Rift between GOP, corporate America creates opening for Biden’s tax plan

The morning that President Biden introduced his jobs and infrastructure plan, senior White House officials briefed Goldman Sachs CEO David M. Solomon, Bank of America CEO Brian Moynihan and four other chief executives of the country’s biggest banks about the measure.

White House officials in a 24-hour period also briefed powerful business groups such as the National Association of Manufacturers, the U.S. Chamber of Commerce and Business Roundtable about the proposal, while also planning outreach to thousands of small businesses. White House senior adviser Cedric L. Richmond and White House National Economic Council Director Brian Deese were among the administration’s emissaries for the legislation.

The meetings were in part the result of an effort from the Biden administration to take advantage of the growing rift between corporate America and the Republican Party as they seek to sell the nation on more than $2 trillion in tax hikes.

“We have prioritized business outreach; we think they have an important role to play and that their voice is important,” said Zach Butterworth, the White House’s director of private sector engagement. “They know we’re operating in good faith and that we’re proposing policies that are good for workers and good for business.”

The strategy is aimed at blunting the ferocity of business opposition to the tax hikes, likely the most controversial part of Biden’s jobs and infrastructure package. White House officials have argued to corporate executives that the tax hikes are necessary to fund large investments in public infrastructure that the business sector has long sought. But Democratic officials also recognize that their efforts risk bringing about a quick reconciliation between the GOP and business community, driving them together in opposition against a common foe.

Commerce Secretary Gina Raimondo has spoken to more than 50 leading executives in recent days about the plan, according to her spokeswoman.

“Some [executives] have said they’re fine with the tax increases as proposed; others have said they’re expecting a corporate tax increase” and were relieved Biden is not pushing for it to be increased to 35 percent, Raimondo said in an interview. The corporate tax rate was at 35 percent before Trump’s 2017 tax law. “Others have said maybe there’s some room for compromise on the rate or that the base doesn’t have to be broadened as much. To which I say: ‘The president has been very clear; there is room for compromise.’ ”

Corporate America’s relatively muted reaction thus far to significant tax hikes was until recently unthinkable and reflects major changes in U.S. politics — the most important of which may be the recent falling out between the GOP and business elites.

When congressional Republicans worked to approve a $2 trillion tax cut in 2017, the GOP and corporate America worked together seamlessly to build support for the measure and push it into law.

Now, that relationship is under unprecedented strain. Congressional Republicans are incensed by corporate criticisms over GOP-backed voting restrictions and stances on culture war issues. Business groups, meanwhile, have increasingly eyed the GOP as a dangerous partner, toxic to their brand and harmful to their ability to recruit young worker talent.

“Capitol Hill Republicans and big business groups like the Chamber [of Commerce] are not as close as they once were. And that weakens their ability to affect the tax bill; it just does,” said Matt Mackowiak, who runs Potomac Strategy Group, a Republican political and corporate consulting firm.

The rift began under former president Donald Trump but was dramatically accelerated after the Jan. 6 Capitol riot and disagreements over a new Georgia voting rights law. Those disputes come on top of months of fights over other issues, such as climate change and transgender rights, in which parts of corporate America has tried to find separation from the conservative base. GOP lawmakers such as Sen. Ted Cruz (R-Tex.) have pushed for revoking antitrust immunity for Major League Baseball — which moved the All-Star Game out of Georgia due to the voting law — and said “cancel culture” has infected elite business circles.

“It’s a thankless job defending corporate America, and it’s even more thankless when corporate America is simultaneously poking you in the eye,” said Brian Riedl, a former aide to Sen. Rob Portman (R-Ohio) now at the Manhattan Institute think tank. “When I talk to Republicans, they are really, really frustrated about this. They are exhausted from defending the 2017 tax cuts from attacks that it was too tilted to the rich and don’t see political upside in defending low taxes for corporations.”

An increasing number of Republicans are taking a more aggressive stance against big businesses. Andrew Surabian, a Republican strategist, said: “If these corporations want to act like mini-governments and they’re going to throw in with the other side nonstop, we should stop pretending they’re our allies. If they’re not our allies, why would we ever waste any political capital on them for some of the very unpopular things they want to get done in government?”

To be sure, both business groups and Republican lawmakers have criticized the Biden tax plan as likely to hurt American workers and U.S. competitiveness internationally.

Senate Minority Leader Mitch McConnell (R-Ky.) has joined other GOP leaders in repeatedly slamming the “massive tax increases on all the productive parts of our economy.” Republicans have ruled out supporting an infrastructure package that includes corporate tax hikes, pushing instead for the funding to be raised from user fees.

A senior Senate Republican aide, who spoke on the condition of anonymity to describe internal thinking, said: “Regardless of what the business community does, Republicans will never not be energized to run against Democrats who raise your taxes.”

And many people in both the GOP and business community believe the rift will mend as the corporate tax hikes become closer to a reality. Congressional Republicans stewed last fall when the U.S. Chamber, a traditionally safely GOP ally, endorsed an unprecedented 23 House Democratic lawmakers in the 2020 elections. But last week, the group came out with a blistering attack on Democrats’ voting rights bill, in a potential sign of reconciliation. The National Association of Manufacturers has warned Biden’s tax hikes would “cost a million jobs,” while the influential Business Roundtable has launched an advertising campaign opposing the measure.

Still, the White House’s tax plans have divided the business world in ways few predicted. Many small businesses, for instance, are largely spared from Biden’s proposed tax hikes and their advocates have been relatively quiet in opposing the measure. Other business groups stand to benefit substantially from other parts of the bill, such as its research and development funding and infrastructure investments.

Amazon, for instance, baffled some GOP lawmakers by saying it supported an increase in the corporate tax rate and cited the need to improve U.S. infrastructure. (Amazon chief executive Jeff Bezos owns The Washington Post.) Executives at Intel, Lyft, Ford, Toyota and other leading firms have expressed positive sentiments about Biden’s push. Hospital and other health industry groups have backed the plan’s $400 billion investment in home care.

And further diminishing the extent of business opposition is that Biden’s tax hikes could be substantially weakened before final legislation is passed into law. Sen. Joe Manchin III (D-W.Va.), whose vote Democrats need to pass the measure without Republican support, has been adamant that the corporate tax rate only be raised from 21 percent to 25 percent, rather than the 28 percent proposed by the White House. Corporate America would oppose such a measure but likely “could live with it,” as one lobbyist put it.

A raise from 21 to 25 — which is where Manchin has put the marker at — is not going to create mass hysteria, particularly when many corporations had an economic boom during the pandemic,” said Jefrey Pollock, founding partner and president of Global Strategy Group, a public relations and polling firm.

Republicans are hopeful the tax hikes will remind business groups that Republicans are their natural allies. Lisa Spies, a GOP fundraiser, said she is advising companies to not make knee-jerk decisions because they might come to regret it. Spies said they needed to remember that Republicans would likely support more of the policies that help their bottom line — and they would need them to defend their favored business stances.

“After the riots on January 6, I told people, why don’t you wait and see what the new president’s policies are and that should direct your giving?” she said. “You should just focus on the policies.”

For now, though, business groups are keeping their distance from Republicans even as leading politicians like Florida Gov. Ron DeSantis hammer their priorities. Former congressman Barney Frank (D-Mass.), who faced intense industry opposition for banking reform proposals he advanced under President Barack Obama, said corporate America increasingly fears the impact of a populist right more than they do of the center-left Democratic establishment.

“The business community, responsible elements of the business community, have figured out it’s in their interest to help defuse angry populism,” Frank said. “They’re not afraid of Joe Biden. Biden does not say they’re bad people, and that’s a large part of it. But they’re also not as afraid of what Democrats will do. They’re much more afraid of the Republicans.”