Hostile Takeover: Resisting Centralized Government's Stranglehold on America (21 page)

For General Electric, business is good. Good for them, bad for us.

UNHEALTHY BEHAVIOR

L
IKE CAP-AND-TRADE, CORPORATE CRONYISM PLAYED A KEY ROLE IN
the passing of Obamacare. What was sold to the public by many progressives on the Left as an effort to help the helpless and fight back against the evil, out-of-control health insurance industry was in reality one of the biggest corporate boondoggles in history.

One
Forbes
analyst noted that Obamacare is “very likely to be the greatest boon for lobbyists ever conceived. . . . In the health care field, the Holy Grail of rent-seeking is to get one’s medical device, drug, or procedure added to state health insurance mandates.” Obamacare created a one-stop shop for lobbyists by centralizing health care decisions.
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Of course, Obamacare wasn’t the first time this collusion occurred. During the Bush administration, the Pharmaceutical Manufacturers Association’s efforts to pass a new Medicare Part D drug benefit went as far as offering rides in private jets to Senate Majority Leader Bill Frist and Speaker of the House Dennis Hastert, at steeply discounted fares. They also made enormous campaign donations to many of the key health care committee members.
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The pharmaceutical lobbies particularly dreaded the repeal of laws barring U.S. prescription drugs from being reimported from other industrialized nations, as the lower prices of drugs from Canada and elsewhere would force them to dramatically reduce their profit margins in order to compete.

Billy Tauzin, the former congressman who had played a large role in drafting Medicare Part D, was the head of the pharmaceutical makers’ trade association, whose acronym is PhRMA, when Obamacare was being crafted. He left his chairmanship of the health care committee of jurisdiction to become Big Pharma’s top lobbyist shortly after Part D passed.
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Obama actually pointed to Tauzin as a bad actor in a campaign ad in 2008, promising not to take lobbyist money or be part of the lobbyist-induced culture of corruption once in Washington.
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Only moments after being sworn into office, Obama reconsidered his campaign promise, and he soon began “cutting deals to neutralize would-be antagonists.” Embracing industry demands early “was one of the Democrats’ key takeaways from the failed ‘HillaryCare’ effort.”
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One such deal came on prescription drug reimportation. Obama had promised during his campaign that he would allow the reimportation of prescription drugs, and in 2007, Obama voted twice to allow it. When pharmaceutical companies became concerned about the potential for reimportation ending up in Obamacare, they were directed to meet with Democratic senator Max Baucus, chairman of the powerful Finance Committee.
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Baucus initially asked the drug industry to contribute $100 billion in cost reductions in return for concessions in the bill, but the industry balked at the high cost.
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The
Wall Street Journal
reported in July 2009 that PhRMA reps met with the White House and received some assurances that prescription importation would not be allowed by Obamacare, in spite of Obama’s campaign promises to the contrary.
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The
Los Angeles Times
also reported that the White House protected pharmaceutical companies by blocking access to generic and imported drugs—in exchange for drug company backing of Obamacare.
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A memo obtained by the
Huffington Post
broke down the eventual deal reached between PhRMA and Baucus, approved by the White House. Drug companies agreed to chip in $80 billion in cost reductions. The White House, not eager to be seen as colluding with pharmaceutical lobbyists, lest it expose the lie, initially backed away from the memo.
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Many Democrats in Congress were furious at the concessions and accused Obama of caving to the drug companies. Nervous that the White House might go back on their deal, Tauzin publicly acknowledged the veracity of the numbers in the memo and called upon the White House to do the same. The White House had no choice but to confirm the deal.
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Senator Bill Nelson proposed an amendment to the bill that would have obliged drug companies to lower prices even more, to fill in the “doughnut hole” (a large coverage gap) in Medicare Part D, but under pressure from drug companies, a number of key Democrats voted with Republicans to kill the amendment. Similarly, Senator Byron Dorgan, Democrat of North Dakota, introduced an amendment to allow the reimportation of drugs, but the amendment was defeated “with numerous Democrats previously in support of re-importation switching to ‘no’ votes.”
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The drug companies also committed up to $150 million to run ads in support of Obamacare, a remarkable number, more than John McCain spent on his entire 2008 presidential campaign.
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In February 2010, after the election of Scott Brown in Massachusetts to fill Ted Kennedy’s old seat, the health care bill appeared dead. Pharmaceutical industry leaders became worried that Tauzin “had gone too far giving concessions” to the White House for too little return, and Tauzin was pressured into resigning as head of PhRMA.
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Examples of health care rent-seeking are everywhere. Obama had promised that he would prohibit agencies from issuing large contracts without a competitive bidding process,
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but that is exactly what occurred with New York–based Siga Technologies, which successfully negotiated a contract to sell the government $433 million worth of smallpox vaccines. After Siga was awarded the initial contract, another company complained that the contract was designated for a small company and that Siga was well above that threshold. A new contract was then written, which only Siga was allowed to bid on.
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Even worse, these vaccines weren’t even necessary, by the reckoning of medical and defense experts. Various experts on smallpox and epidemiology voiced concerns that the expense of procuring this particular vaccine was unjustified, since another vaccine already exists with more proven effectiveness and a longer shelf life than Siga’s new version. Moreover, the vaccine has not even been approved by the FDA, and with no real way to test it on human subjects (since smallpox has been eradicated in the U.S.), there is no sure way to know whether the vaccine is effective.
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What stake did the Obama administration have in the vaccine? Siga’s controlling shareholder is “Ronald O. Perelman, one of the world’s richest men and a longtime Democratic party donor.”
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Perelman donated “$130,000 mostly to Democrats over the last two cycles alone” and contributed $50,000 for Obama’s inaugural parties. Another member of Siga’s board: Andrew Stern, former head of the Service Employees International Union (SEIU) and one of the most frequent visitors to the Obama White House.
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According to the Center for Responsive Politics, “The pharmaceutical and health products industry . . . is consistently one of the top industries for federal campaign contributions.” The center’s number crunching reveals that drug companies traditionally favored Republican candidates but began to donate more to Democrats after the balance of power shifted in 2006. They also note, “The [pharmaceutical] industry’s political generosity increased in the years leading up to Congress’ passage in 2003 of a prescription drug benefit in Medicare.”
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Indeed, drug company donations and independent expenditures for campaigns more than doubled, from $13 million to $27 million between 1998 and 2000, and they increased from $20 million to $31 million between 2006 and 2008.
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The evidence of lobbyists’ influence is clear in the aftermath of a major victory. After Medicare Part D passed, numerous members of Congress and staff involved in its drafting left “public service” for lucrative careers with pharmaceutical lobbies. “Every time a major bill passes, there is an exodus of Hill staffers,” one former staffer told ProPublica. “In many cases, they have worked for 2–3 years on the legislation and then they go to work for firms with a stake in the implementation. These staffers, obviously, have a unique understanding of the issue and people are willing to pay a premium for that knowledge—even more so than for their so-called ‘connections.’”
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WHAT WOULD REAGAN DO?

S
UMNER
K
IBBE—HE WAS
P
OPS TO MY BROTHER,
M
ARK, AND ME—
worked for General Electric most of his adult life. In Erie, Pennsylvania, he helped build locomotive engines. Sometime in the early 1960s he discovered a former actor named Ronald Reagan, the host of General Electric Theater. My dad would eventually become a Reagan delegate to the 1968 Republican National Convention in Miami Beach, a brokered convention that was the beginning of the Reagan Revolution, an earlier hostile takeover bid against the Republican establishment.

Pops stood with Reagan long before it was considered cool.

Today, General Electric celebrates its affiliation with Reagan, and it spent lavishly on Reagan’s centennial celebration throughout 2011. From the GE website:

Long before he changed the world, or led a nation, or governed a state, Ronald Reagan inspired our company with his optimism, entrepreneurial spirit and belief in innovation. From 1954 to 1962, Ronald Reagan served as host of a popular Sunday evening television program called General Electric Theater. During that time he also spent ten weeks each year traveling the country as GE’s roving ambassador. By the time the show concluded its eight-year run, Ronald Reagan, by his own account, had visited 139 GE research and manufacturing facilities. He walked the plant floors, toured offices and met over 250,000 individual employees, honing his renowned communications skills and leaving a unique legacy that continues to inspire our company today.
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Critics of GE’s trough feeding, including yours truly, wondered about the company’s real motives. Was their renewed interest in associating with Reagan’s legacy just a convenient way to repair their public image?

You can’t find it on their website, but GE fired Reagan at the peak of the show’s popularity. Why would they do that? “Dad explained that CBS hadn’t canceled the highly rated show,” says Reagan’s son Michael. “Instead, GE had pulled the plug. As the company was negotiating some government contracts, Bobby Kennedy, the attorney general of the United States, bluntly informed GE that if the company wished to do business with the U.S. government, it would get rid of ‘General Electric Theater’ and fire the host.”
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Reportedly, the dispute was over Reagan’s harsh criticism of the Tennessee Valley Authority.

In April 2009, President Obama rolled out yet another “stimulus” project, $13 million in federal money for high-speed rail. “There’s no reason why the future of travel should lie somewhere else beyond our borders. Building a new system of high-speed rail in America will be faster, cheaper and easier than building more freeways or adding to an already overburdened aviation system—and everybody stands to benefit.” Sure enough, Lorenzo Simonelli, CEO of GE Transportation, announced a month later that GE was standing “ready to partner with the federal government and Amtrak to make high-speed rail a reality.”

The locomotives needed for the job would be produced in Erie at the same plant my father used to work at, and were introduced “before a crowd of employees and public officials,” according to the
Erie Times-News
. “This was typical,” says Tim Carney in his book
Obamanomics
, “an Obama policy pronouncement in close conjunction with a GE business initiative. It happens across all sectors of the economy and in all corners of GE’s sprawling enterprise.”
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Typical, maybe. But one thing’s for sure. That’s not my father’s GE.

CHAPTER 8
S
CRAP THE
C
ODE

W
ARREN
B
UFFETT WANTS YOU TO KNOW THAT HE THINKS THAT THE
rich don’t pay their fair share.

Buffett is the third richest person in the world. He had a net worth of $39 billion in 2011.
1
That’s probably about 406,250 times your net worth.
2
But it matters to him that you know that his enormous wealth and good fortune do not mean he is a selfish man, uncaring about the plight of the American people during a time of economic turmoil. He is so generous, in fact, that he wants the government to force “the rich”—those filthy wealthy one-percenters—to bear the cross of economic self-sacrifice for the good of society and the government coffers.

In a 2011
New York Times
op-ed piece, Buffett proclaimed that he wanted to pay higher taxes for the purpose of “shared sacrifice.” How altruistic. He argued for a tax hike for those making more than $1 million a year and an even higher hike for those making more than $10 million. Buffett argued that new social engineering through the tax code—selectively applied tax hikes—was necessary because “so many . . . citizens are truly suffering.” He noted that he and his rich friends have “been coddled long enough by a billionaire-friendly Congress” that applied low capital gains and dividends tax rates, leading to Buffett himself paying a lower effective income tax rate than “the other 20 people” in his office. He finished with a rhetorical flourish: “It’s time for our government to get serious about shared sacrifice.”
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WARREN BUFFETT’S SECRETARY

P
RESIDENT
O
BAMA, NEVER ONE TO MISS AN OPPORTUNITY TO RAISE
taxes and draw a line in the sand for people who “make too much money,” quickly heralded the op-ed and called for the implementation of a “Buffett rule” that would “rais[e] some revenue from folks who’ve done very well.”
4
We are not allowed to say “tax hike” in Washington, D.C. “Enhanced revenue” is the preferred nomenclature. (The list of politically approved jargon can be exhausting for the layman, but there are a few simple rules: “New revenue” does not mean higher taxes; “quantitative easing” is not the printing of new money out of thin air; and de facto government ownership of a bank or a car company is absolutely, positively not “socialism.” It’s just “progressive.”)

Buffett engaged in a whirlwind tour of Washington, meeting with President Obama, Nancy Pelosi, and other insider luminaries.
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The president went so far as to seat Warren Buffett’s secretary next to Michelle Obama for the 2012 State of the Union Address, and reiterated in that speech, in case you didn’t hear it before, that “right now, Warren Buffett pays a lower tax rate than his secretary.”

What exactly are Buffett and Obama talking about? So far, the president’s prop for higher taxes has not released her own tax returns, so no one really knows what that actually means. Is that the marginal or effective rate? Does that include payroll taxes? The employer’s share of payroll taxes? Does the AMT apply? State taxes? How many deductions? No one knows exactly what President Obama, Warren Buffett, or his secretary is actually talking about, because of an enormously complex tax code where everyone is treated differently from everyone else.

If our government were to get serious about shared sacrifice, it seems like we might start with some serious belt-tightening in Washington, D.C. But that’s not how things are done inside the marble walls of Congress. Adding another layer of complexity to our incomprehensible tax code is anything but fair. Such changes are inevitably gamed by insiders, tax lawyers, and lobbyists who will make it very difficult to accumulate wealth if you are not already rich. Complexity ensures, by definition, that those who are politically connected will always get a better deal. Might that be the real agenda here?

The real battle in America is not between the 99 percent versus the top 1 percent. The fight is between the privileged insiders with pull, who have rigged the tax code to their advantage, and the rest of us, who foot the bill. Buffett’s proposal simply to raise taxes on the wealthy is anything but simple, and it would only exacerbate the problem of an overly convoluted tax code. The only way to achieve true fairness is through fundamental tax reform, including a flat tax and a massively simplified tax code.

COMPLEXITY IS THE ENEMY

C
ONSIDER
W
ARREN
B
UFFETT ONCE MORE.
J
UST A COUPLE OF DAYS
after his benevolent-sounding
New York Times
op-ed, Buffett’s company and chief asset, Berkshire Hathaway, was in the news for admitting in its 2010 annual report that it likely owed more than $1 billion in back taxes.
6
,
7
This revelation was not the first time Buffett and Berkshire squabbled with the IRS over taxes. They had also previously fought and won a 2002 dispute with the agency over $23 million in deductions denied by the IRS from 1989 to 1991.
8
Despite the minuscule dollar amount of the tax challenge compared to the assets of the multibillion-dollar company, Buffett argued that the protracted litigation was worth pursuing.
9

His assertion that the tax code allows the privileged elite to avoid taxes is correct. Our current tax code, weighing in at 3.6 million words, is filled with deductions, credits, penalties, and loopholes, and provides some with a massive advantage in minimizing their taxes—opportunities to game the system unavailable to the average American.
10
As President Obama’s commissioner of the IRS noted in a speech, there were “an astonishing 4,400 legislative changes to the Code” between 2000 and 2010 alone.
11

Buffett can afford an army of accountants to seek out every deduction and loophole and an army of lawyers to engage in protracted litigation with the IRS to ensure that he pays the least amount possible every year. He employs an army of lobbyists (Berkshire Hathaway spent almost $9.5 million on lobbying in 2010)
12
—to influence politicians to create additional tax deductions, loopholes, and carve-outs for his businesses.

Most Americans can’t afford such armies. We end up doing our own taxes, wading through 161 pages of instructions to do so, triple the page total in 1985 and four times more than in 1975.
13
The IRS itself reported to Congress in 2010 that the complexity of the tax code is “the most serious problem facing taxpayers.”
14
It’s no wonder Americans spend about 7.3 billion hours per year complying with the filing requirements of the Internal Revenue Code.
15
How can an untrained individual who has to wade through a morass of rules and regulations compete with teams of sophisticated accountants and lawyers?

Now, what about Buffett’s tax-hike solution? Would the code be fairer if we imposed additional, targeted tax hikes on the rich? In a word, no. Buffett, in his
New York Times
op-ed, played fast and loose with the truth regarding his tax burden. His argument that he pays a lower tax rate than all his employees because of low dividends tax rates ignores the fact that our tax code already double-taxes such capital income. Buffett and others who pay such taxes first pay a corporate income tax on capital income before facing the dividends tax for that same income. When this is taken into account, Buffett likely faces a tax rate of almost 45 percent, higher than that of any of his employees.

Among the ultrarich, IRS statistics show that the top 1 percent of earners pay 36.73 percent of all income tax revenue, and the top 5 percent pay 58.66 percent.
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How much more does Buffett expect such Americans to give to a perceived “shared sacrifice”?

The president and his friends like to throw around words like
fairness
. But I think most of us think about the rules of fair play, particularly when it comes to the laws of the land, as treating everyone the same. The idea that government can benevolently pick the right winners and punish the bad actors is utterly contrary to our sense of justice and common sense.

I say let’s scrap the tax code altogether. Let’s put the professional tax lobby and army of tax lawyers
out of business
. A tax code that is simple, low, fair, and honest means that workers and capitalists, and even Warren Buffett, can spend their time working to put food on the table and, with a little luck and hard work, create wealth and jobs and opportunities outside Washington, D.C.

SIMPLER TAXES MEAN MORE FREEDOM

T
HE
C
ONTRACT FROM
A
MERICA CALLS ON
C
ONGRESS TO “[A]DOPT A
simple and fair single-rate tax system by scrapping the internal revenue code and replacing it with one that is no longer than 4,543 words—the length of the original Constitution.”
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There’s a reason nearly half a million Tea Party activists around the country decided to include fundamental tax reform as one of the top planks of the Contract, and it’s not that they’re all super-rich and looking for an easy way to avoid paying taxes. I would argue that though the economic benefits of such reform are important, the passion of grassroots activists for fundamental tax reform is driven primarily by a set of simple values: Treat everyone the same as everyone else; don’t punish success; and simplicity equals transparency—so everyone knows that there isn’t a better deal to be had if you can afford a lobbyist or a lawyer. In other words, simple, low, fair, and honest.

When policy wonks like me talk about tax policy, we often remove the moral component. We crunch a lot of numbers and discuss end results (which I’ll do later in this chapter, so be prepared). But the elegance of our modeling of distributional effects is secondary to the ideological foundation of a certain and clear policy, especially when such a policy is in line with simple fairness and the values espoused in our Constitution.

Fundamental tax reform is necessary because it is the only solution that fully ensures our individual liberty as human beings. The Declaration of Independence recognizes our “unalienable rights” of “life, liberty, and the pursuit of happiness.” This means that a just government cannot take our liberty or the fruits of our labor from us just because it thinks that the end result will be beneficial for “society.”

Why is our liberty so important? It seems like a silly question, but it’s crucial, since our government is violating our liberties every day, especially through the crazy quilt of tax code regulations. Liberty is important to us because it gives us the opportunity to fully define ourselves. No committee chairman or IRS bureaucrat can regulate that with a better set of preferences and choices, imposed from the top down. No president, no matter how confidently he asserts it, knows at what point you have “earned too much money.”

If a system of taxation is not fair, and government can create arbitrary rules and laws that hinder your ability to earn and produce, it infringes on your ability to express yourself as a human being and live your own life. And it’s not just the government taking away our money that erodes our ability to define our own lives; the arbitrariness and inconsistency of government rules also negatively impact our life, liberty, and pursuit of happiness.

FOUNDING FAIRNESS

T
HE
F
OUNDING
F
ATHERS CLEARLY UNDERSTOOD WHY EXCESSIVE AND
unfair taxation directly harms our liberty. Thomas Jefferson, in an 1816 letter, described in detail his belief that government must choose “economy and liberty” over “profusion and servitude,” as excessive taxation would lead to “wretchedness and oppression.”

To preserve [the] independence [of the people,] we must not let our rulers load us with perpetual debt. We must make our election between economy and liberty, or profusion and servitude. If we run into such debts as that we must be taxed in our meat and in our drink, in our necessaries and our comforts, in our labors and our amusements, for our callings and our creeds, as the people of England are, our people, like them, must come to labor sixteen hours in the twenty-four, give the earnings of fifteen of these to the government for their debts and daily expenses, and the sixteenth being insufficient to afford us bread, we must live, as they now do, on oatmeal and potatoes, have no time to think, no means of calling the mismanagers to account, but be glad to obtain subsistence by hiring ourselves to rivet their chains on the necks of our fellow-sufferers. . . . And this is the tendency of all human governments. A departure from principle in one instance becomes a precedent for a second that second for a third and so on till the bulk of the society is reduced to be mere automatons of misery and to have no sensibilities left but for sinning and suffering. . . . And the fore horse of this frightful team is public debt. Taxation follows that and in its train wretchedness and oppression.
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Jefferson perfectly encapsulated why unfair taxation directly impacts our liberties. If we are taxed too heavily and unfairly, we cannot truly live our lives, and we will have “no time to think.”

Jefferson was not alone in his fears about taxation. James Madison too saw the impact of unfair and inconsistent taxation on individual liberty.

In a word, as a man is said to have a right to his property, he may be equally said to have a property in his rights. . . . A just security to property is not afforded by that government, under which unequal taxes oppress one species of property and reward another species: where arbitrary taxes invade the domestic sanctuaries of the rich, and excessive taxes grind the faces of the poor; where the keenness and competitions of want are deemed an insufficient spur to labor, and taxes are again applied, by an unfeeling policy, as another spur; in violation of that sacred property, which Heaven, in decreeing man to earn his bread by the sweat of his brow, kindly reserved to him, in the small repose that could be spared from the supply of his necessities.
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