LOBBYING: HOW THE WEALTHY WIELD POWER

Wealthy individuals and their companies have inordinate influence on our supposedly democratic policy making through the reinforcing combination of lobbying, campaign spending, and the revolving door of personnel going back and forth between the private and public sectors. This post presents two examples of how lobbying has successfully blocked policies with strong public support and benefits for the public. My next post will focus on how to control lobbying and curb its use as a tool for undue influence. (See my previous post for background on lobbying.)

Drug price controls are one example of how lobbying, campaign spending, and the revolving door all come into play when corporate America and its wealthy executives and investors want to influence policy making. The costs of prescription drugs have been increasing dramatically and growing numbers of people can’t afford their drugs. In the first half of 2019, prices of 3,400 drugs surged an average of 10.5%, which is five times the rate of inflation. The cost of insulin, an old drug that is essential for many diabetics, has tripled in price over the last ten years for no reason other than greed. A third of uninsured Americans report they cannot afford their prescribed drugs and, as a result, millions of people are not taking needed medications.

With strong public support, Congress and the President have been considering ways to control and reduce drug prices. In response, the pharmaceutical industry is ramping up its lobbying and campaign spending. It is launching an advertising campaign opposing such steps and trying to blame others for high drug prices. In addition, courtesy of the revolving door, the pharmaceutical industry has one of its own on the inside in President Trump’s cabinet. Alex Azar, the secretary of Health and Human Services, which oversees Medicare and Medicaid among other things, was the president of a branch of drug maker Eli Lilly. Eli Lilly faced a class action lawsuit over its tripling of the price of insulin while Azar worked there. Eli Lilly has spent $4.2 million on lobbying so far in 2019 and has hired a former assistant to President G.W. Bush, who went through the revolving door to lobbying, as one of its lobbyists. In addition, Joe Grogan, a former lobbyist for Gilead Sciences, a drug company, is President Trump’s top policy adviser.

The pharmaceutical industry association has spent $16.3 million on lobbying so far this year and more than 70% of its lobbyists are revolving door participants, having previously worked for the government. It has spent $3.5 million on social media ads over the last 15 months, which typically blame others for high drug prices. It spends millions through affiliated advocacy groups and on election campaigns, including $2.5 million in 2017 to a pro-Trump dark money political group (i.e., one that hides the identity of its donors). Individuals and entities in the pharmaceutical industry have given millions to Congresspeople already this year, including $135,486 to Senate leader Mitch McConnell (R-KY) and $205,100 to Kevin McCarthy (R-CA), the House Minority Leader and the biggest recipient of pharmaceutical industry contributions so far this year. [1]

The pharmaceutical industry has been very successful in blocking attempts to rein in drug prices . Even though the public identifies drug prices as the number one issue it wants Congress to do something about, no meaningful relevant legislation has been passed in the ten months this Congress has been in session. For example, Senator Cornyn (R-TX) launched tough attacks in a Senate hearing on AbbVie, a pharmaceutical company, and its CEO for filing more than 100 patents for its arthritis drug Humira. This “patent thicketing” as it’s called, is a way to prevent competition from generic drugs. Cornyn filed legislation to address this problem but lobbying and campaign contributions from the pharmaceutical industry convinced him to eliminate his own proposal that would have given the Federal Trade Commission the power to address the abuse of patent laws. Similarly, numerous other proposals to address drug prices and patenting issues have been dropped or dramatically weakened, and none have been passed. And the pharmaceutical industry was able to overturn in court the Trump administration’s recently issued rule that would have required drug prices to be disclosed in TV ads. [2]

Even when policies have been passed into law, the business lobbyists are experts at killing or weakening their implementation. In these efforts, they count on assistance from their friends in Congress (both elected members and staff) and from allies in the executive branch (who often have entered through the revolving door).

For example, in October 2010, the Department of Labor (DOL) proposed a “fiduciary rule” as part of the implementation of existing law. It would have required investment advisers for retirement savings accounts to act as fiduciaries, meaning that when providing investment advice they would have to put the best interests of their clients first, ahead of benefits for themselves, such as commissions, fees, etc. Some advisers have been recommending that their clients make investments that paid the advisers high fees and commissions but were not the best options for the clients and, in some cases, were clearly inappropriate investments for retirement savings.

Because this fiduciary rule could potentially reduce the incomes of financial advisers and the profits of their employers in the financial industry, the corporate lobbyists undertook an extensive and unrelenting campaign to kill the rule. First, during the public comment period on the proposed regulation, the financial industry and the Chamber of Commerce literally buried the DOL with hundreds of written comments and lots of testimony at public hearings. Because agencies are required by law to respond to every concern presented in public comments, a deluge of comments takes significant time and resources from the sponsoring agency. This delays the rule making process and can kill a proposed rule.

After 11 months of work, the DOL withdrew the proposed rule but said it would try to implement something similar in the future. The financial industry lobbyists continued their campaign against the fiduciary rule, trying to dissuade DOL from proposing a similar rule. In June 2013, a lobbyist drafted a letter urging Obama’s DOL to delay a second attempt and got 32 members of Congress from both parties to sign it. Nonetheless, the DOL persisted and re-proposed the rule in February 2015. The Wall Street lobbyists again geared up to fight the rule and submitted thousands of comments.

The DOL and its supporters persisted and got the rule through the process. However, the delay of five years meant that the rule couldn’t be fully implemented until after President Trump was elected.

After another $3 million of lobbying by the financial industry, the Trump administration delayed implementing the fiduciary rule and then its Department of Justice refused to defend it when the financial industry sued to block the rule from going into effect. So, after 7 years of work by DOL to protect workers’ retirement savings, the financial industry succeeded in killing this broadly supported, common-sense protection. Then, rubbing salt in the wound, President Trump appointed Eugene Scalia (son of Supreme Court Justice Antonin Scalia), the corporate lawyer and lobbyist who filed the lawsuit to block the fiduciary rule, as the Secretary of the DOL. [3]

This same pattern of industry lobbyists blocking implementation of laws passed by Congress and signed into law by the President happens repeatedly. For example, it happened when the Environmental Protection Agency tried to regulate methane emissions. And it happened when the Consumer Financial Protection Bureau tried to regulate payday lenders who rip off desperate borrowers with incredibly high interest rates and fees that often lock low-income individuals into an inescapable debt trap.

Companies and their wealthy executives and investors work relentlessly through lobbying, campaign spending, and the revolving door to block or weaken policy changes that would benefit workers and the public. They attack legislation as it goes through Congress. They work to get the President to oppose or veto proposed laws. Failing that, they work to block or weaken the implementation of laws, including the issuing of relevant rules and regulations. If they can’t block the issuing of rules or regulations, they sue in court to block them from going into effect. At best, all of this delays policy changes that would benefit workers and the public by years; often it succeeds in killing them completely.

My next post will discuss how to control lobbying and curb its use as a tool for undue influence.

[1] Stella Yu, Y., 9/25/19, “Big pharma invests millions as Congress readies drug pricing bills,” Open Secrets, Center for Responsive Politics (https://www.opensecrets.org/news/2019/09/big-pharma-invests-millions-drug-pricing-bills/)

[2] Florko, N., & Facher, L., 7/22/19, “How Big Pharma keeps winning in Washington,” The Boston Globe

[3] Warren, E., 10/2/19, “Excessive lobbying tax proposal,” Team Warren (https://medium.com/@teamwarren/excessive-lobbying-tax-fca7cc86a7e5)

LOBBYING: A KEY PIECE OF PLUTOCRATS’ POWER

Plutocrats and their companies have inordinate influence on our supposedly democratic policy-making through the reinforcing combination lobbying, campaign spending, and the revolving door of personnel going back and forth between the private and public sectors. This post focuses on presenting background information on lobbying, how much of it is occurring and who lobbyists are. My next posts will focus on a couple of specific examples of how lobbying works, and then present some ways to control lobbying and curb its use as a tool for undue influence by plutocrats and their companies. Lobbying, by the way, is defined as an individual or organization interacting directly with government officials, either elected ones or employees, in an effort to influence public policy.

In 2018, corporate interests spent more than $2.8 billion (yes, that’s BILLION) on lobbying; that’s more than we spend to fund the entire operation of Congress. More than $58 billion has been spent on lobbying the federal government since 1998; an average of almost $3 billion a year. Currently, there are about 11,000 registered lobbyists in Washington, D.C. [1]

The Lobby Disclosure Act of 1995 requires lobbyists to register if they are:

Paid to lobby on behalf of a client,
Make more than one contact with government officials, and
Spend more than 20% of their time on lobbying and related activities.

In addition to registered lobbyists, lots of “shadow” lobbying occurs by individuals who are paid to lobby but are not registered, either because of loopholes in the law or failure to abide by the law. Conservative estimates are that the number of paid employees who lobby the federal government is at least double the number of registered lobbyists (22,000 instead of 11,000) and some people estimate the number might be close to 90,000.

The registration requirement that 20% of an individual’s time be spent on lobbying and related activities serves as a big loophole. Many unregistered lobbyists claim they don’t spend 20% of their time on lobbying activities. For example, former members of Congress who advise lobbyists and corporate officials who oversee lobbying activity but who infrequently engage in direct lobbying often don’t register. Every year, hundreds of registered lobbyists from one year don’t register as lobbyists the next year even though they remain in the same job or move to a similar job for a different employer. In 2019, 1,621 registered lobbyists from 2018 did not re-register although 769 (47%) of them remained with the same employer and 298 (18%) moved to similar jobs. In addition, giving a glimpse into who goes through the revolving door, 138 (8.5%) of them moved into government jobs.

Enforcement of the Lobby Disclosure Act has been limited. Of 19,705 cases of potential non-compliance reported to the U.S. Attorney for enforcement, only nine violations have been substantiated in 24 years. All of them resulted only in fines.

Despite his pledge to “drain the swamp” in Washington, President Trump has already hired 177 registered lobbyists into his administration in less than three years. Seven of those former lobbyists are in his cabinet running major federal agencies. In comparison, Obama hired 223 lobbyists in eight years and neither he nor President G.W. Bush had as many lobbyists in their cabinets over eight years. In 2018, 138 registered lobbyists left lobbying and took jobs as government employees. [2]

The Members of Congress who leave and go to lobbying firms are another stream of people going through the revolving door. Since January 2011, 176 members of Congress left to go to work influencing public policy, either as registered lobbyists or in other roles. Most of them went to high-profile lobbying firms with addresses on K Street in Washington, D.C., (aka K Street firms) or to the big law firms that engage in lobbying. However, of the 176, only about half (53%) registered as lobbyists. [3]

The thousands of people who leave Congressional staff positions or executive branch agency jobs to become lobbyists represent another stream of people going through the revolving door.

In addition to the influence lobbyists have due to their personal contacts and knowledge of policy and the policy-making process, they also wield influence by giving or raising money for election campaigns. The timing of campaign contributions often coincides with the targeted Congressperson’s active involvement in a policy decision the lobbyist wants to influence. Or contributions may be made around the time of a meeting with a Congressperson, i.e., just before or just after the meeting, apparently to facilitate getting the meeting or as a reward for having the meeting or for commitments made during the meeting.

My next post will present a couple of specific examples of how lobbying works to influence policy. The subsequent post will review some ways to control lobbying and curb its use as a tool for undue influence by plutocrats and their companies.

[1] Evers-Hillstrom, K., & Auble, D., 10/3/19, “‘Shadow lobbying’ in Trump’s Washington,” Open Secrets, Center for Responsive Politics (https://www.opensecrets.org/news/reports/shadow-lobbying-2019#reforms)

[2] Evers-Hillstrom, K., & Auble, D., 10/3/19, see above

[3] Evers-Hillstrom, K., 10/9/19, “Congress to K Street: 176 members left for influence gigs over the last decade,” Open Secrets, Center for Responsive Politics (https://www.opensecrets.org/news/2019/10/congress-to-k-street-176-members/)

THE WEALTHY PAY A LOWER TAX RATE THAN YOU DO

It’s now official: the 400 wealthiest Americans pay taxes at a lower rate than everyone else, thanks to tax cuts, loopholes, and lax enforcement. For the first time in history, wealthy Americans’ federal, state, and local taxes are a lower percentage of their incomes, 23%, than anyone else.

The portion of income paid in taxes by the wealthy has plummeted over the last 70 years, contributing substantially to growing income and wealth inequality. In the 1950s, wealthy Americans paid 70% of their incomes in taxes. This dropped to 47% in 1980 and then was cut in half, to 23%, by 2018. Meanwhile, middle-income households’ tax burden increased, rising from 20% to 30% and then falling back to about 25%. Low-income households experienced the largest proportional increase in their tax burden, which rose from under 20% to roughly 25%.

This animated graph dramatically illustrates how the effective tax rates experienced by all households, from the lowest income households on the left to the 400 wealthiest households on the right, have shifted from 1950 to 2018 for the aggregated total of federal, state, and local taxes. [1]

Not only have tax rates on the wealthy been cut and loopholes added, but tax enforcement has been weakened. Driven by Republicans in Congress, the enforcement budget of the Internal Revenue Service (IRS) has been cut by 25% (adjusted for inflation) since 2010.

Since 2010, the auditing of high-income taxpayers has declined sharply, although the audit rate for taxpayers with under $100,000 of income has remained roughly the same. In 2015, 34.7% of taxpayers with over $10 million of income were audited; in 2018, 6.7% were audited – an 80% decline. For taxpayers with between $1 million and $5 million in income, audit rates fell from 8.4% to 2.2% – a 74% decline. This reduction in audits is happening at the same time as tax avoidance schemes used by the rich, such as using overseas accounts and business entities, are proliferating. Partnerships, which are typically used by high-income individuals such as lawyers and investment managers, had an audit rate in 2017 of only 0.2%, half of what it was in 2015. [2]

Audits of low-income households that are poor enough to claim the earned income tax credit [3] account for 39% of all IRS audits. The IRS claims this is because auditing the poor is quick and easy; it can often be done by mail and by lower level employees. The IRS says this is the most efficient use of limited enforcement resources and that it can’t increase audits of higher-income taxpayers until it has the money to hire more skilled employees and have them devote the time required to do more complex audits. [4] However, audits of low-income tax returns can only yield small amounts of additional taxes when mistakes or problems are uncovered. Audits of high-income returns, on the other hand, can yield millions of dollars of additional taxes and may reveal illegal tax avoidance that has been going on for years.

The share of income paid in taxes by the wealthy has declined because politicians have cut every tax that falls more heavily on those who are well-off: income tax rates on high incomes have been cut by more than half, taxes on income from investments (i.e., wealth) have been cut, and the estate tax has been dramatically cut. The justification for this has been the supply side plutocratic economics theory that the economy as a whole, and even tax revenue, would benefit. This has been proven wrong. The wealthy – and only the wealthy – have benefited. Incomes for workers and the middle class have been stagnant since 1980 and the growth of the economy has been disappointingly slow. The American economy hasn’t done well when inequality is extremely high and rising, and tax rates on the rich are low and falling. [5]

Raising income tax rates on very high incomes, implementing a small, annual wealth tax, and increasing taxes on large estates would increase the fairness of our taxes and begin to slow or reverse growing income and wealth inequality. Moreover, this would provide the public sector with the revenue needed to make critical public investments that will actually spur economic growth.

I encourage you to contact your elected officials and candidates for office to tell them you are outraged that the wealthy pay taxes at a lower rate than you do. Tell them that it’s crystal clear that income and wealth inequality are the result of policy choices made by elected policy makers. Ask them what they will do to reduce income and wealth inequality, and to make the American tax system fair again.

[1] Leonhardt, D., 10/6/19, “The rich really do pay lower taxes than you,” New York Times

[2] Fleischer, V., 9/26/19, “Create a more progressive tax policy,” The American Prospect (https://prospect.org/day-one-agenda/create-a-more-progressive-tax-policy/)

[3] The earned income tax credit provides its greatest benefit of $6,400 to families with three or more children and incomes under $19,000. The benefit is then phased out at higher incomes and goes to zero at an income of $49,000 for a family with 3 or more children and at lower levels for smaller families.

[4] Kiel, P., 10/2/19, “IRS: Sorry, but it’s just easier and cheaper to audit the poor,” Pro Publica (https://www.propublica.org/article/irs-sorry-but-its-just-easier-and-cheaper-to-audit-the-poor)

[5] Leonhardt, D., 10/6/19, see above

REVITALIZING DEMOCRACY TO END PLUTOCRATIC ECONOMICS

This is the final post of an eight-part series on the failures of forty years of plutocratic economics that have harmed workers, the middle class, our economy, and our democracy.

The basic arguments of plutocratic economics are 1) markets work and government doesn’t and 2) markets are the best way to foster life, liberty, and the pursuit of happiness. Supporters of plutocratic economics believe that the highest form of freedom is the opportunity to engage in individual transactions in the marketplace. However, they oppose public or community-based efforts to ensure an equal opportunity for all to participate in the marketplace. (See this previous post for more details.)

Supporters of plutocratic economics believe that markets and businesses, on their own without regulation or oversight by government, are efficient and will meet human and societal needs. They believe that an individual’s lack of economic resources to buy the necessities of life is indicative of a personal failing. This means that they do not support efforts to level the playing field when structural inequities exist (or have existed), including discrimination, oppression, and subjugation. [1]

Plutocrats (i.e., people whose power comes from their wealth) believe that power and privilege are rightfully earned. Therefore, they support public policies that systematically favor wealthy individuals and business interests. They view corporations as the ultimate expression of market efficiency and believe businesses should be endowed with the rights of persons (e.g., free speech) and the powers of sovereign states.

Plutocrats use their economic power (i.e., their wealth) to control markets and policy making. They control policy making by effectively buying elected officials through campaign spending and government bureaucrats through lobbying and the revolving door (i.e., by having either themselves or their employees become government bureaucrats or by promising lucrative jobs to government bureaucrats whenever they leave their government jobs). Plutocrats also have provided a scholarly veneer to plutocratic economics by funding think tanks and academic scholars to promote supportive theories and provide supportive data.

Plutocrats use their economic power to enhance their political power in what becomes a mutually reinforcing spiral. For example, they have gotten campaign finance laws changed to allow them to engage in unlimited campaign spending and to hide their identities when they do so. They have changed the rules of the market so their businesses can become ever bigger and more powerful (e.g., by weakening the enforcement of antitrust laws). (See these previous posts for more details on the weakening of antitrust enforcement and what we should do about it.)

In addition to efforts that actively promote plutocratic economics, plutocrats actively work to undermine support for democracy. They work to discredit the belief that a democratic government can enhance life, liberty, and the pursuit of happiness for its citizens.

For example, supporters of plutocratic economics have misused antitrust laws to discredit and undermine public support for antitrust enforcement. [2] They have used antitrust laws to prevent collective actions by workers and small businesses. [3] The Trump administration recently opened an antitrust investigation into four large automakers (Ford, Honda, Volkswagen, and BMW) for agreeing to abide by California’s auto emissions standards (which are more stringent than national standards). By politicizing the use of anti-trust laws, many experts feel that the administration is trying to create the public perception that all use of antitrust enforcement is simply political.

The forty-year track record of failures for plutocratic economics has shown it to be a smoke screen for a self-serving grab for wealth and power by economic elites, i.e., a vehicle for plutocrats’ greed and desire for political influence. The failures are big and small – the 2008 financial collapse, out-of-control carbon emissions and climate change, skyrocketing inequality in incomes and wealth, and repeated failures to protect individuals’ privacy and personal data – and have harmed everyone – workers, taxpayers, small business people and entrepreneurs, and consumers – as I’ve documented in previous posts. Market failures have been widespread in the absence of effective government regulation and oversight. [4]

When plutocratic economics’ effects overwhelm society and government, preventing many residents from enjoying life, liberty, and the pursuit of happiness, there is a significant risk that citizens will turn to authoritarian and tyrannical leaders who promise a return to the good old days. Whether in the U.S. today or at other places and other times, these politicians promise resurgent economic well-being (often falsely) through nationalistic and emotional rhetoric. They typically blame immigrants, minorities (racial, ethnic, gender identity, and / or religious), and even the growing presence of women in the job market for workers’ loss of economic security. Supporters of plutocratic economics will also use other emotional, hot-button issues (such as gun control, abortion, and contraception) and even voter suppression to win political support and elections so they can implement their economic agenda.

Real freedom to pursue life, liberty, and happiness requires government and community-based entities that work to equitably balance economic and social power among all members of society. Democratic governments and institutions, including civic associations, are the vehicles that can and should serve as the guardians of this true freedom.

The antidote to the plutocrats and their plutocratic economics is the revitalization of democracy through increased participation by informed citizens. We need our democratic government institutions to assert their power over the plutocrats and their economic and political power. This will restore policy making to being of, by, and for the people and to promoting the lives, liberty, and pursuit of happiness of all residents. (See this previous post for more detail on policies to reverse plutocratic economics and its effects.)

[1] Kuttner, R., 6/25/19, “Neoliberalism: Political success, economic failure,” The American Prospect (https://prospect.org/article/neoliberalism-political-success-economic-failure)

[2] Dayen, D., 9/10/19, “Is Trump’s Justice Department trying to discredit all antitrust?” The American Prospect (https://prospect.org/article/trumps-justice-department-trying-discredit-all-antitrust)

[3] Dayen, D., 6/24/19, “In the land of the giants,” The American Prospect (https://prospect.org/article/land-giants)

[4] Kuttner, R., 6/25/19, see above