Dark Money: The Hidden History of the Billionaires Behind the Rise of the Radical Right (42 page)

Soon, though, those at the very top succeeded in shifting the burden to those beneath them, so that by 1942 nearly two-thirds of the population paid income taxes. The rates remained relatively progressive for decades, with the top bracket paying a 50 percent rate in 1981. But the 1970s kicked off a three-decade-long “
tax-cutting spree” during which the wealthiest 1 percent succeeded in getting their average effective federal tax rate slashed by a third, and the very, very richest, the 0.01 percent of the population, did even better, getting its effective federal tax rate cut in half. Unsurprisingly, the distribution of wealth in America grew increasingly skewed.

Critics argued that the extraordinarily rich had managed to shirk their fair share. But this was not how Charles Koch looked at it. He argued that “there is no ‘fair share’ ” of the tax burden. The notion that cutting taxes on the wealthy shifted the burden to others, he said, was a false premise. Everyone’s taxes should be cut, he argued. The aim, he said, was to shrink the government. “
Our goal,” he wrote in an impassioned essay in 1978, is “not to
reallocate
the burden of government; our goal is to
roll back
government.”

From the standpoint of a radically antigovernment libertarian, paying lower taxes wasn’t a matter of greed; it was a matter of principle. Libertarianism elevated tax avoidance into a principled crusade. Indeed, Koch argued that it was a moral act for the wealthy to cut their own taxes. As he put it in the same essay, “Morally, lowering taxes is simply
defending
property rights.” It was, as the Libertarian Party platform put it in 1980, the responsibility of citizens to “challenge the cult of the omnipotent state.”

Foster Friess, the Wyoming mutual fund manager who had joined political forces with the Kochs since the 1980s, depicted opposition to taxes as selfless too, but from a slightly different angle. He argued that the public benefited more when the wealthy paid less because the rich could do more good with their money than the government. “
Wealthy people self-tax,” he argued, by contributing to charities. “It’s a question—do you believe the government should be taking your money and spending it for you, or do you want to spend it for you?” He argued, “It’s that top 1 percent that probably contributes more to making the world a better place than the 99 percent.”

Charles Koch, however, favored neither taxes nor charity. As he explained in a speech in 1999, “
I agree with the 12th century philosopher, Maimonides, who defined the highest form of charity as dispensing with charity altogether, by enabling your fellow humans to have the wherewithal to earn their own living.”

But according to the cultural critic and Jewish scholar Leon Wieseltier, who has taught several university courses on Maimonides, “
This is false and tendentious and idiotic.” He explains, “Maimonides did indeed prize the sort of charity that made its recipient more self-reliant, but he believed that the duty of charity is permanent” and that the responsibility to help the poor was “unequivocal and absolute.” In fact, he points out, Maimonides declared that “he who averts his eyes from the obligation of charity is regarded as a villain.”

While Koch and others in his group described their opposition to taxes as matters of pure principle, they put the Obama administration under constant pressure to accept tax cuts that directly increased their own wealth at the expense of everyone else. To reach the deal in December 2010, for instance, Republican negotiators insisted on cuts in estate taxes that would cost the Treasury $23 billion and save some sixty-six hundred of the wealthiest taxpayers an average of $1.5 million each.

The demand didn’t materialize out of thin air. For years, some of the Republican Party’s wealthiest backers, including the Kochs and the DeVoses, had been agitating to abolish what were cleverly dubbed “death taxes.” The Kochs joined with sixteen of the other richest families in the country, including the Waltons of Walmart and the Mars candy clan, in financing and coordinating a massive, multiyear campaign to reduce and eventually repeal inheritance taxes.
According to one 2006 report, these seventeen families stood to save $71 billion from the tax change, explaining why they willingly spent almost half a billion collectively, lobbying for it, beginning in 1998.

They were represented by a handful of front groups, including the American Family Business Institute, which strove to cast the tax break as necessary to preserve family farms. Unfortunately, in 2001, the group couldn’t find a single family farm put out of business by the estate tax. After Hurricane Katrina, the same group scoured the country to find a storm victim whose heirs were hurt by the estate tax, in order to create some sympathy for its cause, but again failed to find a single one. In truth, only 0.27 percent of all estates were wealthy enough to be affected by estate taxes.

The lengths that some members of the Kochs’ donor circle went to, hoping to ensure the biggest possible share of their family’s fortunes, were impressive. The Koch brothers were far from alone in having litigated aggressively against their relatives.
One member of their network during this period, Susan Gore, heiress to a piece of the Gore-Tex fabric fortune and founder of a conservative think tank called the Wyoming Liberty Group, was so intent on increasing her personal inheritance that she tried to legally adopt her ex-husband in order to claim that she had as many children as her siblings and thereby enlarge her portion of the family trust. But in late 2011, a judge rejected the seventy-two-year-old heiress’s scheme, ruling that she could not count her former husband as her “son.”

Although it enraged progressives, President Obama reluctantly consented to many of the Republicans’ demands, including the enlarged exemptions from the estate tax. He had campaigned against extending the Bush tax cuts for those earning over $250,000 a year, but in December 2010, with the Republicans poised to take over the House, he tried to convince his disappointed supporters that this was the best deal they were likely to get for some time. “
It used to be that you could govern by peeling off a couple of Republicans to do the right thing,” he said, “but now, Glenn Beck and Sarah Palin are the center of the Republican Party—and there is no possibility of cooperation.”

D
ecember’s machinations were just the opening act, it turned out, in an unfolding drama in which Republicans in the House would eventually threaten to default on paying America’s debts, potentially pitching the fragile U.S. economy into a calamitous free fall, in order to extort further tax and spending concessions favored by wealthy donors. All of this played out against a backdrop of growing economic inequality and stagnating social mobility. The United States, which idealized itself as a classless society in which everyone had the opportunity to get ahead, had in fact fallen behind many other rich nations in terms of intergenerational economic mobility, including such old-world, class-bound countries as France, Germany, and Spain.

Advancing the agenda of America’s wealthiest winners under such circumstances would ordinarily be a hard sell. After all, in 2011, twenty-four million Americans were still out of work. The Great Recession had wiped out some $9 trillion in household wealth. But after forty years, the conservative nonprofit ecosystem had grown quite adept at waging battles of ideas. The think tanks, advocacy groups, and talking heads on the right sprang into action, shaping a political narrative that staved off the kind of course correction that might otherwise have been expected.

A key skirmish in this battle was the reframing of the history of the 2008 economic crash. From an empirical standpoint, it was hard to see it as anything other than a wipeout for the proponents of free-market fundamentalism and an argument for stronger government regulations. Like the Great Depression, it might have been expected to produce a backlash against those seen as irresponsible profiteers, resulting in more government intervention and a fairer tax system.

Joseph Stiglitz, the liberal economist, described the 2008 financial meltdown as the equivalent for free-market advocates to the fall of the Berlin Wall for Communists. Even the former Federal Reserve chairman Alan Greenspan, Washington’s free-market wise man nonpareil, admitted that he’d been wrong in thinking Adam Smith’s invisible hand would save business from its own self-destruction. Potentially, the disaster was a “teachable moment” from which the country’s economic conservatives could learn. This is not what happened, however. They instead started with their preferred conclusion and worked backward to reach it.

In what the economic writer and asset manager Barry Ritholtz labeled Wall Street’s “big lie,” scholars at conservative think tanks argued that the problem had been too much government, not too little. The lead role in the revisionism was played by the American Enterprise Institute, whose board was stocked with financial industry titans, many of whom were free-market zealots and regulars at the Koch donor seminars.

Specifically, AEI argued that government programs that helped low-income home buyers get mortgages caused the collapse. Ritholtz noted that these theories “
failed to withstand even casual scrutiny.” There was plenty wrong with the government’s quasi-private mortgage lenders, Fannie Mae and Freddie Mac, but numerous nonpartisan studies ranging from Harvard University’s Joint Center for Housing Studies to the Government Accountability Office proved they were not a major cause of the 2008 crash. Yet by shifting the blame, Ritholtz noted, those “whose bad judgment and failed philosophy helped cause the crisis” could continue to champion the “false narrative” that free markets “require no adult supervision.”

Self-serving research from corporate-backed conservative think tanks wasn’t exactly news by 2011, but what was surprising, Ritholtz contended, was that “they are winning. Thanks to the endless repetition of the big lie.” Phil Angelides, the chairman of the bipartisan commission that Congress set up to investigate the causes of the crash, was also taken aback by the revisionism. In an op-ed column, he tried to remind the public that it had been “the recklessness of the financial industry and the abject failures of policymakers and regulators that brought the economy to its knees.” Instead, though, he said, “those at the top of the economic heap” were peddling “shopworn data” that had been “analyzed and debunked by the committee.” He conceded that history was written by the winners and that by 2011, while much of the country lagged behind, most of the financial sector had bounced back and “the historical rewrite is in full swing.”

Soon politicians backed by the same conservative donors who funded the think tanks were echoing the “big lie.” Marco Rubio, a rising Republican star from Florida, for instance, who had defeated a moderate in the 2010 Republican Senate primary with the help of forty-nine donors from the June 2010 Koch seminar, soon proclaimed, “This idea—that our problems were caused by a government that was too small—it’s just not true. In fact, a major cause of our recent downturn was a housing crisis created by reckless government policies.”

Against this backdrop, on April 15, 2011, Ryan’s budget plan, now packaged as “The Path to Prosperity,” came up for a vote in the House of Representatives. In the past, its prospects had been uncertain at best. Not just Democrats but many Republicans had deemed previous versions too harsh. A year earlier, Speaker of the House John Boehner had given it only lukewarm support. But by then the Republican caucus had moved far to the right, and the proposal had been repackaged. It now passed easily in the House 235–193, losing only four Republican votes but not attracting a single Democrat.

In the name of fixing Medicare, it shrank it to voucher-like “premium supports,” with which senior citizens could buy private medical insurance. It also transformed Medicaid into a tattered patchwork of state-run block grants while cutting overall funding. Further, it repealed the Medicaid expansion that was a part of Obama’s Affordable Care Act. At the same time, it reduced income taxes into two rates, cutting the top rate down to 25 percent—half of what it was when Ronald Reagan was elected. Theoretically, any losses were to be made up by eliminating deductions, but these were not specified. As the
New York Times
reporter Noam Scheiber summarizes it in
The Escape Artists: How Obama’s Team Fumbled the Recovery
, Ryan’s plan cut taxes for the wealthy by $2.4 trillion in comparison with Obama’s proposed budget and then cut spending by $6.2 trillion. He describes it in short as “
right-wing lunacy.”

The most shocking aspect was its radical rewrite of America’s social contract. To reduce the deficit, Ryan prescribed massive cuts in government spending, 62 percent of which would come from programs for the poor, even though these programs accounted for only about a fifth of the federal budget.
According to a
New York Times
analysis of a similar, later version of Ryan’s budget, 1.8 million people would be cut off food stamps, 280,000 children would lose their school lunch subsidies, and 300,000 children would lose medical coverage. Robert Greenstein of the liberal Center on Budget and Policy Priorities called the plan “
Robin Hood in reverse,” arguing, “It would likely produce the largest redistribution of income from the bottom to the top in modern U.S. history.”

The plan was successfully sold, nonetheless, winning a chorus of acclaim from conservative pundits and think tank scholars, whom the Republican leadership had treated to high-revel policy briefings. Singing the plan’s praise were the Cato Institute, the Heritage Foundation, and Grover Norquist’s powerful antitax group, Americans for Tax Reform, which declared, “Paul Ryan’s budget is what a REAL conservative budget looks like!” Many other nonprofit advocacy groups, like Public Notice, the 60 Plus Association, the Independent Women’s Forum, and American Commitment, also chimed in for the drastic spending cuts. The clamor seemed multitudinous, but beneath the surface each of these groups shared a common aquifer—the pool of cash contributed by the Koch donor network.

A number of opinion writers also embraced Ryan as oracular. David Brooks, a moderately conservative
New York Times
columnist whose opinion Obama valued, declared Ryan’s plan “
the most courageous budget reform proposal any of us have seen in our lifetimes…His proposal will set the standard of seriousness for anybody who wants to play in this discussion. It will become the 2012 Republican platform, no matter who is the nominee.”