Billionaires Now Own American Politics
By Andy Kroll, News and commentary
Dark money is already shaping the 2016 race as motivated
megadonors handpick the candidates and the issues.
Billionaires with an ax to grind, now is your time. Not
since the days before a bumbling crew of would-be break-in
artists set into motion the fabled Watergate scandal,
leading to the first far-reaching restrictions on money in
American politics, have you been so free to meddle. There
is no limit to the amount of money you can give to elect
your friends and allies to political office, to defeat
those with whom you disagree, to shape or stunt or kill
policy, and above all to influence the tone and content of
political discussion in this country.
Today, politics is a rich man's game. Look no further than
the 2012 elections and that season's biggest donor,
79-year-old casino mogul Sheldon Adelson. He and his wife,
Miriam, shocked the political class by first giving $16.5
million in an effort to make Newt Gingrich the Republican
presidential nominee. Once Gingrich exited the race, the
Adelsons invested more than $30 million in electing Mitt
Romney. They donated millions more to support GOP
candidates running for the House and Senate, to block a
pro-union measure in Michigan, and to bankroll the US
Chamber of Commerce and other conservative stalwarts (which
waged their own campaigns mostly to help Republican
candidates for Congress). All told, the Adelsons donated
$94 million during the 2012 cycle-nearly four times the
previous record set by liberal financier George Soros. And
that's only the money we know about. When you add in
so-called dark money, one estimate puts their total giving
at closer to $150 million.
It was not one of Adelson's better bets. Romney went down
in flames; the Republicans failed to retake the Senate and
conceded seats in the House; and the majority of candidates
backed by Adelson-funded groups lost, too. But Adelson, who
oozes chutzpah as only a gambling tycoon worth $26.5
billion could, is undeterred. Politics, he told the Wall
Street Journal in his first post-election interview, is
like poker: "I don't cry when I lose. There's always a new
hand coming up." He said he could double his 2012 giving in
future elections. "I'll spend that much and more," he said.
"Let's cut any ambiguity."
But simply tallying Adelson's wins and losses-or the Koch
brothers', or George Soros', or any other
megadonors'-misses the bigger point. What matters is that
these wealthy funders were able to give so much money in
the first place.
With the advent of super-PACs and a growing reliance on
secretly funded nonprofits, the very wealthy can pour their
money into the political system with an ease that didn't
exist as recently as this moment in Barack Obama's first
term in office. For now at least, Sheldon Adelson is an
extreme example, but he portends a future in which
1-percenters can flood the system with money in ways beyond
the dreams of ordinary Americans. In the meantime, the
traditional political parties, barred from taking all that
limitless cash, seem to be sliding toward irrelevance. They
are losing their grip on the political process, political
observers say, leaving motivated millionaires and
billionaires to handpick the candidates and the issues.
"It'll be wealthy people getting together and picking
horses and riding those horses through a primary process
and maybe upending the consensus of the party," a
Democratic strategist recently told me. "We're in a whole
new world."
The Rise of the Super-PAC
She needed something sexy, memorable. In all fairness,
anything was an improvement on "independent
expenditure-only political action committee." Eliza Newlin
Carney, one of DC's trustiest scribes on the campaign money
beat, didn't want to type out that clunker day after day.
She knew this was big news-the name mattered. Then it came
to her:
Super-PAC.
The Supreme Court's 2010 Citizens United decision is often
blamed-or hailed-for creating super-PACs. In fact, it was a
lesser-known case, SpeechNow.org vs. Federal Election
Commission, decided by the DC Circuit Court of Appeals two
months later, that did the trick. At the heart of SpeechNow
was the central tension in all campaign money fights: the
balance between stopping corruption or the appearance of
corruption, and protecting the right to free speech. In
this instance, the DC appeals court, influenced by the
Citizens United decision, landed on the side of free
speech, ruling that limits to giving and spending when it
came to any group-and here's the kicker-acting
independently of candidates and campaigns violated the
First Amendment.
Wonky as that may sound, SpeechNow reconfigured the
political landscape and unchained big donors after decades
of restrictions. The lawyers who argued the case, the
academics and legal eagles whose expertise is campaign
finance, and the beat reporters like Carney Newlin soon
grasped what SpeechNow had wrought: a new, turbocharged
political outfit that had no precedent in American
politics.
Super-PACs can raise unlimited amounts of money from pretty
much anyone-individuals, corporations, labor unions-and
there is no limit on how much they can spend. Every so
often, they must reveal their donors and show how they
spent their money. And they can't directly coordinate with
candidates or their campaigns. For instance, Restore Our
Future, the super-PAC that spent $142 million to elect Mitt
Romney, couldn't tell his campaign when or where it was
running TV ads, couldn't share scripts, couldn't trade
messaging ideas. Nor could Restore Our Future-yes, even its
founders wince at the name-sit down with Romney and tape an
interview for a TV ad.
It's far easier, in other words, for a super-PAC to attack
the other guy, which helps explain all the hostility on the
airwaves in 2012. Sixty-four percent of all ads aired
during the presidential race were negative, up from 51
percent in 2008, 44 percent in 2004, and 29 percent in
2000. Much of that negativity can be blamed on super-PACs
and their arsenal of attack ads, according to a recent
analysis by Wesleyan University's Erika Franklin Fowler and
Washington State University's Travis Ridout. They found
that a staggering 85 percent of all ads aired by "outside
groups" were negative, while only 5 percent were
positive.
And it will only get worse. "It's going to be the case that
the more super-PACs invest in elections, the more negative
those elections will be," Michael Franz, a codirector of
the Wesleyan Media Project, told me. "They're the ones
doing the dirty work." Think of them as the attack dogs of
a candidate's campaign-and the growling packs of super-PACs
are growing fast.
The savviest political operatives quickly realized how
potentially powerful such outfits could be when it came to
setting agendas and influencing the political system. In
March 2010, Karl Rove, George W. Bush's erstwhile political
guru, launched American Crossroads, a super-PAC aimed at
influencing the 2010 midterms. As consultants like Rove and
the wealthy donors they courted saw the advantages of
having their own super-PACs-no legal headaches, no giving
or spending limits-the groups grew in popularity.
By November 2010, 83 of them had spent $63 million on the
midterm elections. Nearly $6 of every $10 they put out
supported conservative candidates, and it showed: buoyed by
the Tea Party, Republicans ran roughshod over the
Democrats, retaking control of the House and winnowing
their majority in the Senate. It was a "shellacking," as
President Obama put it, powered by rich donors and the new
organizations that went with them.
In 2012, no one, it seemed, could afford to sit on the
sidelines. Having decried super-PACs as "a threat to
democracy," Obama and his advisers flip-flopped and blessed
the creation of one devoted specifically to reelecting the
president. Soon, they were everywhere, at the local, state,
and federal levels. A mom started one to back her
daughter's congressional campaign in Washington State.
Aunts and uncles bankrolled their nephew's super-PAC in
North Carolina. Super-PACs spent big on abortion, same-sex
marriage, and other major issues.
In all, the number of super-PACs shot up to 1,310 during
the 2012 campaign, a 15-fold increase from two years
earlier. Fundraising and spending similarly exploded: these
outfits raised $828 million and spent $609 million.
But what's most striking about these groups is who funds
them. An analysis by the liberal think tank Demos found
that out of every $10 raised by super-PACs in 2012, $9 came
from just 3,318 people giving $10,000 or more. That small
club of donors is equivalent to 0.0011% of the US
population.
Into the Shadows
In late April, roughly 100 donors gathered at a resort in
Laguna Beach, California. They were all members of the
Democracy Alliance, a private group of wealthy liberals
that includes George Soros and Facebook cofounder Chris
Hughes. Over five days, they swapped ideas on how best to
promote a progressive agenda and took in pitches from
leaders of the most powerful liberal and left-leaning
groups in America, including Organizing for Action, the
rebooted version of Obama's 2012 presidential campaign.
Since the Democracy Alliance's founding in 2005, its
members have given $500 million to various causes and
organizations. At the Laguna Beach event alone, its members
pledged a reported $50 million.
At the same time, about 100 miles to the east, a similar
scene was playing out. A few hundred conservative and
libertarian donors descended on the Renaissance Esmeralda
Resort and Spa in Palm Springs for the latest donor
conference convened by billionaire Charles Koch, one-half
of the mighty "Koch brothers." Over two days, donors
mingled with politicians, heard presentations by leading
activists, and pledged serious money to bankroll groups
promoting the free-market agenda in Washington and around
the country.
The philosophies of these two groups couldn't be more
different. But they have this in common: the money raised
by the Democracy Alliance and the Kochs' political network
is secret. The public will never know its true source. Call
it "dark money."
So what is dark money? How does it wind up in our
elections? Say you're a billionaire and you want to give $1
million to anonymously influence an election. You're in
luck: you can give that money, as many donors have, to a
nonprofit organized under the 501(c)(4) section of the tax
code. That nonprofit, in turn, can spend your money on
election-related TV ads or mailers or online videos. But
there's a catch: Unlike super-PACs, the majority of a
501(c)(4) nonprofit's work can't be political. Note,
though, that where the IRS draws the line on how much
politicking is too much, and even what the taxman defines
as political, is very murky. And until Congress and the IRS
straighten all of that out, donors wanting to influence
elections have a mostly scrutiny-free way to unload their
money.
This type of nonprofit has a long history in US politics.
The Sierra Club, for instance, has a 501(c)(4) affiliate,
as does the National Rifle Association. But in recent
years, political operatives and wealthy donors have seized
on this breed of nonprofit as a new way to shovel secret
money into campaigns. Between 2010 and 2012, the number of
applications for 501(c)(4) status spiked from 1,500 to
3,400, according to IRS official Lois Lerner.
During the 2010 campaign, politically active
nonprofits-"super secret spooky PACs," as Stephen Colbert
calls them-outspent super-PACs by a 3-2 margin, according
to a Center for Public Integrity analysis. Take the
American Action Network (AAN), run by former Senator Norm
Coleman of Minnesota. The group purports to be an
"issue-based" nonprofit that only dabbles in politics, but
its tax records suggest otherwise. From July 2009 through
June 2011, as Citizens for Ethics and Responsibility in
Washington noted, 60 percent of AAN's money went toward
politics. (An AAN spokesman called the complaint
"baseless.")
Because they're so lacking in transparency, some nonprofits
have been emboldened to bend-if not break-the tax law. One
of the more egregious examples was benignly named the
Commission on Hope, Growth, and Opportunity (CHGO). Created
in the summer of 2010, it informed the IRS that it wouldn't
spend a penny on politics. During the 2010 elections,
however, it put $2.3 million into ads attacking 11
Democratic congressional candidates. Then, sometime in
2011, CHGO simply closed up shop and disappeared-a classic
case of political hit-and-run. And it wouldn't have
happened without a secretive wealthy bankroller: of the
$4.8 million raised by CHGO, tax records show that $4
million came from a single donor (though we don't know his
or her name).
Transparency advocates and reformers supporting more limits
on spending have pushed back against the new wave of dark
money. They have filed numerous complaints with the IRS and
the Federal Election Commission alleging that politically
active nonprofits are flouting the law and demanding a
crackdown. Marcus Owens, the former head of the IRS's
exempt organizations division, which oversees politically
active nonprofits, agrees that the agency needs to take
action. "The government's going to have to investigate them
and prosecute them," Owens, who is now in private practice,
told me in January. "In order to maintain the integrity of
the process, they're going to be forced to take
action."
Don't hold your breath for that. This week, a report by a
Treasury Department inspector general revealed that IRS
staffers singled out tea partiers and other conservative
groups which had applied for tax-exempt status for special
scrutiny. Now, Republicans and Democrats are howling with
outrage and demanding that heads roll. One result of this
debacle, ex-IRS director Marcus Owens told me, is that the
IRS will certainly shy away from cracking down on those
nonprofits that do abuse the tax code.
At least one politician is upset enough by the steady flow
of dark money into our politics to do something about it.
Sen. Carl Levin of Michigan, who is retiring in 2014, has
made the issue of dark money one of the priorities of his
time left in office. He plans to "look into the failure of
the IRS to enforce our tax laws and stem the flood of
hundreds of millions of secret dollars flowing into our
elections, eroding public confidence in our democracy."
Do millionaires and billionaires dominate the donor rolls
of nonprofits, too? Without disclosure, it's near
impossible to know who funds what. But not surprisingly,
the limited data we have suggest that, as with super-PACs,
rich people keep politically active nonprofits flush with
cash. The American Action Network, for instance, raised
$27.5 million from July 2010 to June 2011; of that haul, 90
percent of the money came from eight donors, with one
giving $7 million. The story is the same with Karl Rove's
Crossroads GPS. It raised $77 million from June 2010 to
December 2011, and nearly 90 percent of that came from
donors giving at least $1 million. And while Priorities
USA, the pro-Obama nonprofit, raised a comparatively tiny
$2.3 million in 2011, 80 percent of it came from a single,
anonymous donor.
Big-Money Civil War
A few days after the 2012 elections, a handful of
Republican politicians including Gov. John Kasich of Ohio
and Gov. Bobby Jindal of Louisiana met privately with
Sheldon Adelson. They were officially in Las Vegas for a
gathering of the Republican Governors Association, but it
was never too early to court the man who, with a stroke of
his pen, could underwrite a presidential hopeful's bid for
his or her party's nomination.
Democratic candidates are no different. House and Senate
hopefuls are flocking to Hollywood studio boss Jeffrey
Katzenberg, one of their party's biggest donors and
fundraisers. And why wouldn't they? Barack Obama might not
be where he is today without Katzenberg. Days after Obama
launched his presidential campaign in 2007, the DreamWorks
Animation mogul gave the junior senator his imprimatur and
prodded Hollywood into raising $1.3 million for him. Years
later, Katzenberg provided $2 million in seed money for the
pro-Obama super-PAC that played a pivotal role in his
reelection.
As 2016 nears, don't be surprised to see the next set of
Democrats clambering over each other to win Katzenberg's
endorsement and money. Paul Begala, the Democratic
consultant and TV pundit, is already predicting what he
calls the "Katzenberg primary."
More than ever, a serious Senate or White House bid is
dependent not on climbing the party ranks, but on winning
the support of a few wealthy bankrollers. In fact, it's no
longer an exaggeration to say that while the political
parties still officially pick the candidates for office,
the power increasingly lies with the elites of the
political donor class.
Super-PACs, just three years old, are now a fixture, not a
novelty. They've become de rigueur for candidates running
at the federal, state, and even local level. Want to scare
off potential primary challengers? A super-PAC with
millions in the bank will help. Need to blast away at your
opponent with negative ads without tarnishing your own
reputation? Let a super-PAC do the dirty work. Any
candidate running for office begins with a to-do list, and
with each month, getting a super-PAC and making friends in
the dark money universe rises higher on those lists.
Super-PACs and their wealthy donors are also stoking civil
wars within the parties. At the moment, they have been
springing up to offer cover to politicians who vote a
certain way, or stake out traditionally unpopular
positions. For instance, Republicans for Immigration
Reform, a relatively new super-PAC, says it will spend
millions to defend GOP politicos who take a moderate stance
on immigration reform. And another super-PAC, bankrolled by
hedge fund investor Paul Singer, intends to spend big money
to push more Republicans toward the middle on same-sex
marriage. But there are also vigorous tea-party-style
super-PACs pushing their politicians toward the fringes.
Each faction of the GOP is getting its own set of
super-PACs, and that means an already contentious fight for
the future of the party could get far bloodier.
Democrats could find themselves in a money-fueled internal
struggle, too. Tom Steyer, a former hedge fund investor
worth $1.3 billion, says he's sick of seeing climate change
neglected in campaigns. He now plans to use his vast wealth
to elevate it into a banner issue. In a recent primary in
Massachusetts, he spent hundreds of thousands of dollars
attacking Democratic Congressman Stephen Lynch for
supporting the controversial Keystone XL pipeline. Lynch's
opponent, Rep. Ed Markey, a leading House environmentalist,
went on to win the primary, but Steyer's intervention
raised plenty of eyebrows about possible
Democrat-on-Democrat combat in 2014.
Meanwhile, as the recent Democracy Alliance and Koch
retreats show, millionaires and billionaires are revving up
to take ever-greater control of the political process via
secretive nonprofits. In April, Facebook cofounder Mark
Zuckerberg unveiled FWD.us, a quasi-dark-money outfit
created to give Silicon Valley a greater political presence
in Washington. It has already raised $25 million.
Right now, the best avenues for fired-up billionaires exist
outside the traditional political parties. The Supreme
Court could change that. In a case called McCutcheon vs.
Federal Election Commission, the court is considering
whether to demolish the overall aggregate limit on how much
a donor can give to candidates and parties. If the court
rules in favor of Republican donor Shaun McCutcheon, and
perhaps goes on to eliminate contribution limits to
candidates and parties altogether, super-PACs could go out
of style faster than Crocs. Donors won't need them. They'll
give their millions straight to the Democrats or the
Republicans and that will be that.
There is an important backdrop to all of these changes, and
that's the increase in income inequality in this country.
Just as the incredibly wealthy are given the freedom to
flood the political system with money, they've got more and
more money to spend. Our lopsided economic recovery affords
a glimpse of that growing inequality gap: From 2009 to
2011, the average wealth of the richest 7 percent of
American households climbed by almost 30 percent, while the
wealth of the remaining 93 percent of households actually
declined by 4 percent. (So much for that "recovery.")
Can there be any question that this democracy of ours is
nearing dangerous territory, if we're not already there?
Picture the 2016 or 2020 election campaigns and, barring a
new wave of campaign reforms, it's not hard to see a tiny
minority of people exerting a massive influence on our
politics simply by virtue of bank accounts. There is
nothing small-d democratic about that. It flies in the face
of one of the central premises of this country of ours,
equality, including political equality-the concept that all
citizens stand on an equal footing with one another when it
comes to having their say on who represents them and how
government should work.
Increasingly, it looks like before the rest of us even have
our say, before you enter the voting booth, issues,
politics, and the politicians will have been winnowed,
vetted, and predetermined by the wealthiest Americans.
Think of it as a new definition of politics: the democracy
of the wealthy, who can fight it out with each other inside
and outside the political parties with little reference to
you.
In the meantime, the more those of modest means feel
drowned out by the money of a tiny minority, the less
connected they will feel to the work of government, and the
less they will trust elected officials and government as an
institution. It's a formula for tuning out, staying home,
and starving whatever's left of our democracy.
I caught a glimpse of this last November, when I spoke to a
class of students at Radford University in Virginia, a
state blanketed with super-PAC attack ads and dark money in
2012. Over and over, students told me how disgusted they
were by all the vitriol they heard when they turned on the
TV or the radio. Most said that they ended up ignoring the
campaigns; a few were so put off they didn't bother to
vote. "They're all bought and sold anyway," one student
told me in front of the entire class. "Why would my vote
make any difference?"
See the article on The Progressive website