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The next four years

The election’s effect on Massachusetts business sectors

Massachusetts defense contractors brace for big cuts, makers of medical devices face new fees, and the financial industry has to live with tougher regulations. Add to this uncertainty about taxes and federal spending as a reelected President Obama does battle with Congress over the deficit.

Getty Images
Getty ImagesChip Somodevilla


One thing the election made clear: Boston’s large financial industry should not expect a reprieve from tougher rules, dashing hopes that a new president and Congress would rewrite the Dodd-Frank law or eliminate the Consumer Financial Protection Bureau.

“The status quo remains,” said Scott Talbott, senior vice president for government affairs at The Financial Services Roundtable, which represents major financial firms.

Indeed, Elizabeth Warren — the Harvard professor who helped create the consumer agency — was elected to the US Senate. With Democrats still controlling the Senate, she would be in a strong position to claim a seat on its banking committee and serve as a powerful bulwark against efforts to weaken theregulations or eliminate the bureau.


But most of Dodd-Frank has yet to be implemented, giving financial firms more opportunities to lobby regulators to reduce its impact. It’s also possible that lawmakers could agree to tweak some aspects of the law, especially since the main authors will not be part of the new Congress.

“I think everybody on the planet — with the exception of Barney Frank — will tell you the law needs material revisions,” said Cornelius Hurley, director of the Boston University Center for Finance, Law & Policy.

In addition, many key presidential advisers are expected to step down at the end of Obama’s first term. Among them is Treasurer Secretary Timothy Geithner, who had a longstanding relationship with leaders of the financial industry. But because neither party has 60 votes in the Senate, it is likely that President Obama will have to work with Republicans and Democrats to win confirmation for Geithner’s replacement and other key appointments.



Defense contractors like missile maker Raytheon employ more than 130,000 people in Massachusetts.
Defense contractors like missile maker Raytheon employ more than 130,000 people in Massachusetts.Bloomberg News/File 2010

President Obama’s second term will almost certainly mean deep cuts in military spending that could lead to job losses in the state’s multibillion dollar defense sector that includes one of Massachusetts largest employers, Raytheon Co.


While Mitt Romney pledged to bulk up the Navy, Obama has long advocated for leaner armed forces. “Obama’s priorities for the years ahead spell trouble for the Massachusetts defense industry,” said Loren Thompson, a defense analyst at the Lexington Institute in Washington, D.C.

The industry employs more than 130,000 people in Massachusetts and generated $14 billion in contracts in 2011, according to the Defense Technology Initiative, a Massachusetts trade group.

Those contractors are already under intense pressure as US orders for military hardware and software shrink as a result of the end of the Iraq war, the drawdown in Afghanistan, and planned spending cuts of $487 billion over the next decade. And they are also nervous about additional hits as a result of “sequestration,” a budget-balancing measure that would lop $600 billion more from the military if Congress doesn’t cut the deficit.

“The biggest question is how the president and the Congress will deal with the defense cuts coming with sequestration,” said Chris Anderson, president of the Defense Technology Initiative.

In October, Chelmsford defense contractor Mercury Computer Systems Inc. announced it cut 142 positions because uncertainties surrounding the future defense budget have led the industry to operate in what appears to be a soft sequestration environment.” It declined to comment.

Even if sequestration is avoided, military analysts anticipate painful reductions in spending, particularly in areas that are key parts of the Massachusetts sector such as weapons and research and development.

That could be a blow to Raytheon, the world’s biggest maker of missiles.


The Waltham contractor, which employs 71,000 people worldwide, may be able to soften the blow as it looks to sell more overseas; already more than half of its sales of missile systems are to international clients. Raytheon declined to comment.

The Massachusetts defense sector also loses an advocate with the defeat of Senator Scott Brown, a member of the Senate Armed Services Committee. “Not having a voice on the Senate committee will be a concern,” said Anderson of the Defense Technology Institute. He added that Senate victor Elizabeth Warren has pledged to “protect the industry, but there is a huge learning curve that will take a couple of years.”



President Obama’s victory reignites a deficit showdown with congressional Republicans that will result in sharp tax increases for Massachusetts businesses and consumers unless a compromise is reached by the end of the year.

Without a deal, the Bush-era tax cuts will automatically expire on Jan. 1, meaning across-the-board increases on everything from payroll and income taxes to levies on dividends and capital gains. Those hikes would be accompanied by deep federal spending cuts, creating a so-called fiscal cliff that could keep companies from new investments that create jobs and spur growth.

“Until this gets straightened out, businesses will continue to be cautious,” said John Regan, vice president of government affairs at the Associated Industries of Massachusetts. “There is a window of opportunity to deal with it now, and I hope everyone decides to take advantage of that.”


Most tax specialists believe a short-term compromise will be reached, but that a more permanent resolution will take longer. For now, tax advisers are telling clients to prepare for the worst.

“You just can’t know what’s going to happen,” said Douglas Stransky, a tax partner at the Boston law firm Sullivan & Worcester. He said he is advising clients to claim capital gains and dividends as soon as possible, to lock in lower rates that could rise in January.

Obama has pledged to hold down taxes for most small businesses and lower the corporate tax rate from 35 percent to 28 percent. The president so far has resisted pressure to lower or temporarily waive corporate income taxes on the more than $1 trillion US companies have piled up in overseas accounts from sales there. Many are tech companies keeping most of their cash offshore.

Casey Ross— CASEY ROSS


Biotechs anticipate a fight over low-cost generics.
Biotechs anticipate a fight over low-cost generics.David L. Ryan ,The Boston Globe

The election results proved a mixed blessing for the state’s high-profile life sciences sector. While the state’s congressional delegation will continue to back the industry’s legislative agenda, biotechnology companies expect a fight over low-cost generics, and medical device makers face a tax on their products that will help fund President Obama’s health care overhaul. Combined, the two sectors have more than 800 companies in Massachusetts that employ nearly 70,000 people.

When a biotechnology company develops a new drug, its competitors have to wait 12 years before they can start making generic versions. The Obama administration had proposed narrowing that span of protection to seven years, but was blocked by a bipartisan national coalition that included Massachusetts lawmakers. Now though, with concerns over rising costs of medicines, industry leaders expect makers of generic biotech drugs to revive their campaign to shorten the so-called exclusivity period.


Medical device companies are bracing for a tax on their products scheduled to take effect Jan. 1 as part of the national health care reform that Mitt Romney said he would have eliminated if elected. The tax could cost up to $3 billion a year.

“Companies are going to be facing revenue shortfalls,” said Tom Sommer, president of the Massachusetts Medical Device Industry Council. “That could result in reductions in force, cuts in research and development, and even outsourcing of some manufacturing offshore.”

Sommer said the medical device industry lost a champion with the defeat of Senator Scott Brown. But Senator-elect Elizabeth Warren said she opposes the device tax and also expressed support for protecting biotechnology companies, and funding for the Food and Drug Administration and the National Institutes of Health, two agencies important to Massachusetts life sciences businesses.



The Massachusetts alternative energy industry is expected to get less US support.
The Massachusetts alternative energy industry is expected to get less US support.AP File/Associated Press

Given the scale of budget and deficit matters facing the US government, energy and environmental issues are largely expected to be on the back burner during the second Obama administration, and that could hamper Massachusetts’ emerging clean energy sector. Wind, solar, and other alternative energy sources that rely on federal subsidies are likely to get less support given the budget squeeze and high-profile failures of several government-backed alternative energy companies, including Waltham battery maker A123 Systems Inc., during President Obama’s first term.

“I am not sure, in a time of deficit difficulties, that we’re going to see much of a substantial funding of loan guarantee programs,” for the clean technology industry, said Scott Segal, a partner specializing in energy and environmental issues at the law firm Bracewell & Giuliani LLP.

In his acceptance speech, Obama listed reducing America’s dependence on foreign oil as a priority. He will likely continue to support drilling that unlocks oil and natural gas trapped in shale formations. The production boom has helped lower natural gas prices and created jobs, but Obama will have to balance the interests of environmentalists worried that increased drilling is contaminating drinking water supplies and creating other environmental problems.

Obama also is expected to promote higher gas-mileage standards for cars, cut fossil fuel consumption, and lower emissions of pollutants that contribute to global warming. But he will face difficulties winning congressional support for policies — such as stricter regulation of carbon dioxide and other greenhouse gases — aimed at reducing the threat of climate change.

“The far right wing is going to react strongly against any climate change bill,” said Christopher Knittel, a professor of energy economics at the Massachusetts Institute of Technology. “What gets done is heavily dependent on how Congress behaves in the next four years.”



States hope to benefit as retailers urge Congress to adopt an Internet sales tax law.
States hope to benefit as retailers urge Congress to adopt an Internet sales tax law. Debee Tlumacki for the Boston Globe

Retailers are hoping to get Congress to finally adopt a national Internet sales tax law, which would require online merchants to collect taxes on all purchases.

“The government will be looking for all kinds of ways to get funds for spending and offsetting [the] costs of programs they plan to push. Newfound tax revenue is ripe for the picking,” said Marshal Cohen, chief retail analyst for the NPD Group, a New York research firm, who predicted some kind of online sales tax by 2014.

Amazon, the world’s largest online merchant, is on board with the Marketplace Fairness Act, which would allow states to require online retailers to collect sales taxes on all purchases. But big opponents include eBay and Overstock. Until now, online merchants have been protected by a 1992 Supreme Court ruling that limited online retailers to collect taxes only in states where they have a store or other outpost. But Internet shopping has since exploded, and the National Conference of State Legislatures estimates states missed out on $8.6 billion in uncollected taxes in 2010.

“Although sales tax collection for Internet and catalog sellers won’t help the federal budget crisis, it is an opportunity for Congress and the president to deliver to the states a revenue tool to help themselves at a time when funding from the feds to the states may need to be curtailed,” said Jon Hurst, president of the Retailers Association of Massachusetts.

— JENN ABELSONJenn Abelson


Public infrastructure is likely to benefit from Obama’s second term.
Public infrastructure is likely to benefit from Obama’s second term.AP File

The nation’s public infrastructure is likely to benefit from a second Obama term, and that means more jobs for the construction industry. The Democrat is likely to push for more spending on public transit, while Romney was expected to cut transportation funding, said Joshua Schank, president of the Eno Center for Transportation, a nonpartisan think tank in Washington, D.C.

In Massachusetts, state officials estimate that it will take an extra $1 billion a year to maintain bridges, highways, and transit, and an extra $300 million a year to fund the Green Line extension and the South Coast Rail project. On top of that, the MBTA is deeply in debt and near capacity during peak hours, many parts of Greater Boston need expanded transit access, and sections of interstates 95 and 93 also could use upgrades, said Richard Dimino, former Boston transportation commissioner and president of the business association A Better City.

Obama has also signaled a commitment to modernizing the nation’s air traffic control system by nominating Michael Huerta, an expert on satellite-based technology, to run the Federal Aviation Administration. With Obama’s reelection, Huerta is likely to be approved and move ahead with implementation.

While the president may want to improve the nation’s infrastructure, he is facing pressure to reduce spending. That means he needs to come up with a novel way of funding, said Yossi Sheffi, director of the MIT Center for Transportation & Logistics. “The US will need structural reforms to the business of the country, to taxation, to budgeting, to social programs, in order to accumulate the capital needed to improve our transportation infrastructure.”