Why Big Business Loves Deficits

Large corporations will only oppose government spending if it isn't in their favor

600 immelt obama REUTERS Kevin Lamarque.jpg

Wall Street and big business desperately want the debt ceiling raised. They understand that a U.S. default would be catastrophic to the economy. But saying that they want the debt ceiling raised is different from saying that they want the U.S. to close its deficits and pay down the national debt. They don't. This might seem surprising to some, but it shouldn't be.

Big business' love of deficits was the subject of David Leonhardt's column today in the New York Times. He says big business lobbyists are part of the reason why cutting the deficit has been so difficult: they don't want the spending cuts that Republicans demand -- and they certainly don't want higher taxes.

Isn't this contradictory? After all, you can't have lots of spending and also very low taxes. That's precisely the attitude that Americans are often chastised over when new polls come out saying that they don't want their taxes raised but they also don't want any expensive entitlement programs to disappear. But in the case of big business, the logic isn't so simple.

Let's say you're a giant multinational conglomerate called Universal Mechanics (UM) that specializes in energy, technology, infrastructure, industrial equipment, and finance. You spend millions of dollars every year lobbying Washington for two reasons: you want tax subsidies and credits to make doing business at home and abroad cheaper, and you want to win contracts for government projects and federal research grants.

Think about what occurs in each of these scenarios. If your lobbying is effective (and you're spending millions of dollars to make sure that it is), then the tax breaks and subsidies you help to put in place won't benefit everyone: they'll benefit giant corporations like you. This creates a very convenient barrier to competition: firms that don't have your global reach and accounting sophistication won't get the breaks. This provides UM an advantage.

Of course, those big government contracts benefit you specifically in an even clearer sense: by developing connections in Washington, government spending benefits you far more than the average company -- and certainly more than the average taxpayer. If your lobbyists do their job, then you will obtain billions of dollars in revenue, thanks to those projects and grants.

So you see, efforts to cut deficits are very bad for a corporation like UM. If deficit discussions result in cutting subsidies or tax breaks, then your firm will be more adversely impacted than smaller businesses or average Americans. And spending cuts could also potentially deprive you of gobs of government-provided revenue.

This might be confusing: aren't big corporations all about less government interference? Big business will be against measures that negatively impact their firms more than smaller ones. But big business won't necessarily be against measures that impact smaller firms more than their own.

The key point here is that big business doesn't prefer smaller government. In fact, big government and big business work very well together: lobbyists help politicians get elected and those politicians, in turn, help lobbyists provide their firms a competitive edge. Cutting the size of the government means limiting this cozy relationship.

Image Credit: REUTERS/Kevin Lamarque