Dark Money: The Hidden History of the Billionaires Behind the Rise of the Radical Right (46 page)

By the time the Romney campaign woke up to the threat posed by Gingrich, defeating him soundly in Florida, the damage had already been done. “With those attacks on Bain, he laid down the blueprint for Obama,” lamented a conservative in the Kochs’ circle.

Foster Friess, the multimillionaire mutual fund manager from Wyoming and longtime member of the Kochs’ donor circle, was creating chaos, too. As Romney was trying to finish off Gingrich, Friess was spewing cash into a super PAC promoting Rick Santorum, a former senator from Pennsylvania who shared his zealous Christian conservatism. The nearly $1 million spent by Santorum’s super PAC in Iowa vaulted him from footnote status into first place, assuring that his candidacy would continue far beyond its natural political shelf life. Friess, who seemed to love the spotlight almost as much as Santorum, joined the candidate in making a series of pronouncements about reproductive and gender issues that shocked many women. In the midst of an interview with the NBC correspondent Andrea Mitchell, for instance, Friess explained why he and Santorum took issue with the contraceptive coverage for women included in Obama’s health-care plan. “Back in my day, they used Bayer aspirin for contraceptives,” joked Friess. “The gals put it between their knees and it wasn’t that costly.” Mitchell, whose professional command was ordinarily unshakable, stammered, “Excuse me? I’m just trying to catch my breath from that, Mr. Friess, frankly.”

By the time Santorum and Gingrich bowed out of the presidential race in the late spring, Friess had contributed $2.1 million and Adelson and his wife over $20 million to the campaigns of their respective favorites. The Democrats were ecstatic at the damage inflicted by the rogue donors. “
We were killing them on contraception,” says Jim Messina, Obama’s campaign manager. “And we were winning on tax issues for the first time since 1996.” Steve Schmidt, a Republican political operative, suggests that the shift from broad-based party funding to hugely wealthy outside donors turned the race into “
an ideologically driven ecosystem.” The candidates, he says, were “like these football players with their sponsors’ names on their jerseys. If you have a single person responsible for your nomination, you owe them everything. You can say not, but it’s determinative.”

Jim Margolis, co-founder of GMMB, the campaign consulting company that worked for Obama’s reelection, suggests that Romney would have fared better as a moderate, but his radical backers prevented it. “Romney’s best strategy would have been to give Obama a golden watch and say basically, ‘We all had such hope, he tried, but he didn’t get it done. I can. I’m Mr. Fix-It. I know how to create jobs.’ But Romney never successfully did that. Instead, he ran to the right.” The Tea Party in 2010, and the donors behind it, stirred what Margolis calls “this supercharged Republican primary electorate. We didn’t know how it would play out, but the likelihood of a moderate, appealing candidate emerging from this? Instead, they had Herman Cain, Michele Bachmann, Rick Santorum, and Newt Gingrich! That was a problem for Romney.”

A
s the general campaign got under way, Obama too had to worry about rich donors. He had been itching to make economic fairness the center of his presidential campaign. But some of his advisers worried that populism was a dangerous force to play with in an era when both parties were increasingly reliant on hugely wealthy patrons. Obama, though, had sought the presidency in part because he hoped to alter the relationship between powerful financial interests and those who govern. “One of the reasons I ran for President,” he had said, “was because I believed so strongly that the voices of everyday Americans— hardworking folks doing everything they can to stay afloat—just weren’t being heard over the powerful voices of the special interests in Washington.”

The Occupy movement had further emboldened him. So he decided to kick off his reelection campaign at the end of 2011 in the tiny town of Osawatomie, Kansas. There, in the place where Theodore Roosevelt had delivered a fiery speech in 1910 demanding that the government be “freed from the sinister influence or control of special interests,” he tried to tackle the thorny issue of America’s growing economic inequality.

Obama denounced the “breathtaking greed” that had led to the housing market’s collapse, as well as the Republican Party’s “you’re-on-your-own economics.” He also had some stinging words for big money’s influence on politics. “Inequality distorts our democracy,” he warned. “It gives an outsized voice to the few who can afford high-priced lobbyists and unlimited campaign contributions, and it runs the risk of selling out our democracy to the highest bidder.”

The words were ringing. The audience cheered. The problem, though, was that no matter how keenly Obama wanted to address economic inequality, he was going to have to turn to his party’s own billionaires and multimillionaires for help. Soon, in fact, Obama would set a record for the number of fund-raisers attended by an incumbent president. He continued to speak out, even directly to the donors, telling one small gathering of moguls that included Microsoft’s co-founder Bill Gates, the richest man in America, “
There are five or six people in this room
tonight
that could simply make a decision—this will be the next president—and probably at least get a nomination, if ultimately the person didn’t win. And that’s not the way things are supposed to work.” But like it or not, Obama was, as one top progressive donor, the former head of the Stride Rite shoe company Arnold Hiatt, put it, “
in a bind.”

In an early 2012 meeting in the Roosevelt Room, his campaign manager, Jim Messina, shocked the president by sharing the bad news that they now expected outside Republican spending against him to reach $660 million.

“How sure are you?” Obama asked.

“Very sure,” replied Messina.

Obama had reserved some of the harshest words of his presidency for the
Citizens United
ruling, saying that he couldn’t “think of anything more devastating to the public interest.” So he had steadfastly refused to encourage supporters to form an “outside” super PAC that could accept unlimited contributions on his behalf. “I think we need to switch our position,” Messina said. “Until people understand it’s important to you, they’re not going to give.”

Soon after, Obama bowed to the new economic reality and reversed himself. His campaign began encouraging supporters to give to the pro-Obama super PAC, Priorities USA. It wasn’t the first time Obama had been rendered a hypocrite in order to raise funds. In 2008, after championing campaign-finance reform in the Senate, he broke his own pledge to accept public financing as a presidential candidate. Obama admitted that he suffered “from the same original sin of all politicians, which is: We’ve got to raise money.” But he insisted that he would fight to reform the system: “The argument is not that I’m pristine, because I’m swimming in the same muddy water. The argument is that I know it’s muddy and I want to clean it up.”

The extent to which the same moneyed interests tainted both parties, though, became clear after Priorities USA aired its first television ad. It was an emotional tirade from a steel mill worker whose plant was closed down by Bain. “He’ll give you the same thing he gave us: nothing. He’ll take it all,” the worker said of Romney. The Obama campaign then underscored the powerful message from the super PAC with its own ad, calling Romney a “job destroyer” and his firm “a vampire.”

At the time, a number of thoughtful economists and academics from both ends of the political spectrum were deeply concerned about the finance industry’s impact on the country’s growing economic inequality. While high-earning executives particularly in the finance industry were prospering, wage earners were stagnating.
Experts ranging from former Treasury secretary Lawrence Summers to the neoconservative theorist Francis Fukuyama worried that the trend was threatening the middle class and overwhelming the political system.

Yet when Obama’s ads broached these crucial issues, Wall Street–linked Democrats erupted in anger. Steven Rattner, who had made millions at the investment bank Lazard Frères and whose wife was the former finance director for the Democratic Party, denounced the ads as “unfair.” Harold Ford Jr., a former Democratic congressman from Tennessee who had migrated to Wall Street, protested that “private equity is a good thing in many, many instances.” Cory Booker, the mayor of Newark, New Jersey, who was a rising star in the party and who had numerous supporters in the finance industry, went on national television and, to the fury of the White House, said “this kind of stuff is nauseating to me on both sides.”

Bill Clinton dealt the final blow. In an interview on CNN, he said, “I don’t think we ought to get into the position where we say this is bad work—this is good work.” From 2006 until 2009, Chelsea Clinton, the daughter of the former president, worked as an associate at Avenue Capital Group, a $14 billion private equity and hedge fund firm. Marc Lasry, co-founder of Avenue Capital, was a major Clinton supporter as well as a $1 million investor in a fund managed by the Clintons’ son-in-law, Marc Mezvinsky. The Clinton administration had been rife with Wall Street tycoons. Now, as the Obama administration was teeing up Romney’s rapacious business record as his key disqualification, Clinton summarily announced that Romney’s “sterling business career crosses the qualification threshold.” (At the time, Hillary Clinton reportedly disapproved of her husband’s comment, privately saying, “
Bill can’t do that again.”)

In response, the Obama campaign tailored its message more carefully. For the most part, rather than hammering Romney’s wealth directly, it relied on sly symbolism to address the touchy issue of class. “There was too much blowback, so we used cues,” says Margolis. “We showed him standing next to Trump’s private jet.”

Regardless of what the donor class thought, the anti-Bain ads proved among the most effective of the campaign. When nervous Obama campaign aides prescreened the ads in focus groups, “they kept telling us to relax! ‘Stop asking if it’s unfair,’ ” Margolis recalls. Evidently, the broad public was deeply uneasy about the winner-take-all ethic of corporate America. Yet, according to the Princeton University professor of politics Martin Gilens, because of the outsized influence that the affluent exert over the political process, “
under most circumstances the preferences of the vast majority of Americans appear to have essentially no impact.”

The perception gap between the donor class and the rest of the country was unceremoniously exposed in September when
Mother Jones
revealed a secret recording made that May by a member of the waitstaff at a high-end fund-raiser for Romney. Outrage spread as the public eavesdropped on Romney assuring wealthy supporters gathered for cocktails at a mansion in Boca Raton, Florida, that the votes of 47 percent of the population weren’t of concern to him.

Romney’s assertion came in response to a question about how he planned to “convince everybody you’ve got to take care of yourself.” The subtext seemed to be that the country was rife with freeloaders. “My job is not to worry about those people. I’ll never convince them they should take personal responsibility for their lives,” Romney replied. “There are 47 percent of the people who will vote for the president no matter what.” As he described them, they were people who were “dependent upon government, who believe they are victims, who believe government has a responsibility to care for them, who believe they are entitled to health care, food, to housing, you name it.” These were “people who pay no income tax,” he said, and so “our message of low taxes doesn’t connect.” He seemed to be implying that nearly half the country consisted of parasites.

This was no slip of the tongue. Romney was expressing what
The Wall Street Journal
described as the “
new orthodoxy” within the Republican Party. In a new twist on the old conservative argument against government aid for the poor, it denigrated nearly half the country as what the
Journal
called “Lucky Duckies” freeloading off the rich. This startling theory held that because many members of the middle class and working poor received targeted tax credits, such as the earned income tax credit and the child tax credit, which reduced their income taxes to zero, they were “a nation of moochers,” as the title of a book written by a fellow at the Wisconsin Policy Research Institute put it.

Behind the theory were several nonprofit organizations tied to the Kochs and other wealthy ideologues, including the Heritage Foundation and AEI. Foremost perhaps was the Tax Foundation, an antitax group founded in opposition to Roosevelt’s New Deal that had been resurrected by Charles Koch’s cash and directed for some time by Wayne Gable, the president of the Charles Koch Foundation and head of Koch Industries’ Washington lobbying operation. As Scott Hodge, president of the Tax Foundation, explained it simply, there were “two Americas: the nonpayers and the payers.”

Critics immediately pointed out that the theory ignored the many other taxes paid by lower- and middle-income Americans, including sales taxes, payroll taxes, and property and gas taxes, which took a disproportionately large share of their income. The theory also overlooked the unique circumstances of retirees, students, veterans, and the unwillingly unemployed. And it completely ignored the many tax breaks disproportionately enjoyed by the wealthy, from mortgage and charitable deductions to the preferential treatment for unearned income that kept Romney’s income taxes at an effective rate of 14 percent. But the flattering distinction between “makers” and “takers” advanced by conservative think tanks and scholars had won great favor in wealthy, conservative circles. In fact, some conservatives who opposed virtually every other tax increase had started calling for new taxes on meager earners, ostensibly for the country’s civic good. As
Slate
’s David Weigel cheekily wrote, “
Republicans have finally found a group they want to tax: poor people.”

The Blackstone billionaire Stephen Schwarzman made this argument nine months before Romney was caught saying essentially the same thing. When asked in a Bloomberg television interview if, given the dire state of the economy, his own taxes should be raised, Schwarzman, who was one of the most vigorous defenders of the carried-interest loophole, suggested that, to the contrary, the poor needed to pay more. “You have to have skin in the game,” he said. “The concept that half of the public isn’t involved with the income tax system is somewhat odd, and I’m not saying how much people should do, but we should all be part of the system.” In addition to its political obtuseness, the comment betrayed complete ignorance of the history of the income tax, which began as a tax only on the 0.1 percent and was never designed to target the poor.