Why you should care
Because a battle is under way for the economic future of conservatism.
Michael Gerard thought he had a reasonable solution to the regulatory challenge he faced when he visited the Georgia Department of Revenue in June 2016. The Australian, who has lived in the Peach State a quarter-century, had patented a potentially industry-changing process he says can age whiskey the equivalent of “six to eight years” in just 24 hours. Investors had lined up with $10 million in initial backing, and that figure rose to $16.5 million after a few months. And his company, Spirits of the USA, had received local and federal business licenses without a hitch.
But the state was dragging its feet. Due to “three-tier” alcohol laws established in the wake of Prohibition in the early 20th century, Michael was told he couldn’t own a distillery — because his wife, Denise, also owned a bar in Atlanta. And so Michael set up a meeting with the state’s revenue commissioner, Lynne Riley, as well as a Georgia assistant attorney general and the president of the local chamber of commerce. Surely, if his wife signed an affidavit saying she wouldn’t buy a single one of his products, then he could go ahead?
Nope. “We can’t give you the license because you’re married,” Michael remembers Riley saying. When contacted, a GDR spokesman confirmed the meeting took place, but declined to provide any additional details. The message the couple heard from the state was clear: The Gerards had to divorce in order to start the business. “In plain English, that was the only option,” says Denise, a Catholic conservative from Ireland who has been married to Michael since 2000. “We could be living in sin, and they would give the license to him.”
In America, there are two laws: one for companies that give political donations and another set of laws for people who can’t.
Michael Gerard, who wants to set up a whiskey distillery
Conservatives and Republicans have long defined themselves as pro-business. But as the primary election season heats up, and Donald Trump–style populists clash with the party’s establishment wing, an economic divide is forming on issues from the GOP tax-cut law to the Amazon-headquarters bidding war. In what way will the party be pro-business? And can campaign rhetoric match up with governing reality?
On the landmark tax-reform law, the most common GOP line, echoed by Trump himself, is that cuts have resulted in bonuses and company reinvestment. But even some of those who voted for it have expressed hesitancy in the aftermath. “I thought we probably went too far on [helping] corporations,” Florida Sen. Marco Rubio told The News-Press in Fort Myers around Christmas. “By and large, you’re going to see a lot of these multinationals buy back shares to drive up the price. That isn’t going to create dramatic economic growth.” And in South Carolina, U.S. Rep. Mark Sanford argued that the tax plan should have been sold as a corporate tax cut, not a middle-class one. “From a truth-in-advertising standpoint, it would have been a lot simpler,” he told The Washington Post.
Nowhere is the big-versus-small cleave sharper than in Georgia. For five straight years, the state has been named the top state to do business in by Site Selection magazine, a ranking Republican Gov. Nathan Deal often touts. But the reality isn’t so peachy for up-and-coming businesses. Georgia is ranked just 38th by the State Business Tax Climate Index, with especially high rates levied in individual income, sales and unemployment taxes. Banking in Georgia lags the nation in terms of small-business lending, according to a study by the industry news site Fit Small Business, which has led some entrepreneurs to take out mortgages on their homes to fund their aspirations.
To folks like Michael Gerard, the regulations small businesses face are plain unfair. The three-tier system requires producers to sell to distributors, who then sell to customer-serving retailers. Originally meant to prevent monopolization, critics say the system serves today to only safeguard profits for the alcohol lobby. Michael points to the fact that Warren Buffett’s Berkshire Hathaway owns shares in alcohol-selling Costco, Walmart and Pilot Flying J truck stops, yet recently was allowed to buy Empire Distributors, an Atlanta-based beer and liquor distributor. “So the three-tier law doesn’t matter for Warren Buffett, but it matters for a small company like myself,” Michael says. “In America, there are two laws: one for companies that give political donations and another set of laws for people who can’t.”
It’s that vein Michael Williams — one of Trump’s earliest backers in Georgia, now running for governor — is trying to tap as he rails against deals that critics argue favor behemoths like Amazon and Hollywood at the expense of smaller companies. “Four years ago, I thought all business was conservative and Republican, because it was business,” the state senator says. “That’s not the case. These large corporations, these chambers of commerce, they love regulation … because it stifles competition.”
In Washington, the Emissary Cafe serves up Counter Culture coffee next to Nutella panini and smashed avocado toasts, catering to the trendy vibe of DuPont Circle. It is precisely the type of younger crowd that conservatives have struggled to convert, and 25-year-old Jim Fellinger, a blue-blazered and yuppie-chic spokesman, is trying to reach them.
Fellinger is optimistic. He raves about millennials wanting to back ideas, not candidates, because people are fallible (a message especially resonant in the #MeToo era). He waxes aspirational about how reforming licensing laws could help truly small-time entrepreneurs, such as African-American hair braiders. Most crucially of all, he rants against “corporate welfare,” such as billionaire NFL owners asking for stadium handouts, and the shuffle by states to offer Amazon increasingly generous sweetheart deals. “It’s not a partisan divide,” Fellinger says. “It’s entrenched interests versus the people.”
You have to show companies you want them there. It’s a necessary evil.
Ryan Combs, leader of the group handling the bid for Amazon from North Carolina’s Research Triangle
That all might sound natural coming from a Berniecrat, but Fellinger is press secretary for Generation Opportunity. The advocacy group aimed at attracting millennials through center-right economic policies is technically nonpartisan, but is backed by the billionaire Koch brothers. Even though Koch Industries, with $100 billion in revenue, is the second-largest privately held company in the U.S., the network of groups the Kochs and other deep-pocketed conservatives fund is likely to double down on anti-corporate favoritism rhetoric. At a 2015 summit in Orange County, California, Charles Koch said business leaders faced a “life and death” decision over excessive tax-break courting, calling their behavior suicide. “A lot of the message testing we’ve done shows that corporate welfare is an issue that really gets young people interested,” Fellinger says.
More than half of Republicans believe corporate tax rates should be raised or kept the same, according to a Pew Research poll released in September. Skepticism has been on the back burner of the conservative movement for years. In 2014, former George W. Bush Treasury Department official Robert Stein argued forcefully that tax cuts for the wealthiest were returning smaller gains for the economy, in an essay published in the anthology Room to Grow. (Utah Sen. Mike Lee endorsed the broad strokes of the plan at the time.) That economic populism, once argued principally in conservative intellectual circles, has grown more substantially in the wake of Trump, whose 2016 campaign was predicated on attacking “crony capitalism” that benefited Fortune 500 mainstays like Ford and Nike while leaving Main Street behind.
Yet since Trump and those populist congressional Republicans took hold of government, their record has been uneven. A broad rollback of regulations has benefited businesses big and small, but the tax-cut plan — backed with a major advertising campaign by the Koch network — was a windfall for corporations.
Still, most conservative economic groups joining this debate defend tax breaks. Jenn Daniels, the Republican mayor of Gilbert, an Arizona town with a booming economy, credits its tax-friendly climate, among other assets like a strong talent pool and good schools. Ryan Combs, leader of the group handling the bid for Amazon from North Carolina’s Research Triangle — including Raleigh, Chapel Hill and Durham — says incentives were crucial to compete. “You have to show companies you want them there,” he told OZY when North Carolina made the cut for Amazon’s top 20 choices: “It’s a necessary evil.”
On a Thursday morning in January, Casey Cagle — Georgia’s second-in-command for more than a decade — holds the type of fundraiser where patrons drop $2,000 checks in a salad bowl by the name tags. African art and Air Force Academy sabers dot the entryway of the location, the Douglasville mansion of former state senator Perry McGuire, a Cagle ally and former corporate lawyer for Chick-fil-A. While a few dozen guests mingle, a friend begins introducing Cagle, the clear front-runner for the Georgia governor race.
“People like to say the Republican Party is just for the rich,” the friend begins. He is trying to suggest that Cagle is different — that the 52-year-old grew up poor to a single mother, in trailer homes and apartments, before starting a tuxedo rental company in his 20s. “But we don’t have a candidate here who grew up with a silver spoon in his mouth,” the friend finishes. But by then, Cagle has ruined the effect a bit, interrupting his friend mid-introduction, referring to one of the wealthy donors there, and saying: “Now why do you have to talk about Mike like that?” The dig pulls chummy laughter from the well-moneyed crowd, but highlights the distance between the simple upbringing his friends want to highlight and the posh engines propelling Cagle’s campaign now.
Despite the awkwardness, Cagle does have a lot to brag about. He helped lead the rebound, from more than 10 percent unemployment at the recession’s worst to just 4.3 percent today. With the help of generous tax credits, the administration he shared with Deal turned Atlanta into the Hollywood of the South, and he’s helped spearhead attempts to get Amazon here with similar incentives. When confronted with critics like Williams — who says Amazon’s contribution to the state will never match the $1 billion in benefits Georgia is offering — Cagle says such incentives are available to every business, and that the package would be over “a very long course of time.” And he recognizes the pain of smaller firms and startups. “We have to take care of small businesses, and take the burden off of their back,” he says.
Perhaps he could start with booze laws. After spending months trying to get a business license, Michael Gerard says he has already lost out on an investor who had promised millions for the whiskey distillery, only to tire of waiting. Now the couple has decided to do the unthinkable: They’re getting a divorce.
“You know, being Irish Catholic, my mother feels really hard up about it,” Denise says. But for Michael, who is 58, there didn’t seem like any other choice. “I don’t have many more years at bat,” he says, “so I need to get this up and running.”