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Presidential Race Mirrors L.I. Election

By ANDREW GROSSMAN

The race for eastern Long Island's congressional seat looks a lot like a miniature version of the race for the White House.

Randy Altschuler, a clean-cut Republican with a master's of business administration from Harvard University, is challenging a sometimes-professorial Democratic incumbent, Timothy Bishop, accusing him of failing to do enough to boost the economy. The Democrat is going after the Republican's business record, saying he got rich at the expense of American workers.

Both are trying to appeal to a divided electorate that is pessimistic about the direction of the country. Suburban voters are crucial, as is a growing Hispanic population.

New York's First District, which includes the eastern half of Long Island from Smithtown and Patchogue out to the Hamptons and the North Fork, is one of the places where Republicans are on offense this year, hoping to head off expected Democratic gains elsewhere in the battle for control of Congress.

Recent history suggests the district presents an opportunity for the GOP. In 2008, the district favored Barack Obama by three percentage points. In 2010, Mr. Bishop beat Mr. Altschuler, then a political neophyte, by just 593 votes. More than 7,000 of Mr. Bishop's votes came on the Independence Party line. This year, the party has endorsed Mr. Altschuler.

But while Mr. Obama and Republican nominee Mitt Romney are tied in the district, according to a Siena College Research Institute poll of likely voters released Thursday, Mr. Bishop leads Mr. Altschuler by 13 percentage points, according to the poll. Eight percent of voters remain undecided.

"Barring some explosive local scandal which can always erase any other influence, how well Barack Obama does will go a long way to determining whether Tim Bishop remains a congressman," said Lawrence Levy, who runs the National Center for Suburban Studies at Hofstra University.

Mr. Bishop, a 62-year-old former college administrator, has represented eastern Long Island since defeating incumbent Republican Felix Grucci in 2002.

Mr. Altschuler is counting on the anger of voters like Michael Miller, a fisherman from Bellport who said he plans to vote against Mr. Bishop because he doesn't like Mr. Obama.

"I call it the Obama principle," he said. "To me, the guy's an abject failure. Get him out. And if Romney's a failure, get rid of him too."

Mr. Altschuler has been battered by attacks on his business career from Mr. Bishop. In 1999, Mr. Altschuler co-founded OfficeTiger, one of the earliest firms to take advantage of growing Internet connectivity to have employees in countries such as India perform office work for companies in higher-wage countries such as the U.S.

"My opponent started a company that all they did was outsource," Mr. Bishop said, echoing a message conveyed repeatedly in his campaign's advertising.

The criticism appears to have had an effect. Of seven national and local political figures including Messrs. Romney, Obama and Bishop, Mr. Altschuler, 41, had the lowest favorability rating in the Siena poll—39%. But 19% of likely voters said they don't have an opinion about the Republican, more than any of the other politicians.

Mr. Altschuler calls the criticism dishonest, pointing out that he is now the chairman of an electronics-recycling firm and seeking to tie policies supported by Mr. Bishop to the weak economy. "One of us has created jobs, the other one has helped drive them out of this country and destroyed them," he said.

Mr. Altschuler and other investors sold OfficeTiger to R.R. Donnelly & Sons Co. in 2006. Until 2005, the firm was based in the Netherlands with subsidiaries in the U.S., India and other countries where it had operations, according to Dutch corporation records.

That fact, previously unreported, drew condemnation from the Bishop campaign.

"Randy Altschuler made millions outsourcing American jobs, so it's no surprise that he also outsourced his own company to the Netherlands to avoid taxes," a spokesman for Mr. Bishop said. "Altschuler has made it abundantly clear he cares more about his own bottom line than American jobs."

Mr. Altschuler and others with knowledge of the company's finances said OfficeTiger was never in a position to avoid U.S. corporate taxes. That is because the start-up lost money for most of its existence, eliminating the need to move profits between foreign entities, Mr. Altschuler said.

"Randy has never avoided paying taxes and Tim Bishop knows it," a spokesman said.

It is common for companies with substantial overseas operations to set themselves up in the Netherlands, international tax experts said. That is because the Netherlands has an extensive network of tax treaties, allowing firms to move money between countries and, in many instances, avoid being taxed twice on income, experts said.

"It would be malpractice to set someone up with a U.S. company with substantial foreign investors and foreign operations," said H. David Rosenbloom, an attorney at Caplin & Drysdale in Washington who headed the Treasury Department's Office of International Tax Affairs during the Carter Administration.

OfficeTiger had a significant number of European investors, Mr. Altschuler said. Once those investors sold their stakes in 2005, an American parent company took over. It was the American parent company that was sold to R.R. Donnelly.

Meanwhile, Mr. Altschuler has asked the Office of Congressional Ethics to investigate a Politico report that said Mr. Bishop's daughter, who works for his campaign, solicited donations from a hedge-fund manager at the same time as the congressman was helping secure federal permits for a fireworks display at the manager's Southampton, N.Y., home.

House members are barred from seeking contributions linked to official business.

Mr. Bishop has denied wrongdoing and produced a commercial in which he faces the camera and calls the charge "despicable." "I've helped thousands of constituents because it's the right thing to do," he said in the ad. "And I've never asked for anything in return."

—Will James contributed to this article.

Corrections & Amplifications
Incumbent Republican Rep. Felix Grucci was defeated by Tim Bishop in 2002. An earlier version of this article incorrectly said his first name was Frank.

Write to Andrew Grossman at andrew.grossman@wsj.com

A version of this article appeared September 17, 2012, on page A19 in the U.S. edition of The Wall Street Journal, with the headline: Presidential Race Mirrors L.I. Election.