Some Biden Administration Moves Could Panic CEOs

Joseph R. Biden Jr.’s presidency, together with Democratic majorities at both ends of the U.S. Capitol, promises to launch policy and regulatory changes that substantially affect American businesses — and that’s before the impact of 150 million Covid-19 vaccinations that are planned by the end of April.

Executives crafting their long-term strategies will watch closely as labor, tax and finance policies go under the knife.

Biden asked National Labor Relations Board General Counsel Peter B. Robb to resign immediately after taking office — ten months before the end of his term. When Robb refused, Biden fired him and deputy general counsel Alice B. Stock.

The new administration will be busy “undoing the harms that have been actively perpetrated” by the Donald J. Trump White House, said Jeffrey Mittman, executive director of the National Employment Lawyers Association. The outgoing administration “had sought to undermine regulatory and legal protections for workers,” he said, so “simply having someone in the white house who understands will be helpful.”

The move was something unions badly wanted, but not everyone is convinced that a rush to please labor unions is a wise play. “Obama had a union official running the Department of Labor,” said Casey B. Mulligan, a professor of economics at the University of Chicago and former chief economic advisor to the White House Council of Economic Advisors from 2018 to 2019. “It was run for the unions, naturally. Unions want to stop competition. They don’t want workers competing with each other.”

Big Labor was happy to see Biden make the unprecedented move to fire Robb. “A union-busting lawyer by trade, Robb mounted an unrelenting attack for more than three years on workers’ right to organize and engage in collective bargaining,” AFL-CIO President Richard Trumka said in a statement.

“Robb’s removal is the first step toward giving workers a fair shot again, and we look forward to building on this victory by securing a worker-friendly NLRB and passing the PRO Act so all working people have the freedom to form a union,” Trumka said.

The PRO Act (”Protect the Right to Organize”) explicitly declares all workers are “employees” unless they meet conditions of a three-part test that led to controversy in California during the short life of the laterrepealed “AB5” law. According to that formulation, workers can only be considered independent contractors when three specific conditions are met.

Workers must be “free from control and direction in connection with the performance of the service” they provide; their work must be “performed outside the usual course of the business of the employer”; and they are “customarily engaged in an independently established trade, occupation, profession, or business of the same nature” as the work they do for a given customer.

Forbidding companies from hiring independent contractors for work that they could otherwise tell employees to do is something Biden has publicly supported and would likely sign if Congress put it on his desk.

Other implications of the PRO Act are an easier path for labor unions to support each others’ strikes, a ban on agreements in which employees waive the right to join class actions and permitting unions with collective bargaining agreements to force all employees in a workplace to pay dues — including agreements in right-to-work states. 

Democrats want to replace a Trump administration labor rule that broadened the “independent contractor” category so companies could more easily use them. And if Congress is slow to act, the Biden administration can have its way via the Congressional Review Act, which lets a simple majority overturn regulations passed too close to a new president’s inauguration. They could also begin a longer process through the Department of Labor.

A three-minute cab ride from there, at IRS headquarters, another tempest is brewing.

“One of the bigger issues will be the tax policy,” said Aleksandar Tomic, associate dean for strategy, innovation, and technology at Boston College’s Woods College of Advancing Studies. “Biden has a real chance of getting his policy. He’ll likely roll back some of the tax breaks [Trump] gave to businesses and high net worth individuals.”

“Biden has not hidden his intentions that he plans to raise the corporate tax rate,” said David Lechner, who provides fractional CFO services. It’s not clear how big a hike is coming.

“I don’t think it will go up to 35%, but 21% is pretty low,” said Francine Lipman, a certified public accountant and professor of law at the University of Nevada, Las Vegas. “My violin really isn’t playing for them, especially when you look at the valuation of the stock market. It’s insane. And so many of these CFOs, CEOs get paid by stock interest.”

Federal Reserve data show effective tax rates on corporations have been far lower than statutory rates for years. From a high of nearly 50% in 1951, the rate midway through 2020 was 12.2%. Even at the end of 2017, before the Tax Cut and Jobs Act took effect, the average effective rate was between 14% and 15%.

Companies will still work to legally minimize their taxes if the Biden administration is successful in raising rates as a way to offset pandemic-related hits on tax bases. But the perception of a big impact can matter for CEOs, who might seek greener pastures for their companies.

“I think to a certain extent you have some jurisdictional shopping” as some companies look for lower-tax rate jurisdictions, said Evan Morgan, principal at Kaufman Rossin, which provides accounting and advisory services.

“What you’ll also probably see is more taxes on capital gains because that’s more focused on the one-percenters,” Lechner said, referring to the nation’s highest income earners.

The broader financial services industry might also face renewed regulatory pressure. “I think in the Biden administration, you can anticipate there will be emphasis on regulating private equity,” said Mayra Rodriguez Valladares, managing principal of MRV Associates, which provides consulting and training in finance regulatory compliance.

“These non-banks are what the financial stability board ‘other financial institutions,” Valladares said, pointing to nonprofit watchdog organizations that have pushed “for better and more regulation of private equity.”

That may not have reverberated with enough legislators when economic times were good, but things are different now. “About half the companies declaring bankruptcy right now are owned at least in part by private equity,” said Valladares. “The default rates have gone up a lot.”