By Joseph J. Thorndike -- firstname.lastname@example.org
Has the Tea Party fractured the alliance between business leaders and the Republican Party? The New York Times thinks so. In a January 15 article, the paper described problems in this long-standing marriage of convenience -- problems brought on by the Tea Party's populist leanings.
The Times pointed to the debt limit debate as a case in point. In the middle of January, Republicans seemed on the verge of risking the nation's economic future simply to make an ideological point. Agitated Tea Partiers were unmoved by the pleadings of sober business leaders asking for an increase in the ceiling. "This is not their parents' Republican Party," the Times said of the business leaders.
Of course, Republicans soon stepped back from the brink. Apparently they were listening to business leaders, or at least to pollsters who were also counseling an extension of the debt limit. But the essential point of the Times article retains its force: Modern Republicans are not lackeys of the business community.
But were they ever? That seems less clear. Certainly, business leaders have often found a lot to like in the Republican policy agenda. And GOP politicians have enjoyed the campaign contributions of grateful business leaders and their various lobbying groups.
But the relationship between business and the GOP has never been a simple and unwavering alliance. Like any political relationship, it has evolved over time. It has reflected, moreover, a more complex reality than can be captured in dualistic generalizations about "business" and "Republicans." In particular, the business community has been far from unitary over the years, and its policy agenda has been similarly varied.
Big and Small
Perhaps the most obvious division within the business community has been between large and small enterprises. Each group has always supported its own lobbyists, although the institutional identity of these advocates has changed over time. Nowadays, the emblematic Washington organization for small business is probably the National Federation of Independent Business, while the Business Roundtable seems the most obvious voice of big business. In the 1930s, by contrast, these roles would have been filled by the U.S. Chamber of Commerce and the National Association of Manufacturers.
The policy agendas of big and small business have never been fully aligned, although there has often been a lot of common ground. This has been especially true regarding tax policy, where almost all business groups have been low taxers of various sorts, inclined to resist almost every proposal to raise taxes and support almost every plan to cut them.
But differences have emerged, predictably, regarding the subject of corporate income taxes, with big business groups taking the lead on reducing such levies while small business organizations have often focused on other issues (including individual tax rates).
Today, Republicans are looking to capitalize on the big/small division within the business community. Small businesses have always enjoyed a public relations advantage over their big business colleagues -- even soak-the-rich champions like Franklin Roosevelt and Harry Truman paid homage to the mom-and-pop store on Main Street.
Likewise, today's Republicans are using the big/small distinction to craft a populist agenda for economic reform. Or at least to frame an agenda that may or may not find its origins in that distinction. As the Times noted:
Big business, many Republicans believe, is often complicit with big government on taxes, spending and even regulations, to protect industry tax breaks and subsidies -- "corporate welfare," in their view.
This is an old argument, popular on both the left and the right. Liberals, needless to say, have been inclined to harp on the privileges enjoyed by big business, thanks in large part to energetic lobbying. When accelerated depreciation made its first appearance in 1954, for instance, many left-leaning lawmakers were quick to disparage it as a handout to the nation's richest, most well-connected companies.
Likewise, left-wing historians have argued for decades that many (perhaps even most) forms of regulation are ultimately designed to protect the very industries they purport to control. Whether through wholesale "regulatory capture" or more subtle forms of co-option, business has ultimately controlled the instruments of its own ostensible subjugation (at least according to theorists like Gabriel Kolko).
Even the income tax has been reduced to this sort of symbolic role. Critics of U.S. capitalism have seen the tax -- both corporate and individual -- as a form of "corporate liberalism," in which high-profile but economically toothless taxes have been used to head off more serious challenges to the perquisites of capital ownership.
Conservative critics of big business have taken a different tack, but they have arrived at remarkably similar conclusions about the relationship between big business and big government. Former Sen. Barry Goldwater observed that the business establishment "centered in the boardrooms of virtually all major companies and businesses -- banks, insurance firms, financial institutions, steel and auto companies, the works" -- were in league with the champions of big government. Indeed, they were on the payroll. As historian Kim McQuaid summarized the Goldwater indictment in Uneasy Partners: Big Business in American Politics, 1945-1990: Big business "had been bribed to forget that big government is almost always the problem."
Taxes were a leading instrument of such bribery. Almost from the start, the income tax was loaded with tax preferences designed to ensure that individual companies -- and often entire industries -- were heavily invested in the existing system. If big taxes were the key to big government, then businesses were complicit in the monstrosity.
Those sentiments have survived on both the left and right for decades, and recently, they have been showcased as an element of the modern GOP brand. Perhaps the most eloquent spokesman for this sort of neo-Goldwaterism is Sen. Ted Cruz, R-Texas. A Tea Party favorite, Cruz explained to The Wall Street Journal last year exactly how big business had been co-opted by the forces of the Leviathan. "Big business does great with big government," he said. "Big business is very happy to climb in bed with big government. Republicans are and should be the party of small business and of entrepreneurs."
On some level, of course, Cruz seems to have made his peace with big business, at least during election season. During the most recent campaign cycle, his two biggest contributors were the Club for Growth and the Senate Conservatives Fund -- both suitably purist conservative movement organizations. But also on his list were a collection of big-name law firms, not to mention the nation's most famous investment bank, Goldman Sachs. All presumably fine organizations, but not ones known for their small business bona fides.
Of course, any port in a storm and any donor during an election; Cruz is hardly unique in taking money from people he chooses to vilify. But he and many of his Republican colleagues have also been willing to carry water for many giants of the U.S. corporate economy, including Wall Street banks. For instance, the Republican establishment has almost uniformly opposed regulatory measures aimed at financial institutions. Notably, however, it has often framed its opposition to that regulation in small business terms, insisting that a law like the Dodd-Frank Wall Street Reform and Consumer Protection Act "hits small community banks hardest."
That may seem like atmospherics, and in strictly policy terms, maybe it is. But the political distinction is important. In recent years, Republicans have been trying to create some light between themselves and their erstwhile business allies. In doing so, they are channeling the Goldwater insurgency of the 1960s.
Implications for Tax Reform
The big/small divide is hardly the only distinction evident within the putative community of business interests. My colleague Martin A. Sullivan, for instance, has extensively chronicled divisions among U.S. companies over the hot topic of corporate tax reform, with some companies focused on rate reduction and others on territorial reform. Those divisions don't fall along size lines, instead following sectoral divisions of the economy. But they may well have implications for the changing relationship between business organizations and the evolving Republican Party.
How will Tea Party ideology deal with the potentially large shifts in corporate tax liability that might flow from corporate tax reform? It's a hard question to answer, but one possibility may be that Tea Partiers take a pass on large-bore corporate tax reform entirely. Under almost any scenario, such reform is unlikely to do much for the vaunted small business of Main Street. And depending on how the Tea Party tries to rebuild the Republican coalition, big business tax reform may turn out to be an inconvenient distraction from the neo-populist project.
About Tax Analysts
Tax Analysts is an influential provider of tax news and analysis for the global community. Over 150,000 tax professionals in law and accounting firms, corporations, and government agencies rely on Tax Analysts' federal, state, and international content daily. Key products include Tax Notes, Tax Notes Today, State Tax Notes, State Tax Today, Tax Notes International, and Worldwide Tax Daily. Founded in 1970 as a nonprofit organization, Tax Analysts has the industry's largest tax-dedicated correspondent staff, with more than 250 domestic and international correspondents. For more information, visit our home page.
For reprint permission or other information, contact email@example.com