By: Politico

Few in the business community predict that the Capitol Hill standoff over tax extenders will end this week.

A cloture vote is scheduled Wednesday, but it is unlikely to be successful, since Republicans and Democrats remain at odds over whether they should be paying for the extenders.

That is bad news for at least some of the companies that take advantage of the Subpart F break, which allows U.S. firms to defer taxes on income earned abroad from “active financing” activities such as banking transactions.

If Congress fails to extend Subpart F by Sept. 30, the tax break will no longer exist for the purposes of firms’ projections for the first quarter of 2009.

“Companies will have to assume the higher tax rate, which will result in a hit on projected earnings,” said Scott Talbott, senior vice president for government affairs for the Financial Services Roundtable.

That’s likely to push stock prices down — not something the U.S. economy needs right now.

The question is, what is Big Business going to do about it?

Democratic leaders have vowed to offset the cost of many of the tax breaks in the package that are expiring or already have expired. Republicans firmly believe that Congress shouldn’t pay for extending current tax provisions.

The fight has spilled over to K Street, with Democrats and Republicans alike pressuring business groups to take their side of the fight. So far, business groups and coalitions have tried to steer a neutral path.

Some lobbyists agree that K Street should be siding with the Democrats, because their clients need the tax extenders and they don’t object to the substance of the offsets.

A good number of Democrats are stunned by how difficult it is for business groups to write letters of unequivocal support for the tax extender bill, which every U.S. company wants to see passed, said one financial services lobbyist.

There seems to be a “12-year amnesia by a lot of these Republicans downtown” regarding how GOP leadership ran the show, said the lobbyist, namely sending lobbyists after every Democratic vote they needed.

But other factions of the business community feel they can’t risk offending Republicans, because they’ll need GOP votes in 2010, when the big battle of President Bush’s tax cuts takes place.

“This is a precursor to a larger fight,” said another lobbyist.

Big Oil’s big profits

Five of the country’s biggest oil companies are scheduled to release their second-quarter earnings reports this week — timing that coincides perfectly with a contentious Capitol Hill debate over energy prices.

On Monday, ConocoPhillips posted the highest quarterly profit in history when its second-quarter net income jumped 18-fold to $5.44 billion. And on Tuesday, BP reported a 28 percent rise in profits, exceeding analyst expectations.

Expect the rest of Big Oil’s big numbers to cause even more uncomfortable congressional scrutiny for the companies this week.

Congress is under intense pressure to do something about oil prices, which are exacerbating consumer anxiety about the struggling economy.

U.S. consumer confidence went up slightly from 51.0 in June to 51.9 in July, the Conference Board reported on Tuesday, but consumers’ overall appraisal of the economy and job outlook remained pretty bleak.

Nevertheless, passing substantial energy-related legislation before recess looks increasingly unlikely due to congressional gridlock over proposals that would increase domestic drilling.

Lawmakers expect to get an earful from constituents angry about high gas prices when they return home. And oil lobbyists are preparing their clients to play a starring role in August.

Republican congressional candidates anticipate an onslaught of ads attacking them for ties to oil companies and for opposing a windfall profits tax on the industry.

And on Monday, the Sierra Club released an ad campaign defending Democrats who are getting hammered for not supporting efforts to open more areas to domestic oil drilling.

Kravis to Dems: You’re hired

Henry Kravis — once a barbarian at the gates and now a pillar of Wall Street respectability — is attracting attention again with his plan to take his legendary buyout firm Kohlberg Kravis Roberts & Co. public by the end of the year. This week, Kravis and firm co-founder George Roberts announced that they would conduct an initial public offering that would value the firm, which became famous as one of the most aggressive corporate raiders of the 1980s, at up to $15 billion.

“The fact that we are taking this step now, when the market conditions are weak and the value of all companies are down, shows our commitment to the long future of building KKR,” Kravis said in a conference call announcing the deal.

But even though Kravis is a well-known Republican who has contributed tens of thousands of dollars to the Republican Party and Sen. John McCain (R-Ariz.), his Washington operation is a model of bipartisanship.

Kravis’ lobbying payroll in the nation’s capital includes several prominent Democrats, according to filings in the Senate Office of Public Records: Stuart Eizenstat, who served as a deputy Treasury secretary under President Bill Clinton and is now a partner at the law and lobbying firm Covington & Burling; Holly Fechner, a former policy director for Sen. Edward M. Kennedy (D-Mass.) who is at the same firm; Vic Fazio, a former Democratic congressman from California who is now a partner at the law and lobbying firm Akin Gump Strauss Hauer & Feld; Joel Johnson, a longtime Democratic Capitol Hill aide who is now a partner at The Glover Park Group, a firm that also lists several other veteran Democratic aides on the KKR account.

With the possibility looming of Democrats maintaining control of Congress and regaining the White House in 2009, hiring Dems in Washington looks like smart business, no matter what your political leanings. But Kravis is well-hedged, too. Also on his payroll is former Republican National Committee Chairman Ken Mehlman, who is now at Akin Gump.

In a move that’s appropriate for a firm that made its name in the corporate buyout world, KKR is going public through a convoluted buyout of its own. The firm will purchase KKR Private Equity Partners, which is its publicly traded Amsterdam fund, and relist the entire combined company on the New York Stock Exchange.

The great China debate

A report being released Wednesday by the Economic Policy Institute found that the U.S. lost 2.3 million jobs from 2001 to 2007 thanks to the trade deficit with China. More than 360,000 of the losses occurred in 2007, and more than half the jobs displaced by China trade were in the top half of American wage earners. More than two-thirds were in the manufacturing sector.

China critics place much of the blame for the job losses on China’s currency manipulation and the Bush administration’s failure to take the Asian giant to task for it.

“Our flawed trade relationship with China is destroying good jobs throughout the U.S. manufacturing sector,” Scott Paul, executive director of the Alliance for American Manufacturing, said in a statement. “What may surprise people in these numbers, however, is how much workers in advanced technology are being affected.”

Copyright © 2008 Capitol News Company, LLC | Distributed by Noofangle Media