Big Business Sells Out Small Business


CEOs say yes to higher individual taxes in return for Obama’s promise of corporate tax reform.

Were the Hollywood academy to hand out Oscars for roles in this fiscal cliff drama, the winner of the Best Charlatan award would not be in much doubt. Corporate America, take your bow.

Say this for the Republicans and Democrats: Both sides are fighting over principles. Nothing so generous can be said for the bulk of America’s corporate chieftains, whose agenda lately has been to stick it to everyone else.

As the negotiations have rolled on, a growing collection of CEOs and big-business lobbies have fallen in line with President Obama’s cry to raise income taxes on those making more than $250,000. To listen to these CEOs, this is the ultimate self-sacrifice. “I would pay more in taxes” in a budget deal, explained the noble Honeywell CEO Dave Cote, but it would be worth it to “put the economy on a sounder footing.”

We’ll see how much more Mr. Cote’s personal accountants ultimately allow him to pay. Meanwhile, the virtuous poses appear to be cover for a bigger game.

The Business Roundtable let the cat out of the bag on Dec. 11 when it circulated a letter signed by 150 of its corporate titans sanctioning year-end income-tax hikes. The letter happened to appear a few hours after the White House leaked its offer to include corporate tax reform as part of any cliff deal. The reform, in theory, would lower corporate tax rates.

Put another way, the Roundtable saw an opportunity to make the one million small American business owners who pay individual income taxes shoulder a big rate hike (up to 39.6%, from 35%) while radically lightening the tax load for the Roundtable’s own corporate behemoths (to 28% from 35%). Any corporate tax reform hinges on closing “loopholes” to pay for a lower corporate rate. Small business owners would lose tax perks along with everyone else—meaning they would pay even more—but they would not benefit from lower corporate rates.

“Everybody’s got to feel a little bit like they’re getting nailed,” Jim McNerney, the chairman of both Boeing  and the Roundtable, said of the lobby’s cliff-deal position. He neglected to note that those getting “nailed” most emphatically would be Mom & Pop America.

The Roundtable is getting cover from the RATE Coalition—a group of companies including AT&T,  Ford, Lockheed Martin   and Home Depot   —that is committed to obtaining a “lower corporate tax rate.” The coalition sent its own letter on Dec. 6 begging the White House and Congress to “set the framework for comprehensive reform in 2013.”

RATE’s co-chair, Elaine Kamarck, who once led the Clinton administration’s “reinventing government” effort, suggested it would be best to separate any corporate tax reform from individual tax reform, since the latter was complicated and might mess up the former. So not only would small businesses provide the down payment for a Fortune 500 tax cut, they would also get booted from any broader tax-reform ambitions. (Ms. Kamarck later backpedaled.)

Some CEOs have taken to spinning bizarre economic logic on behalf of their position. Witness FedEx CEO Fred Smith, who recently explained that it is “mythology” that raising taxes on small business kills jobs. But it was true, he said, that lowering corporate rates for big business will help create jobs. Track that logic.

The White House is lapping all this up, using the corporate sellout to its political advantage. President Obama has appeared mainly with the big CEOs who agree with him, the better to present them as representative of all business, and the better to highlight their back-stabbing of Republican budget negotiators. By contrast, the National Federation of Independent Business—which remains opposed to individual rate hikes on its many small business members—has been treated like a pariah. That’s the thanks that they, along with the Chamber of Commerce, get for holding true to the principle of tax reform and lower taxes for all businesses.

The White House played a similar game with Big Business leaders during the health-care debate. Back then, the president promised that in return for their support of ObamaCare he’d give them corporate tax reform. Fool me twice . . .

Corporate tax reform, for the record, is extremely important. America’s corporate rate is the highest in the world, which makes competition in global markets difficult. The high rate also retards growth.

But corporate tax reform counts for less when it causes influential business leaders to abandon long-held principles about the importance of overall tax rates. Reform means even less when it comes at the expense of small businesses, which create three out of every four new jobs. It means still less when it allows the White House to exploit the divisions in the business community for the purpose of increasing spending and piling up more debt.

Corporate America resents that this president and the public often unfairly cast it as self-interested, unprincipled and cynical. Fair enough, though it might try not playing to type.

A version of this article appeared December 21, 2012, on page A17 in the U.S. edition of The Wall Street Journal, with the headline: Big Business Sells Out Small Business.

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