A broad swathe of the US’ leading chief executives have dropped its opposition to tax increases on the wealthiest Americans, while the White House quietly pressed Wall Street titans for their support as well.
Before Tuesday’s about-face, the Business Roundtable had insisted that the White House extend Bush-era tax cuts to taxpayers of all income brackets, but the executives’ resistance crumbled as pressure builds to find a compromise for the fiscal impasse in Washington before the end of the year.
“We recognise that part of the solution has to be tax increases,” David M Cote, chief executive of Honeywell, said on a conference call with reporters. “That’s the only thing that allows a reasonable compromise to be reached.”
Even as the Fortune 500 leaders announced their shift, the White House continued to work behind the scenes to woo some of Wall Street’s most powerful financiers — a group that had largely abandoned US President Barack Obama in his bid for a second term after supporting him in 2008.
After seeking out corporate leaders from industrial companies last month, the White House has intensified outreach to Wall Street in December.
Several hedge fund managers, including Daniel Och, the billionaire founder of Och-Ziff Capital Management, will meet with Valerie Jarrett, a top Obama adviser, and members of the White House economic team on Wednesday.
Last Monday, White House officials sat down with a more than half a dozen top bankers and financiers, including Gary D Cohn, president of Goldman Sachs, and Greg Fleming, head of wealth management at Morgan Stanley.
The differing strategies — highly public meetings with corporates and private arm-twisting with Wall Street — both appear to be aimed at winning support for higher taxes on the wealthy. The trade-offs being roundly fought over in Washington, like what government programmes may be cut and which entitlements may be spared, are less important in this effort to muster highly compensated chieftains whose support for tax increases will provide cover for Congressional Republicans wary of being seen as too quick to compromise on higher tax rates.
What’s more, the political symbolism of some of the wealthiest Americans saying they support higher taxes on the rich takes a bit of the sting out of the idea of raising rates, for both Democrats and Republicans. Indeed, by appealing to both camps and enlisting their support, Obama hopes to neutralise potential critics, according to allies of the president on Wall Street.
Obama’s supporters cited the example of Frederick W Smith, the chief executive of FedEx. Last week, Smith signalled he was not angered by higher tax rates for the wealthiest individuals, a centrepiece of Obama’s plan to reduce the deficit and a key sticking point for Republicans in Congress.
“If people who didn’t support the president believe the president is acting reasonably, they’re going to put pressure on the other side,” said Marc Lasry, a longtime supporter of the president who runs Avenue Capital. “You need both sides to be reasonable.”
For example, Lasry invited the real estate tycoon Barry Sternlicht, a onetime Obama supporter who raised money for Mitt Romney in the last poll cycle, to the White House last week. Lasry, who has $13 billion under management, including $1.3 billion of his own money, is among a small group of Wall Street figures who stuck with Obama before the election, even as those like Sternlicht deserted him.
This core group met with Obama on November 16, and included Tony James, president of the Blackstone Group, as well as Roger Altman, a Democratic stalwart who is executive chairman of Evercore Partners, and Robert Wolf, a longtime UBS executive who recently began his own firm, 32 Advisors.
Also in attendance were Blair W. Effron, co-founder of Centerview Partners, and Mark T. Gallogly, a Blackstone veteran who founded Centerbridge Partners in 2005.
To be sure, most executives genuinely fear the consequences of the automatic spending cuts and tax increases if a compromise is not found by Jan. 1, but the efforts by big business to press politicians in Washington could also pay large dividends in the future.
While most business leaders now say they are willing to support increases in tax rates for individuals as well as cuts in entitlement spending, their stance in favor of lower corporate tax rates could actually benefit their bottom lines in the long run.
For now, however, the focus is on reaching a deal by end of the year rather than a broad tax overhaul. At the White House, the outreach effort is being led by Ms. Jarrett, and she has been joined in the meetings with executives and bankers by Timothy F. Geithner, the secretary of the Treasury; Jeffrey Zients, the head of the Office of Management and Budget; and Gene Sperling, director of the National Economic Council.
The White House arranged calls on Dec. 3 and on Monday for chief executives who attended the earlier sessions with the president, updating them on the negotiations and reiterating the need for their support. Among the participants were Lloyd C. Blankfein, the chief executive of Goldman Sachs; Randall Stephenson, the chief executive of AT&T, and Marriott’s chief executive, Arne Sorenson.
Some chief executives, like Mr. Blankfein, who have been relatively outspoken in recent weeks about the need for tax increases, are viewed as relative liberals in the business community.
But others who reversed course Tuesday, like Doug Oberhelman of Caterpillar, are seen as more conservative politically and suggest an important shift in the political landscape in terms of tax policy.
Another more conservative executive who signed a letter to Congress and the president from the Business Roundtable was Rex W. Tillerson, the chief executive of Exxon.
“Compromise will require Congress to agree on more revenue — whether by increasing rates, eliminating deductions, or some combination thereof — and the administration to agree to larger, meaningful structural and benefit entitlement reforms and spending reductions that are a fiscally responsible multiple of increased revenues,” said the letter, signed by more than 100 chief executives.
Besides Mr. Cote, several other prominent chiefs joined the call with reporters organized by the Business Roundtable, including Andrew N. Liveris of Dow Chemical, Jeffrey R. Immelt of G.E. and Alexander Cutler of Eaton.
Small businesses also appear anxious about the fiscal impasse. On Tuesday, the National Federation of Independent Business reported that its Small Business Optimism Index had one of its steepest declines ever in November.
The net percentage of business owners who said they expected better economic conditions in six months — that is, the share that expected improvement minus the share that expected deterioration — was negative 35 percent. That is the worst outlook since the federation began collecting this data on a monthly basis in 1986.
Bill Dunkelberg, the chief economist at the federation, attributed the pessimism to the stalemate in Washington, higher health care costs and “the endless onslaught of new regulations.”