Shrinking federal and state government coffers impact businesses.

• Author: Graham, Chris
• Position: Washington insights

It was a year ago that Federal Reserve Chairman Ben Bernanke spoke about the troubled economy's "green shoots." In July of last year, Newsweek magazine announced the recession was over. Though the recovery is ongoing, fueled by record federal spending, those on Main Street are still waiting for those green shoots to blossom.

The fragile economy and weakened fiscal position at the state and federal levels make it necessary for the business community to remain vigilant or face the possibility of anti-business policies crafted either in Washington, D.C., or state capitals.

The fact that this is an election year has many Democratic members of Congress concerned about their chances of re-election. Those concerns are elevated because of the public's growing concern over the projected $1.5 trillion budget deficit for fiscal year 2010, and the new record set in December for the number of consecutive months the federal government languished in red ink.

These budget gaps hit more than the federal government. Forty-eight state capitals face similarly dire circumstances, and with policymakers reluctant to vote for spending cuts during an election year, that may leave only one way to fill those budget gaps--new taxes.

Inside the Beltway

With the federal budget deficit hitting an all-time high in the last month of 2009, Democrats--especially those in conservative districts--are eager to prove that they really can be budget hawks. This puts budget-conscious Democrats between a rock and a hard place as they are also pressured to sell the virtues of a health-care reform bill that could cost hundreds of billions, if not more.

Therefore, populist fervor for the government to work within its means, balanced against a desire by President Barack Obama and the Democratic majority to enact an ambitious agenda will put the business community in a vulnerable position of being hit with a number of new taxes and fees.

Citing the need for revenue last year, the administration and some members of Congress proposed--or "explored"--dozens of anti-business tax polices, and we expect a similar modus operandi throughout this year, FEI, along with other associations, has been working to educate on pro-growth policies and promote a comprehensive--not a piecemeal--approach to tax reform.

Specifically, FEI and other groups educated decision-makers on the importance of the U.S. tax rules relating to foreign source income and discouraged the repeal of the last-in, first-out (LIFO)...