How To Fend Off Pork And Influence People
Sometimes it's fun to revisit recent history. Looking back at George W. Bush's 2001 tax-cut package, it was clear that this particular piece of legislation was an unabashedly ideological
victory. What does that mean? This: The Bush wing of the Republican party, it should be clear, has a very distinct macroeconomic vision, that can be summarized roughly: cut taxes on savings to stimulate investment, pursue higher growth at all costs, maintain price stability, keep government small, etc. Sadly for Republicans, this vision usually runs into all sorts of real-world problems: Tax cuts create deficits; Republicans can't reduce the size of government; it seems to be lost on most conservatives that "lots of military spending" makes for "big government; it's doubtful that Greenspan can keep monetary policy fairly loose and
maintain price stability given the current budget situation, and so on.
But probably the biggest
obstacle to the "neoconomist" vision—as Daniel Altman calls it—are the hordes of corporations all demanding their due. As Matt Yglesias
have pointed out, in practice Bush economic policy has been less about promoting free markets and more, much more, about special favors for the GOP's business allies. It's a tremendous distortion of the free market all around. And that makes it so startling that, back in 2001, the original Bush tax cut passed in nearly pure form: there were no serious handouts to corporations, no subsidies, no distortions of markets. For the pure "neoconomists" in the Bush administration—Glenn Hubbard, Larry Lindsay, Richard Clarida—this was quite the victory. So how did they hold their corporate allies at bay?
Michael Graetz and Ian Shapiro's new book, Death By a Thousand Cuts
, describes quite nicely the process leading up to passage of the 2001 tax cuts. Shortly after Bush's election, the Business Roundtable
(BRT)—an association of CEOs from 150 of the largest corporations in the country—met at the White House to start clamoring for tax cuts and special favors for their own companies. But Bush and his aides held the BRT at bay, mainly because they knew that if the tax cut package became a free-for-all of competing corporate subsidies, it could very well get derailed in Congress. (In light of the 2004 package—a festival of pork!—this seems like a faulty assumption, but that's what they thought.) More importantly, if Bush's first major domestic initiative got sunk, the unpopular president would essentially be a lame duck only a few months into his first term.
Hence, the president "hinted, but never promised" that businesses might get a second tax cut if the economy actually did take a little downturn (which still wasn't known for sure at the time), and convinced the BRT that they should all have a strong interest in giving Bush's business-friendly presidency some early momentum. Plus, the individual CEO's obviously all had a lot to gain from the 2001 income tax cuts, even if their businesses wouldn't get any goodies or subsidies per se.
After that little chat, it was light breezes and tailwinds all the way. Dirk Van Dongen (right
), president of the National Association of Wholesale Distributors
(NAW), created the Tax Relief Coalition that maneuvered to bring various business organizations and K Street into the fold. Even the National Association of Manufacturers
, which is one of the least
free-market oriented Republican constituencies—favoring tax subsidies for writeoffs and R&D, and a semi-protectionist trade policy abroad—eventually swallowed its own corporate demands and lent its support to the tax package.
The importance of this business-coalition unity really can't be understated. For starters, it convinced House Ways and Means Chairman Bill Thomas not to reshape the tax cut bill according to his own, usually mercurial, whims. On a broader level, the coalition was an unstoppable lobbying force. One of the interesting things about the Tax Relief Coalition
(TRC) was that, as Graetz and Shapiro put it, "it was unambiguously the Bush White House's coalition." Unlike most business alliances, the TRC had no
other goal than to support the White House, no matter what the White House actually decided on doing. Needless to say, the 2001 tax cut bill passed through Congress in May: it turned out smaller than the White House wanted, but still far bigger and far more radical than anyone really expected. And most amazingly of all, the tax bill was almost entirely free of the sorts of corporate handouts that dominated the 2002, 2003, and—oh dear lord
—the 2004 tax cut bills. So yes, business unity obviously makes quite a difference.
Now the key question is whether or not the TRC will stick together long enough to get the Bush tax cuts—which expire over the next decade—made permanent. Since the 2001 tax cuts, subsequent tax packages have contained many more corporate goodies, and were much more favorable to the GOP's business allies, so we can expect a pretty fierce struggle to keep those provisions intact. (Note: Even though subsequent tax cuts were "business-friendly," they still to a large extent furthered the "neoconomist" vision described above.)
The problem here is that the current unsustainable budget deficits mean that Congress—even this Republican-dominated Congress—will in all likelihood have to pick and choose which
of the cuts should be made permanent and which should be allowed to expire. When that happens, businesses may start competing with each other for their own favored cuts. The alliance between, say, the large corporation-dominated Business Round Table and the small-business NFIB may soon start to unravel. That lack of unity could make it much, much harder for the Bush administration to get further tax cuts passed, and could force the White House to rely far, far more on corporate handouts to draw support and loyalty from the business community.