Beware of CEOs Bearing Budget Gifts

The mainstream media and blogosphere lit up like Christmas trees yesterday when 80 CEOs came together to call on Congress and the president to agree on a comprehensive deficit reduction plan that includes revenue increases and spending cuts. Here's David Wessel's story [1] from The Wall Street Journal.

(Note: I'm linking to the story on the Fix The Debt website only because you need a subscription to the WSJ to see Wessel's story there. This definitely is not an endorsement of Fix The Debt.)

As I told Janet Novak of Forbes yesterday [2], while it's great to see the CEOs engaged on the issue there's much, much less here than meets the eye.

The ultimate value in the CEO statement is that it lends credence and provides some political cover for members of Congress who vote for a deficit reduction plan that includes tax increases and Medicare and Medicaid cuts.

But the statement fails to move the needle as much as the hype wants you to believe because its way too general to demonstrate that any of the CEOs are willing to give up spending or tax provisions that are important to their companies.

Yes, as wealthy individuals they are likely to pay more if income tax rates rise.

But it's not at all clear that they can or will recommend changes in federal tax and spending laws that will hurt their corporate bottom lines. Indeed, their boards and stockholders would likely see support for those types of changes as a violation of their fiduciary responsibilities as CEO and several of them would be facing the corporate equivalent of a recall.

I suspect, therefore, that this will change nothing. At the same time the CEOS take credit for the anti-deficit push, the companies they represent will continue to push behind the scenes for the tax breaks they already have, the new revenue provisions they want, and the spending programs that create profits while the CEOs take credit for this anti-deficit push. That makes this statement more like business as usual in Washington than a major departure from the past.

You'll know something like this is serious when, for the greater good, one or both of two things happen:

1. A company says its going to stop doing business with the federal government and/or is voluntarily giving up the tax break that is so important to its bottom line

2. A company announces that its political action committee and its executives will no longer financially support candidates, political parties or super PACs that support higher spending and lower taxes.