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Congress’ budget deal: The business world’s winners and losers

Oct 29, 2015
US House Of Representatives Votes To Elect A New SpeakerWASHINGTON, DC - OCTOBER 29: Incoming Speaker of the House Rep. Paul Ryan (R-WI) (L) points at outgoing U.S. Speaker of the House Rep. John Boehner (R-OH) (R) in the House Chamber of the Capitol October 29, 2015 on Capitol Hill in Washington, DC. Rep. Ryan has been elected to succeed Rep. John Boehner (R-OH) to be the new speaker. (Photo by Alex Wong/Getty Images) Alex Wong Getty Images 

Congress is moving rapidly to adopt a sweeping budget deal that would end years of fiscal standoffs and lift the debt ceiling ahead of a looming Nov. 3 deadline.

The agreement, hammered out between Congressional leaders and President Obama, represents a swan song for Speaker John Boehner, who stepped down as House Speaker on Thursday. It will lock in spending levels for the next two years, lifting the caps imposed by the 2011 sequester, and postpone the next debt limit hike until March 2017.

Hardcore conservatives are objecting to the agreement as much for the secretive process the small clutch of negotiators used to finalize it as for the fact it gooses federal outlays by $80 billion over the next two years. On paper, those spending increases—divided evenly between defense and non-defense programs—will be offset by cuts elsewhere. And by shifting around billions of taxpayer dollars, the deal produces some private sector winners and losers, as well. Here, we present a look at which interests stand to gain and which to lose from the deal.

The Winners

Big business, generally. Corporate leaders have spent the last five years bemoaning the uncertainty sown by Washington discord and the manmade fiscal crises it’s produced. Just last month, AT&T CEO Randall Stephenson — leader of the Business Roundtable, the lobbying group representing Fortune 200 chief executives — blamed the specter of another budget showdown in part on the biggest companies trimming their capital investment and hiring plans over the next half-year. "We have a problem where domestic policy is not supporting investment, hiring and economic expansion,” he said at the time. “CEOs need to be assured that the government is not going to shut down because policymakers can't agree on spending priorities." On Wednesday, the group released a statement from Stephenson praising the emerging agreement for ensuring “fiscal stability.” Left unsaid is that beyond its merits, the agreement creates an opportunity for Ryan to pursue long-deferred items on the group’s agenda, like a comprehensive overhaul of the tax code, which has been Ryan’s focus as chairman of the House Ways and Means Committee.

Big business, specifically. The bill junks an Obamacare requirement that larger companies offering health insurance automatically enroll new hires in a plan. The provision aimed to expand the ranks of those covered by their employer, and the scorekeepers at the Congressional Budget Office estimate that repealing it will leave 750,000 people without insurance. But the move would also help plug the deficit — to the tune of $7.9 billion over 10 years — because workers would end up taking home more taxable income in place of health benefits, which aren’t subject to taxation. And yet, while removing that burden on big employers, the budget deal adds another elsewhere — see below.

Defense contractors. Under the deal, Pentagon spending, still squeezed under the 2011 budget caps, would see a $25 billion boost next year and another $15 billion the year after that. The military kitty stands to benefit additionally from a $32 billion infusion into an “overseas contingency fund” that exists to help cover war costs. All that comes as welcome news to the industry that supplies the materiel. Defense stocks are up this week on news of the agreement. And a coalition of industry groups is rallying support, noting in a letter to Congressional leaders that unrest around the globe “pose[s] serious national security threats to our nation, threats that require a well-trained military force with state-of-the-art equipment.”

The Losers

Generic drug makers. The agreement shaves roughly $1.3 billion over 10 years off of Medicaid rebates for generic drugs. Chip Davis, president of the Generic Pharmaceutical Association, in a statement decried the deal for cutting costs “on the backs of America’s vulnerable Medicaid population.” The result, he predicted, will be reduced patient access to affordable generic medicine.

Hedge funders and law partners. Heads of law firms, hedge funds, and other large outfits that organize as partnerships are in line to see their tax bills go up if the deal becomes law. The agreement streamlines the process for the IRS to audit such firms, with extra collections projected to pull in $11 billion over 10 years. The tweak doesn’t technically count as a tax increase, since it simply allows the Feds to do a better job rounding up payments to which they’re already entitled.

Companies that offer defined-benefit pension plans. The retirement funds may be waning in popularity, but they still cover about 30 million workers. The budget deal increases the premium that employers who offer the benefit pay per employee to the Pension Benefits Guaranty Corp. The move is expected to raise about $4 billion. Lobbyists for those offering the benefit are suggesting the change will only encourage companies to walk away from the system. “The premium increase is just another unnecessary burden on employers who sponsor defined benefit plans giving them more reasons to consider exit strategies,” Annette Guarisco Fildes, who heads a group called the ERISA Industry Committee, said in a statement.

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