Video: Where are the Democrats on tax cuts?

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updated 11/6/2006 8:27:35 PM ET 2006-11-07T01:27:35

President Lyndon B. Johnson liked to joke that "we haven't done anything for business this week — but it is only Monday morning." In his day, corporate interests often saw Democrats as allies.

Today, accurately or not, many executives equate Democrats with higher taxes, regulatory excess, and lawsuits run amok. With most pundits forecasting major Democratic gains in the Nov. 7 midterm elections, business is bracing for the worst.

It may not have to.

On issues ranging from Sarbanes-Oxley rules to immigration to retirement security, business may find some unlikely allies in Democrats such as Charles B. Rangel of New York, Barney Frank of Massachusetts, and John D. Dingell of Michigan. "Should they be in charge, they're going to want to create a coalition that enables them to continue being in charge," says Jay Timmons, a senior vice-president at the National Association of Manufacturers and a longtime aide to Senator George F. Allen (R-Va.).

Top Dems are already planning post-election sessions with business leaders, including former Clinton Administration Treasury Secretary and Citigroup Chairman Robert E. Rubin, to discuss the party's economic agenda. House Minority Leader Nancy Pelosi (D-Calif.) says she intends to consult regularly with such CEOs as Cisco Systems Inc.'s John T. Chambers, a Republican who has backed President George W. Bush. Pelosi has said she supports cutting the budget or closing tax loopholes to offset new spending. "Democrats understand the importance of a growing and vibrant economy," says Pelosi, the Democrats' Speaker-in-Waiting. To be successful, "you have to govern from the middle."

With the election not yet decided, it's premature for Democrats to celebrate or schedule hearings. But polling shows them leading in 240 districts, 22 more than the number needed to seize the House. On the Senate side, they need to capture six Republican seats to gain control; late October polls showed them ahead in five states and tied in another. Of course, even a more conciliatory approach probably won't deter Democrats from convening oversight hearings to target certain industries with close ties to the Bush White House -- particularly energy, pharmaceuticals, insurance, and defense.

Still, as business contemplates the probability of a Democratic House in 2007, corporate interests are discovering that some liberals are more open to consensus building than might be expected. "In the end, Democrats will realize that to accomplish anything, they'll have to do something in combination with the business community," says Matt Bennett, vice-president of Third Way, a moderate Democratic strategy group.

Business has started to reach out to Representative Frank, the sharp-minded, sharp-tongued liberal who is in line to be chairman of the House Financial Services Committee. Frank is best known as a progressive on social issues, but Republican colleagues and business lobbyists who have worked with him on financial matters say he is willing to work across party lines. "Barney Frank is fair, he's smart, and he's focused," says former Representative Steve Bartlett (R-Texas), now CEO of the Financial Services Roundtable. "That's the kind of leadership we need."

Frank is widely expected to encourage some curbs on the 2002 Sarbanes-Oxley law, which imposed new governance rules on companies in response to a series of corporate scandals. While the White House and some Republicans favor lifting some of the mandates, they have been waiting for the retirement of Financial Services Committee Chairman Michael G. Oxley (R-Ohio), who is leaving Congress at the end of this year, before changing the law he co-authored with outgoing Senator Paul S. Sarbanes (D-Md.).

Democrats want to keep the transparency provisions of the new law but ease small business reporting requirements that have made it harder for entrepreneurs to raise capital, says Frank. They also want to reduce what Senator Charles E. Schumer (D-N.Y.) calls "compliance minutiae" that businesses consider burdensome and a drag on innovation. Frank says he wants to puncture "the myth that if you're a liberal, you're an anti-capitalist."

Companies, too, are confident that in response to the ill-fated 2006 Dubai Ports World deal, Frank will side with them against draconian curbs on foreign investment in the U.S. "He has been very thoughtful in stopping some of the reforms that would chill foreign investment," says former Bush Administration official Robert S. Nichols, now president and COO of the Financial Services Forum, an organization comprised of the CEOs of the 20 largest U.S. financial institutions.

Another issue where Democrats and business are on the same page is immigration. Companies were stymied in their attempts to push sweeping immigration legislation this year because House Republicans refused to consider business-backed plans to create a guest worker program and a path to legalization for undocumented immigrants, saying they did not want to reward those who broke the law. House Republicans opted instead for stepped-up border enforcement, despite support for a comprehensive package from Bush, the Senate, and House Democrats. Says GOP lobbyist and Bush adviser Charles R. Black Jr.: "If you did have a Democratic House, which I'm not ready to concede, it would be closer to the Senate and the Republican President than the current Republican House."

Representative Rangel, a close friend of organized labor and a tireless advocate of antipoverty programs, is nonetheless a leading Democratic advocate of trade liberalization. Stung by GOP criticism of his votes against recent Bush trade initiatives because they did not include labor and environmental provisions, Rangel wants to extend trade preferences in Africa, the Caribbean, and the Andean nations.

With Presidential fast-track trade negotiating authority up for reauthorization in 2007, Rangel says he hopes to work with U.S. Trade Representative Susan Schwab to end the partisanship over trade. "So many people want to work to get things done," says Rangel, the would-be chairman of the Ways & Means Committee. He's also seeking business' input on strengthening copyright protection and other intellectual-property issues. "Rangel is an old bull, wheeler-dealer legislator," says R. Bruce Josten, executive vice-president at the U.S. Chamber of Commerce. "He's going to want to get things to the President's desk."

Other industries may score victories in the potentially new Washington. Pelosi promises to champion research and development, including extending the now-expired R&D tax credit. Among the winners would be biotech, electronics, communications, and chemical concerns.

Pelosi and other Democratic leaders have other motives to reach out to business. Over the 12 years of Republican rule, the Democratic share of contributions from business political action committees has slipped from 51% to 34%, according to the nonpartisan Center for Responsive Politics. Pelosi knows that a growth agenda blessed, at least in part, by some business leaders could help ease the party's image as antibusiness.

The political realities of divided government could also tame the liberalism of some of the new Democratic committee bosses. President Bush could use his veto to block any economic legislation he opposes. On tax issues, Democrats say the party would not move to raise corporate taxes, but a Democratic House would be unlikely to agree with President Bush's proposal to permanently repeal the estate tax on the top one-half of 1% of estates.

Even if many Democrats want to move to the left, their liberalism will be leavened by up to 30 pro-business freshmen Democrats, says Bruce Reed, former adviser to President Clinton and now president of the moderate Democratic Leadership Council. "Democrats are going to be more centrist because [moderates] hold the balance of power."

Lorraine Woellert in Washington contributed to this article.

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