CEOs TO BUSH: RAISE TAXES NOW And reduce spending too, say the heads of America's largest corporations. They want the deficit cut, and they think smokers, drinkers, and drivers should help pay.
By David Kirkpatrick

(FORTUNE Magazine) – THEY SUPPORTED BUSH overwhelmingly in the election, but now that he's about to become their President, America's CEOs have stern talk for him about the deficit. Cut it, they say. Cut spending in all sorts of places. And forget that foolish pledge about no new taxes. The latest FORTUNE 500/CNN Moneyline CEO poll finds that a majority of corporate chiefs think taxes should be raised -- and will be. They don't want to increase taxes on income or capital gains, but neither are they just trying to gore somebody else's ox. When a defense contractor wants to cut defense spending and a maker of auto products advocates a higher gas tax -- and they do -- that's no-fooling determination to bring the deficit down. The CEOs' preferred tax increases would hit smokers, drinkers, drivers, and well-off Social Security recipients. Defense spending and farm subsidies are what the chiefs would most like to cut. They state their views bluntly, sometimes passionately. Says Harry W. Todd of aerospace company Rohr Industries: ''It is simply ridiculous. Instead of building our economic strength, we are raping it.'' Hays T. Watkins of CSX adds: ''Our national economy cannot continue to withstand massive deficits. If Congress cannot or will not control expenses, the only answer is more taxes.'' $ An independent opinion research firm, Clark Martire & Bartolomeo, conducted the survey from December 5 to 15. The respondents were 225 CEOs of FORTUNE 500 and Service 500 companies. The survey found that 68% of the CEOs think taxes or user fees should be raised to reduce the deficit. But several emphasize that raising revenues alone won't reduce the deficit, since they believe Congress can't be trusted with the money. Most would concur with Les Coleman of Lubrizol, a manufacturer of industrial and automotive lubricants and fuels: ''I like the suggestion of taxing alcohol, tobacco, and gas, with the provision that the funds be used only for the deficit. Anything that goes into the general fund gets used to increase spending.'' That same distrust is behind the thinking of many in the minority of CEOs who oppose any tax raise. ''The irresponsible Congress will just keep spending money,'' argues Richard P. Wollenberg of Longview Fibre, a $650-million-a-year paper and forest products company. ''They've proved that time and again.'' Other opponents of tax increases cite different reasons. ''American business will be more productive, make more money, and pay more taxes without a tax increase,'' says Robert B. O'Brien Jr. of New Jersey-based Carteret Savings Bank, stating the supply-sider's creed. William Coors of Adolph Coors thinks spending cuts alone can do the job. In particular, he says, ''the budget can be balanced by making our global trading partners pay their fair share of the cost of the free world's defense.'' The pro-tax crowd counters that the right taxes could do more than just help balance the budget. Jack MacAllister of U.S. West, the big regional phone company, says, ''Tobacco and alcohol have added to the health care costs of our nation. It seems appropriate to tax these for needed revenue.'' An overwhelming 88% advocate such taxes. On the other hand, Harry G. Bubb of Pacific Mutual Life Insurance believes, ''We're not going to get there by increasing sin taxes.'' He proposes a 50-cents-a-gallon tax on gasoline, not only to raise revenue but also to encourage conservation. A gas tax wins the support of 79% of the CEOs. Many like such a tax's enormous power to generate revenue -- roughly $1 billion for each penny added per gallon, at least for the first few cents of extra tax. In addition, says Amos McMullian of Flowers Industries, a Georgia-based food company, ''there's already machinery set up to collect taxes on gasoline. It's just a matter of increasing them, whereas with a new sales tax there would be a whole new set of forms and bureaucracy.'' Lubrizol Chairman Coleman notes the oddity of his supporting a gas tax, since his company makes automotive oils and fuels. ''I should probably be against it,'' he says, ''but the U.S. is the world's low- cost gasoline user. People are still driving an awful lot in Europe and Japan despite high gas taxes.'' C.J. ''Pete'' Silas of Phillips Petroleum begs to disagree. ''I'm opposed to putting the burden of balancing the budget on the petroleum companies,'' he says. ''Our industry is already the most highly taxed in the country. People assume we'll pass this tax on to the consumer, but that doesn't always happen.'' Nonetheless, even Silas says he might accept an increased gas tax as part of a broader package of spending cuts and other revenue raisers. Taxes on Social Security payments ought to be increased for some recipients, say 67% of the corporate bosses. The payments are now tax-free for individuals with adjusted gross incomes below $25,000 ($32,000 for couples). Above those levels, no more than 50% of benefits get taxed. Josh Weston of Automatic Data Processing advocates full taxation for recipients earning over $25,000 per year. John Dickson of Roundy's, a Wisconsin-based food distributor, goes further. He says, ''Taxes should be levied on Social Security as on any other income.'' About half the CEOs favor a revenue raiser that would also help protect them from raiders: ending the deductibility of interest on loans for takeovers and leveraged buyouts. ''I've been advocating that for ten years,'' says Longview Fibre's Wollenberg. ''We'd have a stronger business establishment if there were more reliance on equity and less on debt.'' Peter L. Scott of Emhart, an old-style conglomerate, shares Wollenberg's distaste for highly leveraged takeovers. ''In principle it would be great to tax these LBOs, which don't add a thing to the gross national product,'' he says. ''But I don't think such a tax would be workable.'' Some CEOs favor a national consumption tax or a value-added tax of the type common in Europe, either of which would probably help boost America's anemic savings rate. Says Vincent A. Sarni of PPG Industries: ''A graduated consumption tax would be best, exempting people below certain income levels. I'd tax luxury items more heavily.'' When it comes to spending, these CEOs are a miserly bunch. ''I don't think this is the time for increased federal spending in any area,'' says McMullian of Flowers Industries. His peers largely agree, although a substantial minority favor a fattened education budget. Sarni of PPG is among them: ''We should increase spending for education. The future of our country is at stake. It's a crisis area, and we need to catch up.'' Perhaps more surprising is that 62% of the CEOs, a heavily Republican group according to past polls, think the U.S. ought to cut defense spending. Says Carteret's O'Brien: ''Gorby has given us a fabulous opportunity here, and we should seize the initiative. There's no question defense spending should be cut -- but I'm worried that Senator Tower ((Bush's selection for Defense Secretary)) isn't the man to do it.'' Wollenberg of Longview Fibre suggests reducing the size of the Navy and stretching out procurement of new weapons systems. Even Lawrence O. Kitchen of Lockheed concedes, ''We need a combination of reduced defense expenditures, reduced or streamlined entitlements, and increased taxes.'' Among the five major spending programs we asked the CEOs about, agricultural subsidies, which mushroomed under Reagan, were their least favorite by a mile. An overwhelming majority wants to cut them. Russell L. Hanlin of Sunkist Growers, a cooperative of citrus farmers who don't get subsidies, sounds a rare note of support: ''As long as they exist in the rest of the world, I think our farmers need an equal level of protection.'' Despite their profound worry about the budget deficit, the bosses expect a good 1989, with only 16% foreseeing recession during the year. That is a perfectly consistent outlook. As McMullian ruefully observes: ''The deficit is a heck of a problem, but it's certainly giving demand a stimulus.''