. Rep. Altmire declared his commitment to serving as co-chair to the Privately Held and Family Owned Business Caucus. He will join Rep. Peter Roskam (R-Ill.) as leaders of the congressional caucus that will allow private companies’ voices to be heard loud and clear through the halls of Congress. FEI’s Committee on Private Company Policy has been instrumental in the efforts to establish this caucus, and the Private Company Roundtable intends to play an expanded role in assisting in the education of members of Congress once this caucus is officially created.
As stated on the conference call, if members have any questions that they were not able to ask of either of the speakers, please feel free to contact Tyler Roberts in FEI’s Washington, D.C., office and he will pass them along.
Issue Analysis: Budget Outlook – What Lies Ahead?
The most recent economic numbers continue to paint a pretty dismal fiscal outlook for the United States. In recent reports, the U.S. has been recording budget deficits that are the largest as a share of the economy since 1945. By the end of 2011, federal debt is expected to reach roughly 70 percent of gross domestic product, the highest recorded level since the end of World War II.
With the Aug. 2 debt ceiling looming, both political parties are at work in Washington to reach an agreement in the next few weeks. Part of this debate will focus on the U.S. budget. President Barack Obama has been meeting with congressional leaders on the topic and Speaker of the House John Boehner (R-Ohio) has signaled that Republicans are open to an option that includes typing a deficit package to a broader tax overhaul. While details are still being negotiated, the overhaul would likely raise revenue by ending some tax breaks, in exchange for lowering individual and corporate tax rates. Various groups including the Senate Gang of Five and Vice President Joe Biden’s deficit panel continue to work on bipartisan solutions to the nation’s economic problems.
In the most recent negotiations, President Obama and congressional leaders discussed discretionary and mandatory spending, and plan to also discuss health care and revenue. The president offered two alternative options for an agreement: a $2.4 trillion deficit-reduction package that includes tax increases, or a $2.4 trillion debt-limit increase that includes a smaller deficit-reduction package. House Republican leaders have insisted on spending cuts in the same amount as the debt-limit increase.
Senate Majority Leader Harry Reid (D-Nev.) and Senate Minority Leader Mitch McConnell (R-Ky.) discussed an approach that builds on the "last choice option" proposed by Sen. McConnell. One option reportedly under consideration includes the creation of a 12-member congressional committee to identify savings that would be considered by the House and Senate under an expedited process similar to the base realignment and closure process.
With no deal in sight, Moody's Investors Service announced on July 13 that it has placed the U.S. government's AAA bond rating on review for possible downgrade "given the rising possibility that the statutory debt limit will not be raised on a timely basis, leading to a default on U.S. Treasury debt obligations." Moody's said the probability of default is low but no longer de minimis.
What Does the Congressional Budget Office Say?
In late June, the nonpartisan Congressional Budget Office released its 2011 long-term budget outlook, which provides estimates on two different fiscal scenarios.
The extended-baseline scenario adheres closely to current law. This scenario assumes that there will be an expiration of a wide-variety of tax cuts enacted under President George W. Bush in 2001 and extended under President Obama in 2010. These include the 2001/2003 Bush-era tax cuts, the growing reach of the alternative minimum tax and tax provisions enacted under the recent health care legislation. Revenues under the extended-baseline scenario would reach 23 percent of gross domestic product by 2035. This growth is much higher than anything seen since before World War II. Other spending, such as defense and a large number of domestic programs, would fall to levels not seen in decades.
The second scenario, the alternative fiscal scenario, is more politically realistic, which makes it more of a “worse-case” scenario. The Congressional Budget Office estimates for this scenario place debt at 190 percent of GDP in 2035 with an additional 9 percent of GDP attributed to the interest on that debt. This scenario assumes that all of the tax cuts enacted since 2001 and extended in 2010 will be extended, as well as the reach of the alternative minimum tax will be restrained to stay close to its historical extent. Tax laws will continue to evolve so that revenue remains near 18 percent of gross domestic product. This scenario also assumes that Medicare payments to physicians will remain at the current levels instead of declining, as stated by current law.
It is believed that under the policies mentioned in the alternative fiscal scenario, the federal debt would be 100 percent of GDP by 2021, and eventually 190 percent by 2035.
What Does This Mean for the United States?
While the above scenarios are much more complex than can be articulated here, they do show the serious fiscal challenges that this nation faces. With an unchecked debt and deficit, the U.S. will see a reduction in its national savings, an increase in its interest rates, more borrowing from other countries such as China and less domestic investments. Elected officials who often use tax and spending policies to respond to economic challenges would be severely restricted as well. It is vital that our elected leaders come to a bipartisan agreement that will reduce the debt and deficit in the United States and get the unemployment rate back to historical averages.
Call to Action: Major Changes Contemplated For Private Company Accounting: Your Input Wanted
The Financial Accounting Standards Board’s parent body, the Financial Accounting Foundation, expects to issue a decision this fall on whether or not to adopt the recommendation of a Blue-Ribbon Panel on Standard Setting for Private Companies to create a new accounting standards board for private companies to work alongside FASB. This is a critical issue for our private company members. Read about the latest developments in this FEI Summary; and please complete this survey to help us develop programming and advocacy efforts to help keep you informed, and best represent your interests, on this important issue related to accounting standards for private companies.
Upcoming Events:
On Sept. 26-27, Financial Executives International (FEI) will hold its second annual Washington Policy Conference at the Hotel Monaco in Washington, D.C. The day before the conference, FEI will hold the inaugural, in-person Private Company Roundtable Town Hall. The Town Hall will take place Sept. 25, from 2 p.m. to 5 p.m. and will include high-level policy speakers as well as an opportunity to meet, dialogue and network with fellow FEI Private Company Roundtable members.
The 2011 FEI Washington Policy Conference will bring together key business and government leaders who will provide insight into the policy questions that impact senior financial executives and their companies. The conference will feature in-depth discussions on tax reform in today’s global economy; policy impacts of reigning in the deficit; uncertainty and the impact on American businesses; and the current regulatory environment.
Space is limited, so do not miss this opportunity to connect with fellow FEI members as well as top policy experts in Washington. Click www.financialexecutives.org/policy to register for this important event.
To register for the Private Company Roundtable Town Hall, go to www.financialexecutives.org, click events, committees and then choose the September Private Company Roundtable Town Hall.
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