An Ever-Widening Rift Separates New Main St. GOP From Wall St.

Bob Rubin is the richest guy in the Clinton administration, a smooth Wall Streeter who glides easily between the corridors of political power in Washington and financial might in New York.

Time and again, he has acted as the eminence grise moving Bill Clinton’s economic agenda to the right in order to appease the markets. He is a Treasury secretary that bond traders know and love--and just the sort of guy that the Old Republican Party, the party of Fortune 500 CEOs and New York investment bankers, would have embraced.

So the fact that the New Republican Party wants to rip his head off means something has fundamentally changed.

Rubin has drawn the wrath of congressional Republicans for using some tenuous financial tricks to frustrate their efforts to force a showdown over the federal debt ceiling--a key issue in this winter’s budget wars. By early January, House Rules Committee Chairman Gerald Solomon (R-N.Y.) was so mad that he began to make noises about impeaching Rubin--loose talk that predictably sent the bond market into a tizzy. Republican leaders quickly disavowed Solomon’s impeachment rhetoric as “premature.”

But it is clear that Rubin has struck a nerve with the new House Republican majority. Their dislike for his Wall Street ways is palpable. “He has politicized his office more than any other Treasury secretary,” says Rep. Nick Smith (R-Mich.). “He is on very thin ice.”

In fact, the attacks on Rubin underscore the extent to which the Republican Party has been overtaken by a conservative strain of populism that stems from the party’s new small-town, small-business political base.

The GOP, which in the 1960s and 1970s reflected the multinational, corporate outlook of ITT and Rockefeller money, now looks at the world through the eyes of a car dealer in Butte, Mont., or an Amway distributor in Grand Rapids, Mich. As the GOP’s base has deepened and expanded, the party’s ideology has moved closer to the grass roots of the American business community.

It is now the party of Wal-Mart, not Wall Street.

And that means the new GOP harbors a small-town, small-business suspicion about Eastern financial elites, and often sees big business and its lobbyists not as allies, but as obstacles to change in Washington.

“There is free enterprise, and then there is big business with its lobbyists coming to Congress looking for regulations to stop their competitors,” says Rep. Chris Cox (R-Newport Beach), chairman of the House Republican Policy Committee. “There are a lot of big businesses that are opposed to free enterprise.”

Fortune Magazine, the de facto voice of Big Business, now warns its rich readers that the message from the Republican Congress to the Fortune 500 is: “Drop Dead.”

The new Republicans, Fortune argues, don’t hate big business, “they just feel contempt for it.”

This chip-on-the-shoulder attitude comes with a patron saint: Pat Buchanan. The conservative pundit and presidential candidate has tapped into small business’s distrust of international trade agreements like NAFTA and GATT, as well as its anger over the Clinton administration’s Mexican bailout. Buchanan sees the Mexican deal, engineered by Rubin and Federal Reserve Board Chairman Alan Greenspan, as little more than a sugar-coated subsidy to Wall Street. These are insider deals, Buchanan tells small business people, deals they can’t get.

Stephen Moore, a policy analyst at the conservative Cato Institute, argues that the House Republican contract with America reflects the party’s new small business orientation.

Big corporations, he notes, are not clamoring for a capital gains tax cut--the key tax element of the Republican contract. In fact, a capital gains tax cut could lead to a sell-off in their blue chip stocks, as investors cash in long-held positions in major companies in order to take their profits at lower tax rates.

But capital gains is a big issue for venture capitalists and start-up firms making risky initial investments in hopes of big payoffs down the road.

Those small entrepreneurs are Newt’s people.

“Newt Gingrich’s rhetoric is about companies of the future, about the information age and start-ups and the entrepreneurial economy,” observes Moore.

The flat tax also leaves corporate giants cold, because there is little in it for them, analysts say. The flat tax proposals now making their way around the Republican policy circuit would allow new capital purchases to be immediately expensed and written off, giving a big advantage to new and growing companies. But older, established firms that are not making new capital investments might actually see their tax burdens rise under a flat tax system. Meanwhile, big corporations, which have spent billions over the past generation on regulatory compliance, also don’t share the new GOP majority’s small business zeal for gutting federal health, safety and environmental regulations.

Companies like General Motors and IBM have legions of lawyers and regulatory experts who have learned how to work with federal regulators; no such truce has ever been reached between Washington and small business. GOP plans to gut the budgets of the Environmental Protection Agency and the Occupational Safety and Health Administration are now among the most popular items on the party’s agenda among small business owners--but don’t even register with top executives at giant firms.

Other GOP legislative proposals were drawn up with the full backing of the New Republican Party’s lobbying darling: the National Federation of Independent Businesses, the chief trade group for small business. The NFIB’s wish list has become Republican dogma, and is highlighted by tax breaks that would be available only to small businesses: estate tax relief for farms, ranches, and family businesses; higher rates of expensing write-offs for small firms; an expansion of the home office deduction.

“We have had a much a greater level of receptivity by this Congress than we have ever had before,” says Dan Danner, chief lobbyist for the NFIB. “And it’s been the new members, the freshmen, who have led the charge.”

So far, congressional Republicans and big business haven’t come to blows. When push comes to shove, the GOP still knows how to quietly satisfy corporate interests. Business moguls also aren’t ready to bolt to the Democrats, partly because of their lingering antipathy for Bill Clinton’s early use of class-conscious rhetoric and his 1993 tax increase on the wealthy.

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But at heart, the widening gulf between the GOP and the Fortune 500 comes down to cultural identity. The car dealer in Butte is much more likely than an executive at Bank of America in San Francisco to be a member of the Christian Coalition--and thus feel more comfortable with the entire Republican agenda.

When Senate Majority Leader Bob Dole (R-Kan.), the leading Republican presidential contender, lashed out at Time Warner as a purveyor of sex and violence, he was voicing a growing conservative impatience with corporate leaders who see themselves as economic Republicans but cultural Democrats.

So the challenge for the Republican Party is clear: Can it be big and small at the same time? That’s certain to become one of the most interesting subplots of the 1996 election.