Buffett and Schultz Proposals Problematic for White House

Buffett and Schultz Proposals Problematic for White House


Progressives and supporters of increased “revenues” in the budget debate – the euphemism for “taxes” – were buoyed in recent days by what seemed like stunning declarations from two very influential and rich money men.  Warren Buffett and Howard Schultz, legendary business icons and symbols of American economic titanism, entered the debate like left dimensional Koch Brothers– the long suspected funders of the growing Tea Party movement.  Buffett argued for greater taxes on the rich while Schultz, in that same week, angrily denounced campaign contributions to Washington politicians until they chewed their way out of the deficit problem.

“According to a theory I sometimes hear, I should have thrown a fit and refused to invest because of the elevated tax rates on capital gains and dividends,” growled mega-investor Buffett recently in a New York Times op-ed titled Stop Coddling the Super Rich as if grinding on the old ax of something bothering him beyond the argument.

“I didn’t refuse, nor did others. I have worked with investors for 60 years and I have yet to see anyone — not even when capital gains rates were 39.9 percent in 1976-77 — shy away from a sensible investment because of the tax rate on the potential gain. People invest to make money, and potential taxes have never scared them off. And to those who argue that higher rates hurt job creation, I would note that a net of nearly 40 million jobs were added between 1980 and 2000. You know what’s happened since then: lower tax rates and far lower job creation.”

Starbuck’s CEO Schultz, as if teaming up with Buffett in the same week, blasted an email memo to reform groups that gained significant traction in the press due to its bold declaration of a campaign contribution “boycott.”  With Schultz now claiming to have signed on hundreds of other like-minded business leaders and reform organizations – like Fred Wertheimer’s Democracy 21, which is using the effort to revive the cause of campaign finance reform – observers, strategists and money bundlers wonder anxiously about how much of an impact this will have on the 2012 race.   “We aim to push our elected leaders to face the nation’s long-term fiscal challenges with civility, honesty, and a willingness to sacrifice their own re-election,” said Schultz. “This means not kicking the can anymore. It means reaching a deal on debt, revenue, and spending long before the deadline arrives this fall. It means considering all options, from entitlement programs to taxes.”

“This is what so many common-sense Americans want. That is why we today pledge to withhold any further campaign contributions to the President and all members of Congress until a fair, bipartisan deal is reached that sets our nation on stronger long-term fiscal footing. And we invite leaders of businesses – indeed, all concerned Americans – to join us in this pledge.”

Politically, Schultz’s pledge could be significantly problematic for Democrats, particularly President Obama, heading into the next election cycle.  Republicans, perhaps, need not worry; and Starbucks gets added business from cups of latte bought in a burst of solidarity with its CEO.  The Center for Responsive Politics notes Schultz and his wife have donated nearly $200,000 in campaign contributions since 1994 – with 95% of that going to Democrats.  Over $100,000 has been contributed directly to the Democratic National Committee.  He did, however, donate $1,000 to Sen. John McCain (R-AZ) back in 2000 when the hard-charging Arizona Republican was the media flavor of the month.  The unprecedented nature of Schultz’s request calls into question the strength of the President heading into 2012, especially as whispers of a Democratic primary challenge still plague the White House.  How influential will the pledge be on other major Democratic donors?

While Buffett and Schultz are the latest rock stars, political rogues gaining popularity in the social media-verse, the business community is for the most part reluctant to speak out loud on the issue.  Schultz has managed to snag NYSE Euronext Chief Executive Duncan Niederauer and Nasdaq OMX Group Chief Executive Robert Greifeld to sign on.  But, others like former BB&T CEO John Allison called Schultz’s pledge “misplaced” in a recent Reuters piece pointing out that “if businesses and executives stop donating, does that mean unions and pensions will stop too?”

Interestingly enough, little in media accounts is made of either Buffett’s or Schultz’s emphasis on job growth as a key theme in their proposals.  Schultz actually made two pledges: pulling back on donations was the first one, but the second initiative seeks to spark hiring: “The only way to get the country’s economic circulatory system flowing again is to start pumping lifeblood through it. That is why we today issue a second pledge. Our companies are going to hire. We are going to accelerate growth, employment, and investment in jobs. We do this because we want to set in motion an upward spiral of confidence.” Yet, similar to the debt-ceiling debate, most reports focus in on elements unrelated to the more pressing issue of joblessness.

Despite the historic tax cuts Buffett alludes to in his NY Times piece, the goal of compelling companies to hire hasn’t been achieved in the present recessionary environment – which defeats the policy purpose of the tax cut.  With unemployment unwilling to budge any below 9%, the Federal Reserve estimates businesses are hoarding nearly $2 trillion in cash that could be used for hiring.  The Obama Administration, hassled by the perception of ineffective leadership on the jobs dilemma, makes yet another desperate attempt at prompting corporate hiring confidence by proposing a new round of tax cuts.  How far either Buffett or Schultz’s pledges go remains to be seen, but they definitely complicate the political landscape.