Dark Money: The Hidden History of the Billionaires Behind the Rise of the Radical Right (41 page)

Plagiarism ranks pretty high up on the list of crimes of moral turpitude in journalism. In a business where your name and credibility are everything, allegations like these could prove ruinous. Upon close inspection, though, it became clear that the allegations were inane and easily refutable. Someone, probably using a computer program, had mechanically sifted through almost a decade of my work and isolated quotations from officials, and other widely repeated phrases, to argue that “the structure and wording” were “quite close” to four other reporters’ news stories. None of the supposedly purloined sentences were of any particular significance. This wasn’t the sort of material anyone who actually knew anything about journalism would pay any attention to. Even sillier, in two of the four stories I was alleged to have “plagiarized,” I had specifically given credit to the authors whose work
The Daily Caller
was claiming I’d stolen.

In twenty-five years of journalism, I’d made my share of spectacular mistakes, but no one had ever accused me of misappropriating their work. In fact, I’d always gone out of my way to credit others. But I also knew that if these charges weren’t answered immediately, the truth would scarcely matter. Once the smear got into print, people would assume that there must have been
something
to it.

I was later told that by cooking up these charges, the boiler room operatives felt close to victory. “They thought they had you. They thought they were going to be knighted by the Kochs,” said one source. Their search for dirt had started with my personal life, I was told, but when that turned up nothing truly incriminating, they moved on to plagiarism.

With only a few hours before these allegations were set to go online, all I could do was to try to get out the truth before the lies were spread. By midnight, I had reached three of the four authors from whom I was alleged to have plagiarized. All offered to make public statements supporting me and denying I had misappropriated their work.
The Daily Caller
’s reporter hadn’t even interviewed them.

Lee Fang, a blogger for the liberal Web site
ThinkProgress
whose pathbreaking work on the Kochs I had cited in my story, issued a statement saying, “These accusations are without merit.” He went on, “Ms. Mayer properly credited me in her story, and clearly did a ton of her own research. I have nothing but admiration for her integrity as a journalist.”

Paul Kane, a reporter at
The Washington Post
, quickly looked up the story in question and sent me an e-mail saying, “Not only did you not steal from me, you Frickin’ credited me in the VERY NEXT line.”
The New Yorker
had even linked to his story online. And, I later learned, my husband, who was then an editor at
The Washington Post
, had edited the story that I supposedly stole. The allegations were becoming comical. The third reporter I reached also gave a statement saying she had no complaints. Later, the fourth did as well. If this was the best opposition research money could buy, it was pretty shoddy.

I sent the facts to
The Daily Caller
, which, after confirming them, dropped the story.

But Keith Kelly, to his credit, kept reporting. He tried to press the Koch spokesmen on whether they were behind the smear but, interestingly, got no response. He wrote a follow-up called “Smear Disappears,” asking, “Who is behind the apparently concerted campaign to smear the New Yorker’s Jane Mayer?” He noted, “The story is dead but the person or persons behind the allegations remains a shadowy mystery.” He asked
The Daily Caller
’s editor, Carlson, who its source was, but Carlson claimed, “I have no clue where we got it.”

There actually was a big clue. The plagiarism ploy had been timed to try to stop
The New Yorker
from nominating the Koch story for a National Magazine Award, according to the
New York Post
. And when
The New Yorker
went ahead and nominated the story anyway, the Kochs tried to stand in the way. Koch Industries’ general counsel, Holden, sent a highly unusual letter to the board of the American Society of Magazine Editors, trying to stop it from picking my story for the prize. (The story didn’t win anyway.
Que sera
.)

By then, as David Remnick told the
New York Post
, the whole opposition research campaign seemed “pathetic.” He added derisively, “I’m a little surprised to see a big-time operation behave like a bunch of Inspector Clouseaus.”

The Kochs also went after Ed Crane, the Cato Institute head, who admitted to having been behind an unattributed quotation in my
New Yorker
story making light of Charles’s “Market-Based Management” system. In response, shortly before the January 2011 summit, Charles invoked his ownership of Cato shares to force a management change, insisting that two longtime company loyalists, Nancy Pfotenhauer and Kevin Gentry, neither of whom was known as a deep libertarian thinker, join the think tank’s board. Crane, who had co-founded Cato, was furious, but it was prelude to the final shake-up later that year in which Charles and David forced him out completely. David reportedly told Cato’s chairman of the board, Robert Levy, that instead of producing esoteric intellectual theories, the ostensibly nonpartisan think tank should provide “
intellectual ammunition that we can then use at Americans for Prosperity and our allied organizations” to influence elections.

I
f anything, the Kochs’ ham-fisted reaction to criticism, and sense of aggrieved embattlement, seem to have only spurred their backers on, because by the time they left the guarded enclave near Palm Springs on February 1, 2011, the Koch coffers had $49 million more to spend.
The bidding during the final fund-raising spree was so exuberant that one hotel staffer claimed he heard donors making pledges in increments of $5 million. With the House of Representatives safely delivered, the group was now on a roll, looking ahead to finishing off Obama once and for all in 2012.

First, though, there was a lot of discussion about how they could help the Republicans in the House, now that the GOP had the majority. Sean Noble, who continued as a contract political consultant to the Kochs, was pushing hard for them to start by helping Paul Ryan, the Wisconsin congressman who was the incoming chairman of the House Budget Committee.

For the big donors, Ryan was a superstar, a square-jawed, blue-eyed, earnest young Ayn Rand disciple described as “wonky” so often it seemed affixed to his title. His problem, though, was that his budget-slashing ideas scared the public, horrified liberals, and worried many Republicans, too. As he put it himself, “
There’s a lot of sharp knives in my drawer.”

In the coming congressional session, Ryan planned to introduce a budget proposal that would serve as a blueprint for hard-line fiscal conservatives. No one expected it to pass in 2011, because the Democrats still held the Senate and the White House. But if Ryan gathered enough support, he could push the party hard to the right, tie Obama in knots, and provide a first draft for the GOP’s 2012 platform. Tactically, a lot was riding on his success.

For several years, Ryan had been advocating radically deep cuts in government spending, including to Medicare and Medicaid, the two main government health programs for the elderly and the poor. He had also floated the idea of partially privatizing Social Security by introducing alternative private retirement accounts. He argued that the bloodletting was necessary for the country’s fiscal health. The deficit, in his view, was reaching a crisis level, and these programs were unsustainable. His ideas were wildly popular with most of the wealthy donors. As the country’s highest taxpayers, they would be the biggest beneficiaries of the tax savings produced by spending cuts. Moreover, none of them needed to rely on government social services for their health or welfare.

But many of Ryan’s ideas were anathema to much of the middle class. When President George W. Bush had tried to privatize Social Security, a plan pushed by the Cato Institute, he had been forced to retreat in the face of overwhelming public opposition. The reality was that despite mobilizing the Tea Party, the big conservative donors had a number of different priorities from the less affluent followers.
Tea Party leaders had deliberately “fudged” their agenda on Social Security in order not to alienate the followers, according to one study. They talked in vague terms about keeping America from “going broke” but avoided specifics. Meanwhile, not one grassroots Tea Party supporter encountered by the study’s authors argued for privatizing Social Security. Entitlement programs aiding the middle class were in fact so popular with most Americans that they were virtually sacrosanct.
While rich free-market enthusiasts often favored replacing these programs with market-oriented alternatives, polls showed that virtually everyone else was adamantly opposed to the kinds of changes that Newt Gingrich candidly called “right-wing social engineering.”

To popularize his radical budget plan, Ryan would need help, and Noble soon came up with a way for the donors to deliver it. He suggested they pay for expensive private polling and market testing to help Ryan fine-tune his pitch, as well as a campaign by “Astroturf” groups to create a drumbeat of public support.
It was an intriguing idea, but it teetered on the edge of impropriety. Drafting the government’s annual budget was a core congressional function.

At first, in the beginning of 2011, the donors were unenthused about the idea. Having already paid for an expensive election, they didn’t understand why they now also needed to pay for polling and focus groups about government policy. But in the following months, this changed, and mysterious money from the Koch network started flowing.
Much of it moved from the donors to a 501(c)(4) “social welfare” group cryptically called the TC4 Trust, working closely with a subgroup focused on budget issues called Public Notice.
The TC4 Trust was little more than a UPS box in Alexandria, Virginia, but between 2009 and 2011 it reported revenue to the IRS of approximately $46 million and gave away some $37 million to other conservative nonprofit groups. It defined itself as a free-market advocacy group and filed papers with the IRS proclaiming that “the grant funds shall not be used for political activity.” But it soon was paying for polling and a public advocacy campaign aimed at shaping and selling the Republican budget.

Ed Goeas, the president of the Tarrance Group, a Republican polling company that worked on the budget project, said that the challenge was to minimize political damage from cuts to entitlement spending. “
It wasn’t about developing policy,” Goeas said, “it was about selling it.” The solution, it appears, was to avoid the frank use of the word “cut” when talking about Medicare or Social Security. “There was discussion that you could deal with it as ‘getting your money’s worth out of the government,’ ” said Goeas. “You could talk about it as ‘more effective’—but not as cutting it. It had to be more about ‘efficiencies.’ That was a large part of it,” he said. Public Notice, which paid for the research, also mounted a public advocacy campaign describing the deficit as a looming catastrophe. “Public Notice was one of the Koch Brothers’ groups,” Goeas confirmed, adding that his firm worked “for it for three or four years” while simultaneously advising Ryan.

Ryan evidently proved eminently teachable. He was expert in the fine print of the budget but less certain about the public relations. So long as what emerged from these sessions was in line with his values, he was described as grateful for the help. Moreover, unlike most such advice, it came prepaid.
As President Obama worked up his own budget proposal that spring, a process at the heart of governing, he had no idea that some of the richest people in the country, with huge stakes in the outcome, were partly paying to shape and sell the Republican alternative.

As the attention lavished on Ryan suggested, tax issues loomed large on the victorious donors’ agenda. Dull though the mechanics can be, as Neera Tanden, the president of the liberal Center for American Progress, puts it, “
When oligarchs control the levers of government, they get the spoils. It’s litigated through tax policy.”

Even before the Republicans formally took control of the House, the president felt forced into making concessions on tax issues vital to the donor class. In December 2010, he reached a deal that temporarily extended unemployment benefits to the millions of Americans still out of work, along with reducing payroll taxes and providing other help for the middle class. In exchange, Obama gave Republicans what they most wanted—an extension of the Bush-era income tax cuts that had disproportionately benefited the wealthy, which were slated to automatically expire.

Those cuts had lowered the top income tax rate from 39.6 percent to 35 percent. With bipartisan support, Bush had also slashed taxes on unearned income, most of which went to the rich. Taxes on dividends, for instance, were reduced dramatically from 39.6 percent to 15 percent. Taxes on capital gains, the overwhelming bulk of which were reaped by the wealthy, fell from 20 percent to 15 percent. As a result, many of the richest Americans were taxed at lower rates than middle- and working-class wage earners.

A 2008 study of the wealthiest four hundred taxpayers, for instance, showed that they earned an average of $202 million and paid an effective income tax rate of less than 20 percent.
Fully 60 percent of their declared income derived from capital gains. In other words, the effective tax rate on earning $202 million was lower than the rate paid by Americans earning $34,501 a year.

The tax code hadn’t always been so lopsided. As income grew increasingly concentrated at the top during the twentieth century, the tax code grew more generous to those with extreme wealth in response to the political pressure they put on lawmakers. The first peacetime income tax was enacted in 1894 as the result of William Jennings Bryan’s Populist movement and applied to only the richest eighty-five thousand Americans out of a population of sixty-five million, or the top 0.1 percent. But the Supreme Court struck it down after the robber barons waged a proxy legal battle. Eighteen years later, the Sixteenth Amendment to the Constitution legalized the income tax, which in the beginning was only levied on the very rich. Rates were especially high in wartimes, when the taxes were seen as part of the patriotic duty of the privileged. During World War I, top earners paid a rate of 77 percent, and during World War II they paid a rate of 94 percent. (It was this tax that the Scaife family had avoided with its elaborate trusts and foundations.)