Politico

The upcoming battles over taxes and spending may reveal whether tensions between corporate America and congressional Republicans that emerged during the fiscal cliff were a rare blip or the new normal.

It was one of the strangest twists of last year’s fiscal cliff drama: Long-solid ties between the business community and the GOP quickly strained as corporate titans and their lobbyists urged Washington to essentially do whatever it takes — including hiking taxes — to get past the stalemate.

To CEOs, it might have seemed like statesmanship: calling on Washington to put everything on the line to save the country from a damaging economic blow. But to many Republicans on Capitol Hill, it amounted to hypocrisy: well-paid CEOs seemingly backing a tax increase for individuals and small businesses while furiously lobbying for a cut in corporate tax rates.

Nearly six weeks after the fiscal cliff deal was sealed, some GOP lawmakers say they still have a sour taste in their mouth.

Without tarring any group or CEO individually, Iowa Sen. Chuck Grassley told POLITICO that he thought of business leaders who seemed to back the tax hikes as “political prostitutes” whose “ideology is a mile wide and an inch deep.”

The frustration stems from a sense that groups like the Business Roundtable and the Fix the Debt campaign took positions during the cliff debate that gave cover to Democrats aggressively pushing for tax rate increases. But the deeper anger also results from a belief that CEOs were willing to throw other groups — like small businesses taxed as individuals — under the bus.

“Clearly it wasn’t helpful,” Texas Rep. Kevin Brady, a senior GOP member of the House Ways and Means Committee, told POLITICO. “It was seen as providing cover to the White House and taking a pretty good swing — intentionally or not — at small businesses and pass-throughs.”

But similar dynamics will be on display repeatedly as 2013 unfolds. The same CEOs are already injecting themselves into the sequestration debate.

And the tension between big corporate leaders and smaller businesses is certain to intensify if lawmakers move forward later this year with comprehensive tax reform — an effort that would require tricky trade-offs involving the tax breaks employed by small businesses and major corporations.

Those who led the corporate charge during the fiscal cliff debate know they ruffled some feathers among traditional allies in Congress. That was easy enough to detect when a December Business Roundtable letter to House and Senate leaders insisting that “no options” should be off the table met with a stern response from Ways and Means Committee Chairman Dave Camp (R-Mich.). “Big businesses may support raising tax rates on small businesses, but I do not,” Camp said then.

Now that some time has passed, John Engler, president of the Business Roundtable, said he doesn’t think his actions caused any long-term trouble for the corporate community’s policy agenda.

“That’s fine, I’ve been around the game a long time,” Engler, a former Michigan GOP governor, told POLITICO in response to the firestorm his letter caused. “What could have been done but wasn’t, because everyone was so focused on taxes at that point, is to say, ‘Hey, the letter is very balanced.’ Actually, the letter was more balanced than the outcome, if you think about it.”

The bottom line from Engler’s perspective: “There is no lasting damage.”

As the Roundtable made its pitch in the fiscal cliff fight, Fix the Debt leaders also encouraged lawmakers to take a far-reaching approach to deficit reduction and not rule out tools like revenue that might help.

Maya MacGuineas, a Fix the Debt co-chairwoman, said the group’s efforts have been unfairly characterized. She added that accusations that the campaign sold out small businesses by advocating tax increases on wealthy individuals — some small businesses, called S corporations, pay tax on the individual side of the Tax Code and would be hit by a higher individual tax rate — are false.

“This is a manufactured problem instead of working on the solution,” she told POLITICO. “The criticism just didn’t line up with facts.”

Liberal organizations and unions picketed a Fix the Debt meeting in Washington this week, arguing that the coalition’s corporate supporters want to balance the budget with cuts to entitlement spending. The groups included the Center for Media and Democracy, Our DC, Health Care for America Now, Center for Community Change, the AFL-CIO and National People’s Action.

“We have a set of principles … about the need to put into place a comprehensive debt deal that is big enough to stabilize the debt and put it on a downward path,” she said. “The focus of our effort is on that — not on a particular fiscal cliff or sequester plan.”

Congressional Republicans are normally allied with corporate America when it comes to battling both taxes and government regulatory efforts. But the corporate approach in the fiscal cliff fight undermined one of the cornerstones of the GOP’s anti-tax message in recent years: the argument that increases in marginal rates would hurt the politically important small business sector. In November, House Republicans leaders sought to woo CEOs back into the fold during the fiscal cliff debate.

Despite the lingering animosity that their efforts during the fiscal cliff caused, CEOs aren’t showing any signs of quietly retreating to the executive suite.

While the White House spent last Friday trying to highlight all the doom and gloom that would result from allowing the sequester to take effect, Honeywell CEO Dave Cote, a member of Fix the Debt’s steering committee, took to Bloomberg TV to argue in favor of the spending cuts.

“I understand that there’s some [gross domestic product] impact in the year due to that, but I think over the year or two it ends up being overwhelmed by the positive impact from markets starting to see us addressing our debt,” he said.

Another CEO on Fix the Debt’s steering committee, JPMorgan Chase’s Jamie Dimon, appeared before a business-friendly audience in Miami last week and took Washington to task for dithering on fiscal issues.

“We have to have proper fiscal policy,” Dimon said during a Feb. 4 speech to the Greater Miami Chamber of Commerce. “The sooner we fix it, the less of a problem it’s going to be. If we don’t fix it, it will fix itself and possibly in a way we don’t like.”

Dimon also signed the Business Roundtable letter that caused so much consternation.

The key question going forward is whether the words of wisdom from corporate America will receive much attention from lawmakers who are still steamed about all the positioning during the fiscal cliff.

Utah Sen. Orrin Hatch, the top Republican on the tax-writing Finance Committee, seemed dubious.

“All I can say is CEOs have different pressures than we in Congress,” Hatch told POLITICO. “I’ve always tried to respect them — but cautiously respect them. There are times when they do some of the dumbest things I’ve ever seen in my life politically. But there are times when they’re right.”