CEOs and the Fiscal Cliff: What Influence?
One afternoon during the 2012 Democratic convention in Charlotte, a handful of current and former Obama White House officials snuck away to address executives and investors gathered at Wake Forest University’s business school. The meeting was convened by a Democratic group called Business Forward that enlists business leaders to help Washington make policy. Austan Goolsbee, the former chairman of the Council of Economic Advisers, and Jon Carson, a top White House official, laid out the administration’s approach to the upcoming fiscal cliff and urged the audience to push their local representatives toward a constructive resolution.
Business Forward is funded by more than 40 corporations, including Google, McDonald’s, Dow Chemical, and Wal-Mart Stores, and conducted hundreds of such meetings throughout the country, even bringing executives for briefings at the White House. It was part of a broad campaign by business leaders to apply influence, connections, and money to a political process that many see as dangerously out of control. “The business community engaged at a much more significant level than any time in recent memory,” says former Republican Senator Judd Gregg of New Hampshire. “There was much more aggressive CEO participation than I’ve ever seen before.”
Executives made clear they hoped to facilitate a grand bargain that would bring the federal budget into alignment with revenue and reform the corporate tax code. Their effort was supposed to culminate with the fiscal cliff, a doomsday device Congress created last year to force deficit reduction on reluctant politicians. Publicly, through CEO organizations such as Fix the Debt, and more discreetly, through groups like Business Forward, the plan was to exert the business community’s muscle to steer squabbling, short-sighted politicians toward responsible decisions through meetings, paid advertisements, and personal lobbying.
That didn’t happen. In the critical weeks leading up to the deadline, most CEOs shied away, the negotiations repeatedly collapsed into acrimony, and the scope of the deal shrunk dramatically. “They were literally useless,” says former Representative Barney Frank of Massachusetts, who was the highest-ranking Democrat on the House Financial Services Committee. “Their only message was, ‘Get together and come to an agreement.’ But the question wasn’t whether it was desirable to come to an agreement. The operational question was, ‘What should the agreement contain? What should you compromise on?’ I see no evidence that they influenced anyone on this.”
One executive who did maintain a prominent profile during the negotiations, Starbucks CEO Howard Schultz, came to personify this ineffectiveness. In a widely mocked campaign, Schultz had Starbucks baristas write “Come Together” on the cups of Washington-area coffee drinkers—an effort, he explained, to “ignite tremendous positive change.” Says Frank: “That was just stupid.”
A more generous appraiser might point out that shaping laws is supposed to be Congress’s business. Schultz’s effort to push for a long-term budget deal that would help the economy was well-intentioned. But galvanizing public attention is only the first step to getting a bill through Congress. The CEOs either didn’t understand how to achieve what they sought or didn’t want to become tarnished by politics.
The corporate titans who tried to use the budget talks as an occasion for serious deficit reduction will soon have another chance to get it right. The deal that Congress grudgingly passed and President Obama signed just after the new year sets up a much larger showdown two months from now over the debt ceiling. “These issues will be front and center until something is done,” Maya MacGuineas, head of the anti-deficit Committee for a Responsible Federal Budget, predicted after the election.
It was the economic hit from the last debt ceiling showdown, in July 2011, that prompted many corporate executives to want to play a bigger part in Washington. After the near-default, consumer confidence plunged and Standard & Poor’s downgraded the U.S. credit rating. Shaken by a threat that few people on Wall Street had anticipated, groups like Fix the Debt, an organization of CEOs and ex-politicians including Gregg, formed to pressure Washington. “We have had almost weekly meetings of groups of CEOs and members of Congress—dinners, lunches to talk about the issues and the importance of addressing fiscal problems,” Gregg says. The U.S. Chamber of Commerce and the Business Roundtable also took visible roles.
The cliff’s approach this fall was expected to force open the door to a grand bargain that would stabilize and eventually reduce the long-term deficit. “We pledge our active support for a compromise that includes comprehensive and meaningful tax and entitlement reforms that result in market-credible spending reductions and revenue growth,” the leaders of the Business Roundtable wrote in a Dec. 11 letter to Obama. The president, too, was seeking to strike a big deal and enlisted prominent business leaders to join him. On Nov. 28, he hosted a group of CEOs at the White House, including Lloyd Blankfein of Goldman Sachs Group, to win their support for a package of tax hikes and spending cuts. Afterward, Blankfein declared the president’s plan “very credible” and said a deal seemed reachable.
Yet the push by business turned out to be inadequate for two reasons. First, most CEOs didn’t want to be labeled partisans, so many resisted supporting or criticizing specific policies or politicians. “I never heard from them, and I don’t think Republicans did either,” Frank says. That left executives mostly on the sidelines when negotiations got serious, limiting their contribution to anodyne encouragement such as Schultz’s that seemed chiefly concerned with not offending either party—and therefore risked no judgment about what shape the deal should take.
Second, voicing their support for higher personal-income tax rates for the wealthy, as Blankfein did, upset many small business owners who’d be affected by higher rates and diluted the power of their message. When the Business Roundtable, a trade group for large corporations, indicated its support for higher income tax rates, small business groups and their allies in Congress fought back. “Big business may support raising tax rates on small businesses, but I do not,” Representative Dave Camp of Michigan, chairman of the House Ways and Means Committee, said in response. “The solution to the fiscal cliff isn’t higher tax rates, which economists agree will destroy hundreds of thousands of jobs for middle-class families.”
The business community’s lack of influence proved costly. In almost every particular, the deal Obama signed is the opposite of what CEOs were calling for: Rather than build confidence that Washington can work cooperatively, the process was pure chaos. Rather than usher in a grand bargain, the deal barely reduces the deficit and doesn’t cut spending. And rather than establish the policy certainty executives say would encourage investment and spur growth, it has set up a contentious showdown that is certain to roil financial markets.
Oddly enough, that makes the input of the business community all the more necessary—provided its leaders are willing to do more than offer peppy exhortations on coffee cups. “They need to endorse the specific policy they favor,” Frank says, “and in the case of the debt ceiling it’s a no-brainer. You call up [House Majority Leader] Eric Cantor and tell him the debt limit should be increased without any hostage-taking.” Frank added, “This will be a test for the financial community and its leaders. At some point, they will have to tell their allies in the Republican Party to cut the s---.”
In milder language, Gregg agrees that the debt limit stands as a significant challenge. “CEOs have a deep interest in getting our house in order, and this deal does not resolve the bigger problems,” he says. The prospect of another ruinous debt ceiling fight should provide plenty of encouragement. The good news is that this time it won’t come as a surprise.