McCain or Obama ... who's best for corporate coffers?

• Author: Barlas, Stephen
• Position: COVER STORY - Cover story

During their campaigns for president of the United States, both Sens. Barack Obama (D-Ill.) and John McCain (R-Ariz.) have beaten--like dusty rugs--on corporate executives, and sometimes corporations.

They have battered mortgage executives for their severance packages. The two have wrapped their rhetoric around the necks of auto executives for shortsightedness. McCain tells pharmaceutical companies they "must worry less about squeezing additional profits from old medicines." Obama promises to prevent drug companies from "abusing their monopoly power through unjustified price increases."

To rein in executive compensation, Obama sponsored a voluntary "say on pay" bill. McCain has gone further, backing a mandatory vote by shareholders.

The two sometimes seem to be competing for the William Jennings Bryan "Populist of the Year" award. The times make their anti-corporate rhetoric understandable, if not necessarily justifiable. And, given their "villainization" of corporations, it is not surprising that neither candidate has tossed out a lifeline to companies sinking in a recession, some of which face borrowing costs of crippling magnitude.

Kingman Penniman, president of KDP Investment Advisors, says the rate of default on corporate high-yield bonds was somewhere around 2 percent in June. He expects an increase to 6 to 8 percent in 2009.

"This raises the premium on risk," he explains. "There is a tremendous amount of reservation on the part of each of them [Obama and McCain] to come up with a solution at this time to a situation as volatile as this. They are probably trying to keep their powder dry as long as they can to see what unfolds," says Penniman.

The Candidates, the Issues

Regardless of which candidate a senior finance executive is personally backing, it's a good time to consider what it would be like if either McCain or Obama is elected, and which would be a better choice for the U.S. economy and business. For financial executives, the choice for this 2008 election is not easy. It is much less clear than either 2000 or 2004, when George W. Bush faced Al Gore and John Kerry, respectively. Obama and McCain are "peas in a pod" on numerous issues of importance to U.S. corporations.

They are essentially twins on immigration reform, foreign investment in the U.S., global warming and the need for industries to become more energy efficient and produce more energy-efficient products. Even on corporate taxes, the similarities between the two are striking.

Both would drop the corporate income tax rate, though Obama would not go as low as McCain. Both would continue the Bush tax cuts for those earning less than $250,000 a year. In fact, argues Alan Viard, a resident scholar at the American Enterprise Institute, one could make the argument that Obama is apt to be the deeper slasher of taxes.

A Democratic Congress would likely block a number of McCain's proposals. It would likely approve many of Obama's proposed new tax cuts aimed at correcting income inequalities, such as a new $1,000 work credit, an expanded child care credit and an expanded tax credit for low-income savers--all of which are income limited in an effort to restrict them to families earning less than $150,000 a year. "McCain is proposing more tax cuts; Obama will get more through," Viard says.

Still, there are some differences between the two. Their positions on the AFL-CIO's agenda are a chasm apart. Obama is more protectionist on trade; although with out Sen. Hillary Clinton (D-N.Y.) to worry about, the Illinois Democrat has been softening his talk about the North American Free Trade Agreement's shortcomings.

McCain has pushed for more U.S.-based oil and gas drilling, including offshore exploration, something Obama had opposed. In early August, however, he softened his position, saying he'd accept some offshore drilling. But even here the dichotomy is narrow, with McCain having pushed hard for higher auto-efficiency standards via sponsorship of legislation in 2002, two years before Obama arrived in Washington, and began to introduce his own gas-saving bills.

Many Beltway business lobbyists express an off-the-record, begrudging, "best of two evils" preference for McCain, citing his expected opposition to union-organizing legislation, his free-market orientation and his opposition to federal pork spending. Obama, meanwhile, is seen as a traditional liberal, reflexively hostile to corporate interests.

Tom Lehner, director of public policy for the Business Roundtable, which is neutral in the presidential race, says: "If Obama wins, expect him to reach out to outsiders and academicians without Washington experience. That's been done in the past, with mixed results. Nell Minow and Rich Ferlauto are the kinds of people he might appoint as [U.S.] Securities and Exchange Commission commissioners." Minow is editor and co-founder of the Corporate Library and Ferlauto is director of pensions and benefits policy for the American Federation of State, County and Municipal Employees (AFSCME). Both are strong proponents of investors' rights.

Day One: Jan. 20, 2009

Regardless of which man lands in...