At least in one respect, dealing with the Mafia is easier. With the Mafia, businesses can feel confident that if they pay the fee, no harm will come. Mobsters don’t like other mobsters extorting on their turf. But in Washington paying for protection only buys that peace for a little while, and only from certain politicians. A competing politician can always step up and demand more.
And like the Mafia, political extortion can often involve a web of family members, who extract from the target on several levels: campaign contributions and favors for the politicians, jobs for the politicians’ children, and lobbying contracts for their spouses.
The rampant extortion in Washington explains why government continues to grow, regardless of who is in power. And it also explains why government is getting meaner. It’s more lucrative for the Permanent Political Class that way. Just as the Mafia likes to expand its turf to seek more targets for extortion, an expanding government increases the number of targets for a shakedown. And the meaner government gets, the more often threats of extortion are successful. No wonder that now a large portion of the American people distrust the federal government, regardless of who is in power. According to Pew Research, only 30 percent of the American people trust the federal government. This also explains why Transparency International, an international organization that tracks “perceptions of corruption” in countries around the world, has the United States well below Singapore and Barbados on its “corruption perception index.”36 Meanwhile, Washington, D.C., and the Permanent Political Class prosper.
The numbers are startling. The World Bank scores what it calls “worldwide governance indicators” and measures each country’s “control of corruption.” In recent years, the United States has continued to slip in the rankings.37 Since 2009, the United States has dropped to the very bottom of developed countries in that category. The World Economic Forum has created a similar scale as part of its Global Competitiveness Report. Here, too, the United States scores below most other developed countries when it comes to dealing with corruption.38
What happens in Washington doesn’t stay in Washington. It undermines the entire country.
Is it any wonder that the Italian Mafia was initially developed in Sicily—by politicians?39
2
America’s Most Expensive Tollbooth
Politics is the art of putting people under obligation to you.
—JACOB ARVEY, ILLINOIS PARTY BOSS (1990)
THEY CALLED IT THE “MOB TAX.”
If you are in the New York City construction business, you need permits from a myriad of government agencies to get your construction project approved. For quite a while, the mob controlled everything—not just unions but also the city employees who approved the permits. So you had to pay a fee, or a “tax,” to the mob to make the normal permitting process work for you. Paying the mob to get institutions to function the way they were supposed to was just the regular cost of doing business in the New York City construction industry.
If a policeman expected extra payment for performing his duties, or an IRS employee demanded some personal benefit for doing what he was hired to do, either one would end up in trouble with the law. Each could be charged with extortion. But the rules are different for the Permanent Political Class in Washington. Politicians are paid salaries to make their judgments on bills and to represent the interests of their constituents. But all too often, when they are put in leadership positions with real authority and power, politicians institute the equivalent of a “mob tax.” They expect—they require—payments to perform such regular duties as holding hearings, voting, and passing legislation. Or they sell their votes to other members for money.
When we pay public officials to do their jobs, we expect them to do it and not to try to leverage their position for additional benefits or favors.
Politicians often complain that they don’t get paid enough. But compared to a one-star U.S. Army general, who faces the prospect of an overseas deployment, they do quite well. A one-star Army general with forty years of service can earn up to $143,000 per year in basic pay. A freshman congressman starts out at $174,000. If he becomes Speaker of the House, he can pull down $223,500.1 Bureaucrats’ salaries can be even higher: hundreds of employees at the Treasury Department earn more than a congressman.2
If an Army general were to ask for favors in return for performing his duties, he would be drummed out of the military and might even go to jail. But if you are lucky enough to climb the ranks of the Permanent Political Class and become a powerful committee chairman, or even Speaker of the House or Senate majority leader, you have a unique tool to extract money and favors from companies and individuals. I call it the “tollbooth.” And it’s completely legal.
You pay money at a tollbooth in order to use a road or bridge. The methodology in Washington is similar: if someone wants a bill passed, charge them money to allow the bill to move down the legislative highway.
Of course, politicians don’t explicitly say this. An explicit quid pro quo, getting favors in exchange for holding a vote, would violate federal law. But as an unspoken tool of extraction, the tollbooth method is very powerful. Everyone on the inside pretty much knows what is going on. Tollbooths are especially powerful when the stakes are high for a wealthy and successful industry. Imagine for a minute that an important bill has passed out of committee, but not yet been scheduled for a vote on the House floor. You wait and wait. Then suddenly you and your colleagues are solicited for donations by a fund-raiser who works for the politician who gets to decide whether a vote will be held. What will you do?
Congressional staff and the fund-raising staff are in regular contact with each other in every congressional office, particularly those of more senior politicians or politicians in leadership positions. With seniority comes responsibility. And with that increased responsibility comes the opportunity to use leverage to generate cash.
In 2011, two politicians who didn’t have a great deal in common cosponsored a bill called the Wireless Tax Fairness Act of 2011 (H.R. 1002).3 Zoe Lofgren is a liberal from California who represents a district including San Jose. Trent Franks is a conservative from Arizona whose district covers an expanse of northwest Phoenix. They have political differences, but on this bill they agreed. So did 230 colleagues who would eventually join them as cosponsors. The bill prevented state and local governments from levying new taxes on cell-phone users’ bills for at least five years. With local government budgets tight, the fear was that city, county, and state governments would see cell-phone taxes as a source of revenue. Cell-phone users were already paying 16 percent in federal taxes and fees on their phone bills. Of course the bill was popular with the public: one survey revealed that 67 percent of consumers favored the bill.4
Within the House of Representatives, there was widespread bipartisan support. Cosponsors included conservatives such as Michele Bachmann of Minnesota and liberal stalwarts such as Gary Ackerman of New York. Obviously, the bill was important to cell-phone companies as well, particularly large operators like AT&T and Verizon. Imagine the nightmare of having to add different state and local taxes to every individual phone bill, depending on the jurisdiction. And imagine what higher cell-phone taxes might do to the type of phones and cellular plans people chose. Local taxes could deeply affect their bottom line.
Given the bill’s widespread support in the House, it looked like smooth sailing. The legislation was introduced in March 2011 and sailed through the House Judiciary Committee in July on a voice vote with little opposition. But once a bill clears a committee, it is then up to the Speaker of the House to schedule a floor vote for the full House to consider it. If the Speaker doesn’t want to hold a vote, he or she doesn’t have to.
John Boehner represents a quintessentially American district in Ohio, west of Columbus and on the border with Indiana. First elected in 1990, Boehner is famous for both wearing his emotions on his sleeve and his skill as a deal-maker. But he isn’t just skilled at negotiation. He is also extremely
effective as a fund-raiser.
Now he had leverage. Why schedule a vote for free? AT&T has a long history as a Washington player and is well aware of the power that resides in the one who holds the Gavel—namely, the Speaker of the House. AT&T executives know how the game is played and understand the necessity of being generous with the powers that be. When Boehner was the minority leader in the House (he became Speaker in January 2011), AT&T employees gave him few contributions. In 2009 they had given his campaign a total of $5,000 in a single PAC contribution. But in 2010, when it became clear that Republicans were going to regain control of the House, AT&T execs saw the need to offer their tithes to the likely new speaker. AT&T, like most large corporations, tends to give more money to the party in power, which has ultimate control of their regulatory and financial life. So AT&T employees sent him twelve donations on a single day, November 2, 2010—election day.5
By the fall of 2011, as AT&T was awaiting the fate of the Wireless Fair Tax Act, the company was also locked in a battle with the Department of Justice over a proposed $39 billion merger with another cell company, T-Mobile. The Obama Justice Department was suing in federal court to block the merger. AT&T was looking for help from members of Congress, but it would only come with a price. On September 15, fifteen Democrats in the House signed a letter asking President Obama to drop the case or at least settle it.6
House Republicans had a letter of their own, signed by one hundred members, including a man who had the power to move Washington, Speaker John Boehner. Saying that blocking the merger would “thwart job creation and economic growth,” the Republican signatories also asked the Obama administration to settle with AT&T over the merger.7 Days later, Speaker Boehner received a flood of cash from AT&T executives. On September 30, forty-seven donations arrived from AT&T executives in Texas, Georgia, New Jersey, Illinois, Virginia, and Washington State. It was a $54,550 haul in cash, from a single company in a single day.8
Meanwhile, the Wireless Tax Fairness Act lingered, waiting for a floor vote. Everyone expected Boehner, given his general aversion to raising taxes, to support the bill and hold a vote. But as the months went by and mid-October arrived, it was unclear whether the vote would ever come.
Members of Congress from both parties had their hands out. Employees of Verizon and AT&T wrote over two hundred checks totaling over $180,000 to the campaign committees of members of Congress during September and October of 2011.9 But with his unique leverage, John Boehner was the toll collector. Finally, he declared a vote for the bill on November 1, 2011, and on the day before the vote, Boehner’s campaign collected the toll: thirty-three checks from wireless industry executives, totaling almost $40,000. Twenty-eight of those checks came, again, from executives with AT&T.10
TOLL COLLECTOR OF THE HOUSE11Source: John Boehner, financial disclosure documents, 2005–2011 (MapLight.org)
The day of the vote, employees of Verizon, another company with a lot at stake in the bill, sent twenty-eight checks to members of Congress—with, for example, $1,000 going to Republican Harold Rogers of Kentucky and $2,000 to Democrat John Dingell of Michigan, both senior members in the House.12
The tribute had been paid. The vote was held. The Wireless Tax Fairness Act passed the House easily on a voice vote.
Checks don’t just magically appear. And they don’t arrive by chance. Someone writing a $25 check to a candidate may be sending it because he or she believes in the candidate. But when corporate executives make donations on the same day at the same time, especially when a large group of them do so, it is likely there has been an organized solicitation. The timing explains how the two events are related.
AT&T, with its long Washington experience, knew the angles. It pays to bestow largesse on those in powerful positions in Washington. In 2005, AT&T faced a myriad of issues related to its Cingular cell-phone subsidiary, so it had been suggested that the company hire a new lobbyist. The one they selected was Joshua Hastert.13 It’s not that Hastert was an expert in the cellular industry. Sporting a pierced tongue and goatee, he also didn’t fit the part of a traditional power-lobbyist. His previous work experience included owning a record store in Illinois and a small music label called Seven Dead Arson. He also happened to be the son of the then–Speaker of the House, Dennis Hastert.14
For the Wireless Tax Fairness Act in 2011, AT&T hired a team of lobbyists that included William Clyburn Jr., the cousin of the Democratic whip, Congressman James Clyburn of South Carolina. Clyburn was the third most powerful Democrat in the House. AT&T paid his cousin $30,000 over a three-month period to, among other things, “monitor” the status of the bill. Clyburn’s other clients included the U.S. Telecom Association (USTA), which favored the bill. USTA paid him $60,000.15 Hiring Clyburn as a lobbyist had an added benefit for AT&T and USTA: Congressman Clyburn’s daughter, Mignon, was a sitting member of the powerful Federal Communications Commission.16 The FCC, of course, has regulatory power over AT&T and the telecom industry. Did Congressman Clyburn specifically ask that his cousin land these contracts? We cannot know unless someone talks. But he probably didn’t have to. As with the Mafia, demands can be unspoken and still remain clear.
The Wireless Act vote had been a lucrative toll, but Boehner was not done collecting cash. As on any toll road, you don’t just charge one car. In late September, he also scheduled votes on two other bills that had passed out of committee. For each bill, wealthy industries were eager to see a vote on the House floor.
The Access to Capital for Job Creators Act (H.R. 2940) would make it easier for smaller companies to get access to capital by loosening regulations surrounding stock offerings.17 Another bill, the Small Company Capital Formation Act (H.R. 1070), would do something similar.18 Both had passed out of committee months earlier (the Small Company Act back in June), with widespread support. And who wanted these bills to pass? Investment firms, brokers, and venture capitalists—all vigorously supported the bills because they would reduce regulations and encourage the free flow of capital (or so they argued).
Boehner scheduled a vote on both bills for November 2 and 3.19 In the days before the vote on both bills, a flood of donations came into Boehner’s fund-raising office from—who else?—investment bankers, brokers, and venture capitalists around the country.20 This was not a spontaneous act of charity. Individuals from California to New York, Tulsa to Vero Beach, all made contributions on the same day.21 The toll must be paid. Credit Suisse Securities contributed $5,000, and the head of global investment banking with Barclays contributed $2,000.22 UBS and JP Morgan also sent money.23 The Speaker of the House took in $91,000 in the forty-eight hours of October 30 and 31 from investment banks and private equity firms, two days before the vote. But Boehner wasn’t done. During the same time period, he took in $46,500 from self-described “investors” and another $32,450 from bank holding companies.24
With the tolls paid, the votes took place on the full House floor. Both passed easily.
Boehner has always been famous in Washington for his lavish fund-raising parties, including the notorious “Boehner Beach Party.” “We’ve never had any speaker in the Republican Party who has been as integrated into the fundraising needs as John Boehner,” said Republican congressman Pete Sessions of Texas, then chairman of the National Republican Congressional Committee.25 The tollbooth method provides leverage to extract money—without the beach sand or the bikinis.
Boehner knows well the capacity of Washington to extort favors and to strike fear in the hearts of powerful corporations, a necessity for extortion. In 2010, when he was still the minority leader in the House, he saw that bankers and other financial executives were reluctant to fight the Democratic-controlled Congress on certain regulatory matters. At one point he encouraged executives at a conference organized by the American Bankers Association to stand up to “little punk staffers” on Capitol Hill.26 But he knew they would rather pay their protection money than risk provoking a fight with the powers that be.
The relationship between powerf
ul corporations and the government is a mix of persuasion and fear. Corporations try to influence legislation they don’t like by hiring lobbyists and making contributions. But the relationship works both ways. Politicians want corporations involved in the process on their terms: it allows for maximum extraction.
Taking tolls didn’t start with Boehner. The toll collectors come and go depending on which party is in power. The only thing that may change is the price of the toll.
Leaders of powerful committees have a similar, if perhaps smaller, capacity to extort money and favors from those with money who expect the wheels of government to turn yet find them frozen. In both the House and the Senate, legislation largely emanates from powerful committees under the effective control of a senior experienced politician. (The U.S. Senate is not quite as tightly controlled as the House, as it allows any senator to introduce a bill on the full floor, whereas House members must introduce their bills through committee.) The key component for the Permanent Political Class is creating the conditions under which paying a toll becomes a necessity and there is no other way around the toll road. One of the most effective methods is what is called a “tax extender.”
Tax extenders temporarily reauthorize tax breaks that have not been made permanent law. They are extended every couple of years by Congress—sometimes every year. For example, beginning in 1981, Congress enacted a special tax credit for companies that spend money on research and development (R&D). The credit allows for specific tax deductions that are extremely helpful for innovative companies that are constantly investing in new technologies. For the high-tech sector, the tax break is huge. “It’s a key factor in America’s innovative economy,” former Microsoft COO Bob Herbold told me.
Extortion: How Politicians Extract Your Money, Buy Votes, and Line Their Own Pockets Page 3
