BUSINESS
12/13/2016 01:17 pm ET

Why The Tech Industry Has The Most At Stake In This Presidential Transition

On the eve of the Tech Summit in NYC tomorrow, we’re still learning just how much is at stake for the technology industry under the incoming administration. Uncertainty surrounding regulatory and agenda-driven changes will not only impact the businesses that operate in this industry – but also its consumers. While the full scope of the new administration’s priorities remains to be seen, different scenarios touch on several critical aspects of this industry, from trade policy to consumer data privacy.

Our country’s growth and innovation is of critical concern, both from a national and global perspective. It’s not yet clear how the new administration’s policies and priorities will impact the development of emerging technologies like the Internet of Things (IoT), smart city initiatives, connected cars and autonomous vehicles, artificial intelligence (AI) and robotics, or 5G wireless networks. And encryption is another contentious, highly publicized issue. The protection of consumers’ privacy and companies’ ability to inspire trust among its stakeholders will continue to be at the center of this debate.

At this week’s Tech Summit in NYC, these are the three areas business leaders in the tech industry are prioritizing in light of the incoming administration:

  • Talent. The subject of immigration has been announced as a key early priority for the incoming administration. Changes may include further limitations to or elimination of the H-1B visa program, which allows US companies to hire highly skilled workers in such fields as engineering and computer science from abroad. The program is heavily used by tech companies which have advocated for expansion of the program and which could face a shortage of skilled talent if it is scaled back or eliminated. Potential tightening of H1-B visas and increased competition for qualified staff could lead to a resurgence in “acqui-hire” deals to fill the gap (the acquisition of a company primarily to recruit its employees). 
  • Deals. Another significant issue will be the fate of large announced and prospective mergers. While none of the fundamental drivers of deals has changed, depending on changing regulations and policies, greater volatility is possible which could lead to increased M&A activity. Areas to focus on include potential increased regulatory review on deals including both antitrust and CFIUS; the impact of new policy on megadeals and inbound deals- especially from China, and a potential rise in interest rates that could result in a decrease in funding sources.
  • Taxes. One of the President-elect’s top priorities is comprehensive tax reform to significantly lower business and individual tax rates. Corporate tax rates would be lowered from 35 percent to 15 percent and changes to personal taxes include alterations to capital gains and estate taxes. However, at least some parts of this proposal is expected to face opposition in the Senate. There are significant implications to intellectual property-rich industries, like tech. The new administration’s focus on moving American companies’ overseas operations and investments to the US may, on the other hand, have significant implications for large companies. The President-elect has said he favors a “one time tax holiday,” taxing foreign income that is repatriated, or brought back into the US, at a rate of 10 percent – which is a fraction of the current rate of 35 percent. But will these gains be offset by the potential costs involved in setting up new operations or the possible loss of revenues should these changes require companies to raise the price of their products?

There are several other unknowns at stake for the tech industry. Above all, regulatory developments that will impact the tech landscape are top of mind given the potential impact to competition. Take for example the recently-announced transition team for the FCC. The team is led by two individuals who have been highly critical of both rules and of many of the policies of the current FCC. Net Neutrality may ultimately be repealed or watered down, impacting the competition between ISPs and providers.

This also includes what becomes of the R&D tax credit – a 13 percent dollar-for-dollar credit against taxes owed or paid for expenses associated with research. This is an important issue, yet one that has so far been largely absent from discussions of tax reform. Additionally, the future of cleantech and STEM education remains largely unknown.

During this transition period, which may last for some time, businesses may be tempted to adopt a “wait and see approach” until shifts in policy are clearer, but the reality is change on some level is inevitable. Smart companies are taking the long view by thinking through the strategic and operational impact of multiple scenarios under the new administration.

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