Raytheon CEO: Tax increase would force the company to cut investment

The chief executive officer of Raytheon Technologies Corp., the parent company of jet engine manufacturer Pratt & Whitney, predicts that President Joe Biden’s proposed corporate tax increase to significantly increase infrastructure spending would force him to cut investment by one-fifth.

In an interview with the Economic Club of Washington, D.C. on Wednesday, CEO Greg Hayes laid out a business argument against the Biden administration’s effort to reshape tax policy and reverse tax legislation enacted in 2017 by a Republican Congress and President Donald Trump.

Hayes also heads the Business Roundtable’s tax and fiscal policy committee.

David Rubenstein, president of the Economic Club of Washington, D.C., questioned Hayes on Biden’s infrastructure plan, taxes and a range of other issues in a nearly one-hour interview.

Raytheon earmarks $5 billion a year on capital spending and research and development, Hayes said. The president’s proposal to raise the corporate tax rate to 28% from 21% would cost the aerospace and defense giant about $1 billion a year in taxes, he said.

“That’s a billion less than I would otherwise invest,” Hayes said. “I have to reduce my investment budget by 20%. I’m not sure that’s exactly what the preident wants to have us do.”

“In my mind it’s a pretty simple discussion,” he said. “If you want U.S. companies to invest in technology and innovation you have to have incentives to do that here in the United States.”

Legislation in 2017 cut the corporate tax rate to 21% from 35%, and Hayes said it has “driven cash back into the U.S. It has driven investment.”

Raytheon reported $8.8 billion on its balance sheet at the end of 2020, with about $3 billion from divestitures from its portfolio of businesses. Hayes said in January the company will boost the dividend and plans a share repurchase.

“We don’t think we need $9 billion on the balance sheet,” he told industry analysts.

Hayes took on a high-profile task in 2017 when he joined 15 other top corporate executives calling on Congress to cut business taxes in return for companies bringing home trillions of dollars parked overseas to avoid higher taxes.

Analyst Nicholas Heymann of William Blair &

Co. said in a client note Wednesday the 2017 tax cut did “not increase U.S. growth as promised.” The “vast majority” of tax benefits to corporations was returned to shareholders as dividends and buybacks, he said.

U.S. multinational corporations paid an average 8% effective tax rate in 2018, half what they paid in 2017 “and well below the average tax rate paid by U.S. citizens,” Heymann said.

Corporations will benefit directly or indirectly from Biden’s infrastructure and pandemic relief bills by an estimated $2.5 trillion to $3 trillion over eight years, he said. They are being asked to pay about $2 trillion over 15 years to help pay for the infrastructure program, with personal tax increases for higher income and wealthy taxpayers paying for the rest, Heymann said.

Amazon CEO Jeff Bezos has endorsed Biden’s tax plan. In a statement Tuesday, he said spending on infrastructure “will require concessions from all sides — both on the specifics of what’s included as well as how it gets paid for [we’re supportive of a rise in the corporate tax rate].”

Hayes was dismissive of Bezos’ statement.

“I guess if you have $180 billion it’s easy to say that,” he said. “But my shareholders would tell you that we want to invest smartly, but we have to do it within the confines of what we have available.”

“That’s a billion less than I would otherwise invest. I have to reduce my investment budget by 20%.”

– RAYTHEON CEO

GREG HAYES