The rich strike back
By: Ben White and Maggie Haberman
March 18, 2014 04:59 AM EDT
NEW YORK — Just a few months ago, it looked like 2014 would be the year of the populist, with Democrats running on economic inequality, tea party Republicans bashing banks and newly minted New York City Mayor Bill de Blasio pledging to soak the rich with higher taxes.
That was so January. The terrain is now shifting fast as the 1 percent fights back hard and the effectiveness of the populist approach comes into question.
Fresh off a bruising loss in Florida, the Democratic playbook for the midterms appears in need of a major rewrite — and the pro-business wing of the party is ready to draw up new plans. President Barack Obama in his budget once again floated a plan to raise taxes on Wall Street, but no one took it seriously. And just days later, the president was raising money at the home of one of the wealthiest private equity executives in New York. Mayor de Blasio’s hopes to increase taxes on the wealthiest got blown out by Wall Street’s newest hero, New York Democratic Gov. Andrew Cuomo. And de Blasio is facing major heat from the rich over his opposition to charter schools.
In two-dozen interviews, the denizens of Wall Street and wealthy precincts around the nation said they are still plenty worried about the shift in tone toward top earners and the popularity of class-based appeals. On the right, the rise of populists including Kentucky Sen. Rand Paul and Texas Sen. Ted Cruz still makes wealthy donors eyeing 2016 uncomfortable. But wealthy Republicans — who were having a collective meltdown just two months ago — also say they see signs that the political zeitgeist may be shifting back their way and hope the trend continues.
“I hope it’s not working,” Ken Langone, the billionaire co-founder of Home Depot and major GOP donor, said of populist political appeals. “Because if you go back to 1933, with different words, this is what Hitler was saying in Germany. You don’t survive as a society if you encourage and thrive on envy or jealousy.”
Langone’s comments — sure to draw ire from those who find such comparisons to Nazi Germany insensitive — echo previous remarks from venture capitalist Tom Perkins, who likened the actions of some in the Occupy Wall Street movement to the Kristallnacht attacks on Jews in 1938. Perkins gave several interviews after the ensuing uproar, but he never really backed away from the comparison. And Langone showed no hesitancy in invoking the Nazis when describing current populist rhetoric.
The Democratic power elite now believe that appeals to raise the minimum wage and extend unemployment insurance are not enough to overcome Obama’s deep unpopularity and frustration with the president’s signature health care law. They fear that unless Democrats shift footing to a more hopeful, growth-based message, the party could lose the Senate and drop double-digit seats in the House.
“Reducing inequality is good, but it’s 50 times better to do it by lifting those up who are low than by tearing those down who are high,” said Larry Summers, the former treasury secretary whose bid to become Fed chair got derailed by the more liberal wing of the Democratic Party. “The politics of envy are the wrong politics in America. The better politics are the politics of inclusion where everyone shares in economic growth.”
Democratic Rep. Jim Himes, whose Connecticut district includes many wealthy Wall Street executives, said the populism associated with de Blasio and Massachusetts Democratic Sen. Elizabeth Warren was never as dominant as the media suggested. “All too often people forget that this is just one politician from Massachusetts and one from New York City and what they say is not going to dominate politics in Arkansas, or Florida or Texas or anywhere else,” Himes said. “Income distribution may be far from ideal, but people don’t necessarily only want to hear about increased taxes on the wealthy.”
Wall Street Democrats believe Obama is fundamentally sympathetic to that argument. “The energy in the party may be with progressives, but Obama is still the same cool, pragmatic guy he’s always been,” said a Wall Streeter who attended the recent fundraiser with the president at Blackstone Group President Tony James’s Manhattan home. “He’s got liberal values, but he’d always like to cut a deal.”
Obama’s New York trip last week also included a Democratic National Committee fundraiser at the home of Alan and Susan Patricof, wealthy donors who strongly backed Hillary Clinton in 2008 and have mostly stayed away from events featuring the president. Some saw the DNC fundraiser as Obama acknowledging the need to embrace a broader swath of the business community after five years of strained relations.
On the Republican side, signals also indicate a shift back toward the establishment.
A former Washington lobbyist, of all people, just won the critical special House election in Florida. Republican leadership successfully destroyed tea party hopes for fresh showdowns this year on the budget or raising the debt limit. And Senate Minority Leader Mitch McConnell (R-Ky.) recently pledged to “crush” tea party challengers around the country.
Populists such as Paul and Cruz often do well in early GOP polls for the 2016 nomination and at youth-focused events like the recent CPAC conference. But the party’s elite establishment believes the nomination for 2016 will ultimately go to a less polarizing figure such as former Florida Gov. Jeb Bush or 2012 vice presidential nominee Paul Ryan, should either decide to run.
“Take the fact that the tea party is kind of on its heels in Congress and that a registered lobbyist won in Florida and that a lot of the party is revolting against this proposed bank tax, and you’d have to conclude that the establishment is not exactly dead,” said one Wall Street Republican, who like many asked not to be identified by name in order to speak freely about his views on the direction of the party.
The Republican was referring to the recent tax reform proposal from House Ways and Means Chairman Dave Camp that included a fresh levy on the nation’s largest banks. A group of 50 Republican House members wrote a letter in opposition to the proposal, which is now widely viewed as going nowhere. The idea that the GOP could use policies like this as a way to tap into bipartisan anger at the nation’s largest financial institutions seems to be fading, at least at the moment.
Republican elites on Wall Street and elsewhere in corporate America are now actually cheering inaction in Congress as preferable to ideas such as Camp’s.
“The Camp draft catalyzed most of the business community around the notion that it was so bad, and it’s not just private equity and financial services — there were so many other punitive measures in there — that people just decided, the whole system’s broken here, nothing’s going to get done,” another senior Republican business leader said. “And that’s what we need to work toward. We need to work toward gridlock.”
Meanwhile in New York, fears that de Blasio would enact policies that would quickly drive businesses and wealthy residents out of the city — eroding the tax base and costing jobs — have so far failed to materialize. Gov. Cuomo swiftly made clear that the universal free pre-kindergarten education proposed by de Blasio would indeed become a reality. But it would be paid for by the state and not by any new tax on New York’s richest, as de Blasio promised. Cuomo also has set himself up on the side of charter schools — which run on a mix of public and private funding — and in opposition to de Blasio, who said he would slow the growth of charter schools and oppose their use of space in traditional public school buildings.
Langone, for his part, is now head of a group called Republicans for Cuomo. The growing consensus in New York is that while de Blasio ran a great campaign, Cuomo is now schooling him politically.
“Becoming the champion of the anti-tax movement and paying much more attention to business, it’s created a lot of good feeling around the governor,” said Kathy Wylde, president and CEO of the Partnership for New York City, a pro-business group. “He’s basically taken a position that New York is not going to remain a high-tax state.”
To be sure, there is still concern around New York that policies could eventually shift in dramatic ways from those employed under the 12-year reign of Michael Bloomberg, a Wall Street favorite. One Democratic donor said de Blasio was getting more visible backing from the party’s upper echelons, adding gravitas to his message. “People are surprised at how embracing the Clintons and Obama are of de Blasio, and it gives him an imprimatur that surprises people.” Another donor, citing problems with snow removal and the mayor’s SUV getting caught running red lights, said the fear had moved from de Blasio’s policies to his general competence. “Smart people knew that a lot of what he said was going to do was never going to happen,” this donor said. “But some of what is going on now just seems amateurish.”
Other top business executives warned that de Blasio, who was excoriated by a New York Times editorial Monday, has only just taken office. Phil Walzak, de Blasio’s press secretary, defended the mayor’s plans. “With 46 percent of our city’s population at or near the poverty line, we need bold reforms to lift up more people. And it’s not just progressives who agree — many business leaders share his vision, including his plan to provide universal pre-K with a tax on the wealthiest,” he said.
On the national level, the shift away from a focus on income inequality and reining in Wall Street stems both from the economy, which is slowly improving, and the dominant issue of the day, which is now the crisis in Ukraine.
The aggressive actions of Russian President Vladimir Putin have eased the anxieties of Wall Streeters sick of being portrayed as the enemy. “We obviously see other things driving the news cycle,” a top industry executive said. “Ukraine keeps the focus off the evil 1 percent, so I guess we have Putin to thank for that. The improving economy helps as well.”
The economy is hardly booming — but wages grew faster than expected in February, and job creation seems likely to move back to a pace of closer to 200,000 per month, enough to steadily reduce the unemployment rate.
Wall Street Democrats are praying the improving economy boosts the party’s fortunes this fall. But they are also wishing for a message on growth that resonates more deeply with voters and overcomes vulnerabilities associated with the health care law.
“Certainly income inequality will continue to be a major topic and focus on the campaign,” said Robert Wolf, a veteran investment banker, Democratic fundraiser and close friend of Obama’s. “But other issues will be important as well, including immigration reform, education reform, infrastructure and corporate and individual tax reform. These all have to be big issues for us again.”