The Crony Cliff

Risk of cronyism, corruption in fiscal cliff negotiations

Jim DeMint / AP
November 28, 2012

Some see a danger of political cronyism and corruption arising from a back room deal as Congress negotiates with the White House to avoid the fiscal cliff.

"With any lame duck deal, you have a much higher risk of more spending and favorable tax credits, deductions preserving some for special interest groups," said Romina Boccia, a domestic and economic policy expert at the Heritage Foundation.

Sen. Jim DeMint (R., S.C.) issued a report last week outlining the dangers of a lame duck session.

It is "not unreasonable to expect the 2012 ‘lame duck’ session of Congress to be the worst in history," DeMint wrote in the report.

The report draws special attention to the dangers of lame duck members who are leaving office—either through voluntary retirement or electoral loss—and as a result are unaccountable to voters.

"As the report points out, a large percentage of retiring members go on to be lobbyists for a wide array of special interests, many that likely have a stake in fiscal cliff negotiations," a spokesman for DeMint said.

His report cites Rep. James Clyburn (D., S.C.), the House Assistant Democratic Leader, who predicted in May that this year’s lame duck session would be the "mother of all lame ducks." Clyburn’s office did not return a request for clarification.

Boccia said she is monitoring the stances taken by CEOs of large companies on the individual income tax rate.

Many small businesses are "flow-through" businesses that file their taxes through an individual’s tax return, she said. These businesses pay the individual tax rate, not the corporate tax rate.

"Allowing taxes to go up on those in the highest tax bracket would also mean that 1.2 million flow-through small businesses with employees would see their taxes go up," she said.

She argued that a higher marginal tax rate would affect the CEOs individually while their businesses would be untouched. Small businesses—their potential competitors—will suffer.

"Corporate leaders embracing tax hikes on their small business competitors might find that the cards could turn quickly on them when the debate shifts to corporate tax reform," she said.

She noted that many corporations do not pay any corporate taxes because of many deductions in the tax code.

DeMint predicted in his report that any tax reform emerging from the fiscal cliff negotiations would include cronyism.

"The contours of a bipartisan fiscal cliff ‘deal’ can be easily gamed out: Extension of some tax rates, a tax increase on higher income earners and small businesses, accounting gimmicks to fabricate long-term budget ‘cuts’ that will never really materialize, and the extension of the special tax rules for the most favored special interests," the report says.

Boccia admits that while "we haven’t heard much in terms of details" emerging from the ongoing negotiations, the risk of cronyism and corruption is real.

A spokesman for Sen. Tom Coburn (R., Okla.) said that Coburn, a longtime critic of government waste, is concerned about cronyism and waste in the negotiations but also noted that the issues the government is addressing right now are not new. He said Sen. Coburn does not have any special concerns regarding these negotiations that have not existed in the past.

Sen. Jeff Sessions (R., Ala.) last week urged Congress and the president to conduct the fiscal cliff negotiations in public and not behind closed doors. He also criticized Democrats for failing to put forward a budget proposal.

"Secrecy cements the status quo: More spending, more debt, more runaway government. It is the enemy of accountability, change, and reform," Sessions said in a statement. "Instead of putting a plan on paper, the president again retreats to secret meetings."

"Why should Americans agree to higher taxes when the president and his Majority Leader refuse to say how the money will be spent?" he wrote.