But leadership PACs are not only helpful in buying votes. They are also key in getting a member’s own bills through a committee and voted on by the full House. One key determining factor in who politicians donate to is whether they serve on the same committee.45 It helps smooth the way for their bills.
Academic studies show that giving money to your colleagues is helpful if you want to get your bill voted on. Because the House leadership sets the legislative agenda and creates the calendar, you have to go through them to get your bill to a vote. And one of the best ways you can accomplish that is by donating to colleagues through your leadership PAC. One scholar scrutinized every piece of legislation, “including bills, resolutions, and amendments,” that was presented in the House between 1987 and 2002.46 She then correlated that data with all contributions from members of Congress to each other. She found that increasingly raising money and giving it to colleagues significantly boosted your chances of getting your bill to a vote on the House floor.47 The problem has become even worse since then as more and more members have created leadership PACs.
The simple fact is that members of Congress build alliances to pass legislation, and the currency they often use is money.48 As one member bluntly put it, “Having a leadership PAC helps me tremendously with my colleagues, whether it’s getting legislation through, getting their support for it . . . or if I ever get in trouble, they will be more willing to help me.”49
Leadership PACs also allow yet another way around fund-raising restrictions, a little-known technique called “conduit contributions.” These are contributions that a politician solicits for a colleague but funnels through his or her own leadership PAC before transferring it to the colleague’s campaign coffers. There is no cap on the amount of money that can flow. Obviously, this can be a key method for getting colleagues to support a bill or something else you might want. During the 2010 election cycle, for example, Congressman Nick Rahall from West Virginia received over $82,000 in “conduit contributions” funneled through West Virginia senator Jay Rockefeller’s leadership PAC, Mountaineer PAC. Another colleague, Congressman Alan Mollohan, received over $77,000.50 The most adept at this method during the 2010 cycle was Democratic whip Steny Hoyer’s Ameripac, which funneled over $2 million to his colleagues and to party committees.51
Politicians are not allowed to use campaign cash for their own personal use, but they have managed to find a way around even this restriction. And the tributaries of the Underground Economy in Washington allow for the creative transfer of campaign money into the private pockets of politicians and their families. Water always flows downhill, but this is a real low point.
Many Americans struggle to decide how to invest their money. From year to year, the stock market, the bond market, and money market accounts have all featured inconsistent and unpredictable returns. But for members of Congress there is a unique “investment” that can guarantee them essentially any rate of return they think they can get away with.
Back in 1998, a member of the California State Assembly, Grace Napolitano, loaned her congressional campaign committee $150,000. She won the election and has served in the U.S. Congress ever since. She never asked for the money back. Instead, she charged her campaign an eye-popping 18 percent interest for almost twenty years, never paying off the loan. She pocketed more than $200,000 in interest payments during the first decade of the loan.52 In 2006 she dropped the interest rate to 10 percent, but kept paying herself interest.53 During the 2008 and 2010 election cycles, she pocketed another $94,245 in interest.54 Napolitano is a longtime member of the House Committee on Natural Resources and the House Transportation Committee, which means that donations from industries in those areas were not only donating to her campaign but also putting money in her pocket.
Napolitano is not alone in using this technique to convert campaign donations into cash lining her own pocket. At least fourteen other members of Congress do the same thing. They are supposed to charge a “commercially reasonable” rate on loans to campaign committees, but that number is never defined, nor is the provision enforced. Congresswoman Colleen Hanabusa of Hawaii loaned her campaign $125,000 and pocketed more than $31,000 in interest payments during the 2008 and 2010 election cycles. (Hanabusa sits on the powerful House Armed Services Committee.) Congressman Paul Broun of Georgia loaned his campaign $309,000 and collected nearly $29,000 in interest during the 2010 election cycle. (Broun originally told the Federal Election Commission that he wouldn’t charge any interest at all.)55
Like many things related to politicians, there are no strict rules here—or no rules that cannot be skirted. A politician can carry a loan like Napolitano’s on the books for years and generate considerable cash flow by doing so. The FEC doesn’t enforce requirements about interest rates or put caps on how long loans can be kept in place. Candidates carry these loans even though they often have the cash to pay them off. Why would they ever pay them off? Who wouldn’t want to be able to loan money to themselves and get a guaranteed double-digit interest rate in return? It provides a hidden way to convert campaign donations into personal cash.
Though it is actually legal for politicians to pay themselves a salary when they are running for office (few do in fear of negative publicity), nothing stops them from paying their family members and family businesses for ill-defined services or undefined purposes. During the 2008 and 2010 election cycles, eighty-two members of Congress had their family members on the campaign payroll or hired them as “consultants.”56 Here is a sample:
Congressman Alcee Hastings paid his girlfriend $622,747 over a four-year period.
Congressman Jerry Lewis paid his wife $512,293.
Congresswoman Maxine Waters paid her daughter and grandson a total of $495,650.
Congressman Ron Paul might be a libertarian, but he’s no penny-pincher when it comes to putting family members on the payroll. He had six different relatives on his campaign payroll, for a total of $304,599: his daughter, his grandson, his daughter’s mother-in-law, his granddaughter, his grandson-in-law, and another relative.
Members of Congress also hire family businesses for services:
Congressman Tim Bishop paid his daughter’s company $250,000 in consulting fees.
Often campaigns with little or no opposition are prime locations for family members pulling down salaries.
Congressman Rodney Alexander hired his daughter to run his campaign in 2008. He paid her a $65,299 salary. Did I mention that he was unopposed that year? In 2010 he hired her again and raised her salary to $82,702. No Democrats filed to oppose him that year, although he did face a campaign by an unknown “independent.” He won again with 79 percent of the vote.57
Congressman Bobby Rush paid his wife, son, and sister for campaign work. His wife, Carolyn, was paid $116,500 during the 2010 campaign. Rush received 80 percent of the vote and coasted to victory.58
Congressman Buck McKeon of California made his wife the campaign’s treasurer and also the highest-paid employee on the campaign’s payroll. For the 2010 election, her salary was $118,764.
Congressman Collin Peterson of Minnesota decided that the best person to serve as the treasurer of Peterson for Congress was a music director for a church in Tennessee. That person happened to be his son, who was paid $54,421 in salary during the 2010 election.59
Congressman Ralph Hall of Texas put his daughter-in-law on the campaign payroll and paid her $77,232. Congressman Hall regularly wins his district with approximately 70 percent of the vote.60 He also paid his son’s law office thousands in rent.
Congressman Joe Barton (also of Texas) has had his daughter on the campaign payroll. His daughter received $79,285 in salary and $11,080 in bonuses in 2008 and 2010. In those years, Barton won with 62 and 66 percent of the vote, respectively, in what were not really competitive races.61 Barton also set up a charity called the Joe Barton Family Foundation, which has received donations from companies that also donate to his campaigns. His daughter-in-law is the executive director and made
$48,000 in salary in 2010.
Congresswoman Sue Myrick paid her stepdaughter’s company Myrick/Gunter Advertising $230,497 for television and radio advertisements during the 2008 campaign. “Myrick” appears in the company’s name because the stepdaughter bought the business from the congresswoman after she was elected to office. In 2010 Myrick paid her stepdaughter’s firm $178,321. Myrick regularly wins reelection with 70 percent of the vote.62
There are some other ways in which campaign dollars can be used to benefit politicians and their families. Like many members of Congress, Congressman Randy Forbes of Virginia pays rent to himself. During the 2010 election cycle, his campaign paid $35,400 to rent a building that he owns in Chesapeake, Virginia.63 Congressman Gary Miller is the founder and president of G. Miller Development Company, a California-based construction company. You might think that a construction company can’t do much for a campaign. You would be wrong. In 2010 Miller’s campaign committee paid his construction firm $61,975 for “fund-raising.”64
Congressman Robert Andrews of New Jersey might get the award for creativity and artistic ability: He funneled campaign money to several theaters that would engage his daughter (an actress and singer) to perform. His campaign donated money to the Rock School of Dance, where his daughter trained, and then paid the Prince Music Theater and the Walnut Street Theater, both in Philadelphia, tens of thousands of dollars in donations for events and “expenses.” His campaign also bought tickets for school groups to attend performances. His campaign committee donated to the Broadway Theater in Pittman, New Jersey, where his daughter performed. And when she performed at Six Flags Great Adventure Theme Park in New Jersey, his campaign picked up meal expenses.65
Congressman Silvestre Reyes of Texas must eat a lot of food and travel in high style. During the 2010 election cycle, his campaign committee reimbursed him $144,115 for travel, office supplies, and food. His campaign also reimbursed his niece for $90,905 worth of “office supplies, travel expenses, campaign gifts, and charitable donations.” Congressman Aaron Schock of Illinois used campaign funds to reimburse stays at five-star resorts in Miami and in Athens, Greece. No word if there are any Illinois district voters in those locales.
So much for our partial tour of the hidden rivers of cash in Washington. They flow in many directions, and via some very clever culverts and springs. But now it is time to go back to the headwaters. With so many uses and recipients, the system needs a lot of cash at the start. Aside from milker bills, what else can the Permanent Political Class deploy?
5
The Double-Milker
You May Not Be Interested in Washington, but Washington Is Interested in You
Heck, what’s a little extortion among friends?
–CALVIN AND HOBBES (BILL WATTERSON)
ON APRIL 13, 2011, VICE PRESIDENT Joe Biden picked up his first Grammy Award. About four hundred people were packed into the Liaison Capitol Hill Hotel, including musicians Don Henley and Bruce Hornsby and the jazz great David Koz. Presenting the award to Biden was music legend Stevie Wonder.
Biden was not picking up the award because he had a side career as a soloist or had joined an indie rock band. Instead, the National Academy of Recording Arts and Sciences was giving the award to the vice president for a political performance. He was being recognized for his “commitment to intellectual property rights” and for “[leading] the effort” to fight online piracy.1
Sometimes politicians and the Permanent Political Class get paid out of love: people have a simple affection for a certain politician or they share a common political philosophy. But sometimes love is not enough and the Permanent Political Class needs to motivate through fear. If you are concerned that government action or inaction will severely damage you, you are much more likely to stroke the Permanent Political Class with a check. In Washington, it is far more important to be feared than loved.
A milker bill gives politicians the opportunity to “milk,” or squeeze, an industry for money. Whether the bill passes or not, the politicians still cash in. The best milker bills are those that allow the Permanent Political Class to squeeze two cows at the same time, one on each side of an issue. Nothing beats a so-called double-milker.
Sometimes milker bills are effective for motivating existing allies. Enthusiasm and motivation matter a lot in political fund-raising. But even if certain industries like you, are they motivated to give as much as they possibly can? Politicians can use milker bills to remind even friends how much power they have and how much their friends need them. Such a drama played out in 2011 when President Barack Obama and members of Congress played two powerful and wealthy industries off against each other. It ended in a draw as far as the industries were concerned. But as far as the Permanent Political Class was concerned, it was a bonanza.
In American politics it is hard to find two bigger, fatter cash cows than Hollywood and Silicon Valley. Celebrities usually give out of passion for certain policies. But the “suits”—the executives at big Hollywood studios and recording companies—aren’t just in it for love. Sometimes they need a nudge to give. They need to fear that something is going to happen or is not going to happen that will dramatically affect them. They care above all for their bottom line.
The same can be said for the high-tech industry, which for years (as we will see) has attempted to steer clear of Washington. Techies might like a candidate, but that doesn’t mean they will give as much as they can. But make them fearful about a potential change in their business model and suddenly they will dig very deep into their wallets.
In 2011 members of the Permanent Political Class reminded both of these cash cows that they could dramatically help or hurt them. They did it with double-milkers—magnificent opportunities to milk both industries for large sums of money.
Film studios, TV networks, and recording labels have battled online pirating and bootlegging for years. Making and sharing illegal copies of songs and movies takes a big bite out of profits. Pirated digital content sites get huge traffic. In 2011, it is estimated, pirating websites got 53 billion hits.2 Pirated Kanye West songs, Harry Potter movies, episodes of The Office, and many other stolen files were estimated to cost the U.S. economy more than $63 billion in 2011.3 And it was not just the big entertainment conglomerates that were troubled. The AFL-CIO considered online piracy pure theft, just like “stealing goods off of a truck.”4
Ever since the Internet exploded as a platform for pirating songs, movies, and television programming, the problem had festered. And Joe Biden, back when he was still in the Senate, had discovered that it was both an important issue and a lucrative tool for fund-raising (which is not true of every important issue, to be sure). As chairman of the Senate Judiciary Committee, he had been considered a good friend of Hollywood. When he became vice president, he amped up his support. And why not? Piracy was unquestionably illegal, and Hollywood had contributed massive sums of money that had helped buoy the Obama-Biden ticket in 2008.
In December 2009, Biden convened a meeting in the White House Conference Center with twenty-five titans from the entertainment industry to make a serious push to combat online piracy. The high-wattage meeting included Edgar Bronfman of Warner Music Group, Michael Lynton of Sony Pictures, Warner Brothers’ Barry Meyer, and Jeff Zucker from NBC Universal. For good measure, Biden had Attorney General Eric Holder, Commerce Secretary Gary Locke, and the head of Homeland Security make appearances to lend their support. But this was Biden’s show. He pledged that the Obama administration would be more aggressive on the issue. “It offends me that the international community has treated this as a mild irritant. It’s flat unadulterated theft, and it must be dealt with,” he said.5
The Obama administration installed lawyers in the Department of Justice who had litigated for the Recording Industry Association of America, and the president appointed a new and aggressive intellectual property enforcement coordinator to fight for Hollywood. Biden showed up regularly at board meetings of the Motion Picture Association of Am
erica (MPAA), the industry-lobbying group, something that had never previously been done by such a senior government official.6 Online piracy, he told the MPAA, “is pure theft, stolen from the artists and quite frankly from the American people.”7
Biden was not one to mince words. He declared that copyright theft was like “smashing the window at Tiffany’s and reaching in and grabbing what’s in the store.”8
The VP took the same message overseas, pressing foreign governments to crack down on pirates. From Russia to China, he chided foreign leaders.9 Back at home, on June 23, 2010, Biden announced an interagency strategy to protect intellectual property rights.10
The studio bosses and the Hollywood unions wanted more than talk. They wanted a federal law with teeth. Instead of trying to get the Chinese government to do something, they wanted to force U.S. search engines like Google and Yahoo to block access to websites that allowed illegal downloading of pirated materials. And they wanted Internet service providers to be responsible for doing the same. Legislation on the subject, introduced in 2009 and 2010, had gone nowhere. Now, working closely with Biden’s office and politicians from both sides on Capitol Hill, the studios helped craft two bills—one introduced in the House on October 26, 2011, called the Stop Online Piracy Act (SOPA), and another introduced in the Senate on May 12, 2011, called the Preventing Real Online Threats to Economic Creativity and Theft of Intellectual Property Act of 2011 (PIPA)—and vowed to make a full-court press to pass them in 2011.11 In February 2011, Biden invited industry leaders to the White House again to plot strategy.12
Extortion: How Politicians Extract Your Money, Buy Votes, and Line Their Own Pockets Page 8