Democrats Are a Big Corporation’s Best Friend

| October 16 2012
Christopher Cook

Of all the psychological ticks on the political left in America, projection is one of the most common (and most grating). For those unfamiliar with the term . . .

Psychological projection or projection bias is a psychological defense mechanism where a person subconsciously denies his or her own attributes, thoughts, and emotions, which are then ascribed to the outside world, usually to other people.

How many times have you heard Democrats hurl the phrase, “Republicans and their friends in big business” the way a boxer throws a left jab? How many times have you heard them position themselves as the party of the little guy, using phrases such as, “Small business is the backbone of the American economy” and the like?

This is as naked an example of projection as one will find. In reality, the Democrats’ policies are far friendlier to large corporations and far more injurious to small business than anything the Republicans manage to conjure up. The reasons for this are legion, but can be boiled down to three main areas:

  1. Regulations
  2. Crony capitalism
  3. Tax policy Chuck Schumer

We will address each in turn.

 

Regulations

The phenomenon here is actually quite simple: Big corporations have the money to comply with regulations; their smaller competitors often do not. A new law, mandate, tax, requirement, or other kind of regulation comes down the pike and the corporation has the manpower and resources to deal with it, usually without even breaking a sweat. For a small business, on the other hand, a new regulation might be enough to break the bank.

In 2010, we co-wrote a video on the subject that you may find instructive:

 

Crony capitalism

Anyone who pays even marginal attention to politics knows that, generally speaking, the Democrats favor more regulations and the Republicans favor fewer. The Democrats try to use this as fuel for their argument that Republicans are friends of big corporations. No doubt, some Democrats lack the ideological self-awareness and understanding of basic economics required to realize that adding more regulations doesn’t hurt big corporations, it only makes them stronger. Others, in more sinister fashion, are fully aware of this, but still use the charge to score political points against Republicans, and to burnish the we’re-friends-of-the-little-guy armor they like to don for their political jousts.

As it happens, the subjects of regulations and crony capitalism are highly correlated.

An illustration . . .

Let’s say you’re Coke or Pepsi. A local gourmet soda operation is going like gangbusters. People love all the unique flavors and start buying a little more of their sodas, and a little less of your cola and other products. This Lilliputian soda concern is eating into your Brobdingnagian market share!

Along comes government with a new regulation: Businesses over a certain number of employees must install certain facilities, institute certain practices, or provide all their employees with something (e.g., a mandated kind of health insurance, which must be provided or a per-employee penalty must be paid, as in Obamacare). You’re one of the biggest beverage corporations in the world—complying with this new law is no problem. For the local gourmet soda operation, however, things are much different. The cost of compliance is prohibitive. They were going to make a run at going from a local to a regional operation, but that would take them over the employee threshold that triggers the compliance requirement. They decide to stay local.

You’re Coke or Pepsi. A new government regulation came along that kept a local business from becoming a regional threat to your market-share dominance. Are you  . . .

A) Happy
B) Sad?

Now, what makes anyone think that corporations will simply sit idly by and wait for these regulations, when they can work directly with government to make them happen? Enter crony capitalism.

Beginning in the creche of the Progressive era (Woodrow Wilson and Teddy Roosevelt), moving through its coming of age (the FDR era), and continuing to today (Bill Clinton, Robert Reich, Barack Obama, et al), one belief has been fairly constant on the left: The government should play a heavy role in economic and industrial policy . . . and should work hand-in-hand with business, wherever possible, to make that happen. Thus, for almost a century, Democrats have been engineering things so that big business is helping to write the rules under which they will be governed.

Under Obama, this phenomenon has both accelerated and developed a far more pungent aroma of corruption. General Electric’s CEO Jeffrey Immelt goes to work in the Obama administration and, lo-and-behold, GE pays no corporate income taxes for two straight years. Millions in taxpayer dollars are sent to General Motors, primarily to the United Auto Workers, which then returns a lot of that same money back to Obama for his reelection campaign in the form of donations and local electioneering. The same happens with green energy boondoggles: Solar companies whose leadership just happen to be Obama donors receive lots of taxpayer money, and the favor is naturally returned.

But even without Barack Obama laundering your tax dollars into donations for his campaign via his corporate cronies, crony capitalism and corporatism have been features of the American economic and political landscape for nearly a century. Republicans have not been blameless in this, but when big business comes looking for government help to squeeze out the little guy, they have always found a far more fertile field to the left side of the aisle.

 

Tax policy Chuck Schumer

Democrats often talk about raising taxes on the “rich.” Their definitions of “rich” vary, but our current president once defined them as people making $125,000 a year or couples making $250,000 a year. First of all, in today’s economy, that hardly qualifies as rich. Far more importantly, however, that threshold, and even ones well above it, encompasses millions of small businesses. These small businesses—many of which are pass-through entities (S-corps, sole proprietors, etc.) directly affected by the Democrats’ taxes on the “rich,”—employ millions of Americans. More often than not, the Democrats’ tax policies have no impact on the Montgomery Burnses or Jeffrey Immelts of this world, but they do impact America’s small businesses and the millions that these businesses employ.  And yet we are treated to incessant rhetoric about the “rich” not paying their fair share; about how the Republicans are protecting their “rich” buddies in business; and how the Democrats are the friends of the little guy.

Enter Senator Charles Schumer, friend of the “little guy” extraordinaire:

The polls say voters want more bipartisanship, and one possibility in 2013 is tax reform that trades lower rates for fewer loopholes. Well, so much for that. The man who wants to be the next leader of the Senate Democrats has declared that this “old-style of tax reform is obsolete.”

The antireformer is Chuck Schumer, the Senator from Wall Street, er, New York, who averred at the National Press Club last week that his party will have nothing to do with tax reform of the kind that Ronald Reagan negotiated with Democrats in 1986, or that the Simpson-Bowles deficit commission proposed in 2010, or that the Gang of Six Senators have been working on. It’s Chuck’s way or no way.

And what is Chuck’s way?

Curiously, Mr. Schumer also says “it is imperative that we seek to reduce the corporate tax rate from 35%” in a revenue-neutral way. He says lower rates for companies will “boost growth and encourage more companies to reinvest in the United States.”

So a 35% tax rate on corporations hurts growth and investment, but tax rates approaching 50% on small businesses and subchapter S corporations (which pay taxes at the individual rate) are no problem. This is Democratic corporatism, favoring big over small business. In particular look for Mr. Schumer to protect the 15% tax rate on carried interest to please his hedge-fund contributors. A genuine tax reform would tax business income at the same rate.

Mr. Schumer’s speech is best understood as a political marker no matter who wins re-election. If Mitt Romney wins, Mr. Schumer will browbeat any Democrat who even thinks about supporting a Simpson-Bowles-Reagan-style reform. If President Obama wins, the Senator will fight the kind of tax deal that House Speaker John Boehner has said he wants as part of a grand budget compromise. Who’s the real partisan obstructionist?

Charles Schumer may be a particularly repellent example, but he is by no means the only example of this classic Democrat pattern:

Vilify big corporations and accuse Republicans of being in bed with them, while taking their campaign money and working with them to make them stronger and their smaller competition weaker.

Pretend to be the best friend small business ever had, while engineering tax and regulatory policy crippling to small business.

Then, for good measure, use demagoguery to rile up lower income voters, and pretend to be the only force saving them from evil corporations and the greedy rich.

Though reprehensible, this formula has been politically successful for many decades. The Democrats rely on the fact that most Americans are generally too busy to ferret out the truth. They work to inspire envy, greed, and the worst of base human passions in order to continue this charade.

But every game of charades ends eventually.

With the democratizing effect of technology and the Internet, alternatives sources of information are everywhere. People are becoming more educated on the issues. Things are changing, and in the political environment of the near future, Chuck Schumer and his dissembling colleagues may find it considerably more difficult to maintain this particular party game.

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