The 2004 election was an expensive, hotly contested affair with unprecedented voter turnout. But it also will go down as the election in which moderates of both parties lost to candidates who are more extreme in their ideological views.
In the U.S. Senate and the House of Representatives, moderate Democrats lost to conservative Republicans in the few seats that changed hands. Also, in some of the few bright spots for Democrats in the Senate, more liberal Democrats will occupy seats vacated by moderate Republicans. The Senate shift is profound and will give conservative Republicans much more room to move legislation that had been held up not just by Democrats, but by moderate Republicans.
With Republicans maintaining their control of the White House and two halves of Congress, we anticipate a continuation of the 2004 legislative agenda, which emphasized tax policy, the war in Iraq and concerns about terror and homeland security.
The growing federal deficit means that there is little room to do much more on discretionary spending. But there are opportunities and challenges for the venture industry on specific legislative priorities:
Stock Option Accounting. The ruling from FASB-which gives public and private companies more time to implement its expected pronouncement mandating stock option expensing-means we will continue to fight in 2005 to protect this tool for startups. We may still face opposition from the Senate Banking Committee, but possible changes within the Bush Administration could mean that FASB’s actions will receive greater scrutiny. More GOP members on the Senate Banking Committee will also make it harder for FASB to ignore the Committee’s strong inclination to get involved in this matter.
Stem Cell Research. November’s approval of California’s Proposition 71, the stem cell initiative, could have a profound impact on this area of interest for the venture community. Basic R&D spending will come under tremendous pressure in the new Congress. But Californian’s bold approval of this issue could determine where this country’s stem cell research is done for years to come.
Drug Importation/Prescription Drug Program. The Bush Administration will work to implement the Medicare Prescription Drug Benefit that is to begin in 2006. A second term for President Bush means the federal government is unlikely to be given the ability to “negotiate” prices directly with drug companies. Also, Bush’s reelection decreases the likelihood that the importation of drugs from Canada will get federal approval while it increases the likelihood that more states will attempt to import on their own. Meanwhile, changes in the Health and Human Services Cabinet position could spell positive changes for the industry, with former FDA Commissioner Dr. Mark McClellan one of a few likely candidates to succeed Secretary Tommy Thompson.
Tax Policy. Many tax pundits believe that with skyrocketing federal deficits, President Bush will have little cooperation from within his party to further decrease taxes. However, a strong core of Republicans in the House of Representatives is pushing for a dramatic and complete tax system overhaul. Whether President Bush undertakes such an ambitious program may depend as much on the progress of the war in Iraq-and the need for continued funding of that effort-as on any ideological stance.
Trade Policy. Presidential Trade Promotional Authority expires in 2005, so we can anticipate efforts to make it permanent, or at the very least to reauthorize TPA. A key provision of TPA that may garner additional attention next year is the Trade Adjustment Authority, which offers worker retraining and relocation for those who have lost their job from outsourcing or offshoring. Possible reauthorization of the Export Administration Act, which governs export controls, may also be undertaken in the new Congress.
Judicial Policy. The Senate Judiciary may be involved more in judicial nominations than any other subject in 2005, thus major legislative trial bar proposals will be sidelined indefinitely.
Sarbanes-Oxley Reform. Since the Senate Banking Committee will undergo significant change and the Securities & Exchange Commission could see changes, as well, there is a greater possibility to begin discussions on amending Sarbanes-Oxley in a manner that does not gut the law, but makes it more workable.
The next four years hold a tremendous amount of promise for government and the venture capital community to work jointly to implement policies that are favorable to entrepreneurship and innovation.