Dark Money: The Hidden History of the Billionaires Behind the Rise of the Radical Right

by Jane Mayer

theirs. The Kochs had long been at war with the EPA, which had ranked Koch Industries one of only three companies in America that was simultaneously a top ten polluter of air, water, and climate.

The Trump transition had a self-imposed ethics code barring lobbyists from shaping the rules and staffing the departments in which they had financial interests, but in the early stages, at least, these commonsense strictures appeared to have been sidestepped.

But while the media fixated on the extraordinary presidential race, the Kochs and their network of right-wing political patrons quietly spent more money than ever on the three-pronged influence-buying approach they had mastered during the previous forty years.

They combined corporate lobbying, politically tinged nonprofit spending, and “down ballot” campaign contributions in state and local races, where their money bought a bigger bang for the buck.

2016 the Kochs’ private network of political groups had a bigger payroll than the Republican National Committee. The Koch network had 1,600 paid staffers in thirty-five states and boasted that its operation covered 80 percent of the population.

In the past, labor unions probably provided the closest parallel to this kind of private political organizing, but they of course represented the dues of millions of members. In comparison, the Koch network was sponsored by just four hundred or so of the richest people in the country.

Many of the races they backed were too minor to merit press attention. In Texas alone, they supported candidates in seventy-four different races, reaching all the way down to a county court commissioner. Thanks in no small part to huge quantities of targeted money spent by the Kochs and their allied donors, the Democratic Party lost both houses of Congress, fourteen governorships, and thirty state legislatures, comprising more than nine hundred seats, during Obama’s presidency. By the time the votes were tallied in the 2016 election, Republicans controlled thirty-two state legislatures, while Democrats controlled only thirteen. Five others were split. This imbalance posed a huge problem for Democrats not only in the present but for the future,

Charles Koch’s mentor, the quasi-anarchist Robert LeFevre, had taught the Kochs that “government is a disease masquerading as its own cure.”

Wtf

one former employee in the Kochs’ political operation admitted to Politico a month before Trump was elected. “We invested a lot in training and arming a grassroots army that was not controllable.” In other ways too, the Kochs and their allied big donors became victims of their own success in 2016. They inadvertently laid the groundwork for Trump’s rise by too thoroughly capturing the Republican Party with their cash. Their narrowly self-serving policy priorities were at odds with those of the vast majority of voters.

He appeared poised to repeal the estate tax, presenting a windfall to heirs of estates worth $10.9 million or more. There had been fewer than five thousand estates of this size in 2015. He also had plans to abolish the gift tax, which put the brakes on inherited wealth. Capital gains taxes and income taxes for top earners were headed toward the chopping block, too. Charles and David Koch, who together were worth some $84.5 billion, stood to benefit to an extent that dwarfed earlier administrations, as did many other billionaires. As the headline on Yahoo Finance proclaimed on the day after the election, “Trump’s Win Is a ‘Grand Slam’ for Wall Street Banks.”

They subsidized networks of seemingly unconnected think tanks and academic programs and spawned advocacy groups to make their arguments in the national political debate. They hired lobbyists to push their interests in Congress and operatives to create synthetic grassroots groups to give their movement political momentum on the ground. In addition, they financed legal groups and judicial junkets to press their cases in the courts.

They challenged the widely accepted post–World War II consensus that an activist government was a force for public good. Instead, they argued for “limited government,” drastically lower personal and corporate taxes, minimal social services for the needy, and much less oversight of industry, particularly in the environmental arena. They said they were driven by principle, but their positions dovetailed seamlessly with their personal financial interests.

Some in this group faulted President Bush for not having been conservative enough. But having molded policy to serve their interests during the Bush years, many members of this caste had accumulated phenomenal wealth and regarded the newly elected Democratic president as a direct threat to all they had gained. Participants feared they were seeing not just the passing of eight years of Republican dominance but the end of a political order, one that they believed had immeasurably benefited both the country and themselves.

“When W. Clement Stone, an insurance magnate and philanthropist, gave $2 million to Richard M. Nixon’s 1972 campaign, it caused public outrage and contributed to a movement that produced the post-Watergate reforms in campaign financing.” Accounting for inflation, Balz estimated that Stone’s $2 million might be worth about $11 million in today’s dollars. In contrast, for the 2016 election, the political war chest accumulated by the Kochs and their small circle of friends was projected to be $889 million,

the combined fortunes of the eighteen known billionaire participants alone as of 2015 topped $214 billion.

The gap between the top 1 percent of earners in America and everyone else had grown so wide by 2007 that the top 1 percent of the population owned 35 percent of the nation’s private assets and was pocketing almost a quarter of all earnings, up from just 9 percent twenty-five years earlier. Liberal critics, like the New York Times columnist Paul Krugman, a Nobel Prize–winning economist, worried that the country was in danger of being transformed from a democracy into a plutocracy, or worse, an oligarchy like Russia, where a handful of extraordinarily powerful businessmen bent the government into catering to them at the expense of everyone else.

American economists had tended to downplay the importance of economic inequality in the country, arguing that its growth was simply the inevitable result of huge and unavoidable shifts in the global economy. Over time, they suggested, extreme inequality would naturally stabilize, and a rising tide would lift all boats.

Rebuking Cornyn, one donor, Randy Kendrick, said, “You just keep electing RINOs!”—invoking the slur that Moore was said to have coined for squishy moderates who were, in his phrase, “Republicans in Name Only.”

Monday, September 29, when, in the face of heavy opposition from conservatives, the House unexpectedly failed to pass the federal rescue plan. By the end of the day, the Dow Jones Industrial Average had fallen 777 points, losing 6.98 percent of its value. It was the stock market’s largest one-day point drop ever. Although some conservative groups and politicians such as DeMint still opposed the bailout, the market panic was enough to change many minds. Among those who flipped during the next forty-eight hours were the Kochs.

The sentiment was laudable but, alas, wishful thinking. Had the newly sworn-in president looked down at the ground directly beneath his polished shoes as he delivered these optimistic words, he might have been wise to take note. The red-and-blue carpet on which he was standing, which had been custom made in accordance with a government contract, had been manufactured by Invista, a subsidiary of Koch Industries. In American politics, the Kochs and all they stood for were not so easy to escape.

Goddammit

The fight appears to be an early version of the Kochs’ later opposition to “corporate cronyism” in which they contend that the government and big business collaborate unfairly. In Fred Koch’s eye, he was an outsider fighting a corrupt system.

In 1958, Fred Koch became one of eleven original members of the John Birch Society, the archconservative group best known for spreading far-fetched conspiracy theories about secret Communist plots to subvert America.

Protestant churches, public schools, universities, labor unions, the armed services, the State Department, the World Bank, the United Nations, and modern art, in his view, were all Communist tools.

Ironically, the organization modeled itself on the Communist Party. Stealth and subterfuge were endemic. Membership was kept secret. Fighting “dirty” was justified internally, as necessary to combat the imputed treacherousness of the enemy. Welch “explicitly sought to use the same methods” he attributed to the Communists, “manipulation, deceit, and even dishonesty,” recalled diZerega, who attended Birch Society meetings in Wichita in his youth. One

Another tactic was to wrap the group’s radical vision in mundane and unthreatening slogans that sound familiar today, such as “less government, more responsibility.” One of Welch’s favorite tropes, decrying “collectivism,” would cause some head-scratching more than fifty years later when it was echoed by Charles Koch

In his telling, he was almost feverishly bent on finding some overarching system of political theory to bridge his father’s emotional anti-Communism with his own more analytical approach to the world. He also wanted to merge his thinking about business and his interests in engineering and mathematics.

He later explained that having learned that “there are certain laws that govern the natural world,” he was trying to discover “if the same isn’t true for the societal world.”

Scary

The school had a revisionist position on the Civil War, too. It shouldn’t have been fought; instead, the South should have been allowed to secede. Slavery was a lesser evil than military conscription, the school argued, because human beings should be allowed to sell themselves into slavery if they wished.

Hayek’s ideas arrived in America during the post-Depression years, when conservative businessmen were scrambling to salvage the credibility of the laissez-faire ideology that had been popular before the 1929 market crash. Since then, Keynesian economics had taken its place. Hayek’s genius was to recast the discredited ideology in an appealing new way.

Had Charles wanted merely to promote free-market economic theories, he could have supported several established organizations, but instead he was attracted to fringe groups that bordered on anarchism. Coppin suggests, “He was driven by some deeper urge to smash the one thing left in the world that could discipline him: the government.”

Charles Koch’s contribution was a paper that methodically analyzed the strengths and weaknesses of a group he knew intimately, the John Birch Society, as a model for their future enterprise. His assessment was clear-eyed and businesslike. He pointed out that despite the fringe group’s shortcomings, it boasted 90,000 members, 240 paid staffers, and a $7 million annual budget. While these numbers were impressive, he faulted the John Birch Society’s obsession with conspiracies, as well as the unchecked cult of personality that Welch had built up. He noted that Welch’s ownership of the organization’s stock had centralized control in his hands, making him impervious to constructive criticism. (Interestingly, Charles would go on to issue stock in his own nonprofit think tank, the Cato Institute, in much the same way.) But he also found much to admire. In particular, he argued in favor of copying the John Birch Society’s secrecy.

In hindsight, it seems that David Koch’s 1980 campaign served as a bridge between LeFevre’s radical pedagogy and the Tea Party movement. Indeed the Libertarian Party’s standard-bearer that year, Clark, told The Nation that libertarians were getting ready to stage “a very big tea party,” because people were “sick to death” of taxes. The party’s platform, meanwhile, was almost an exact replica of the Freedom School’s radical curriculum. It called for the repeal of all campaign-finance laws and the abolition of the Federal Election Commission (FEC). It also favored the abolition of all government health-care programs, including Medicaid and Medicare. It attacked Social Security as “virtually bankrupt” and called for its abolition, too. The Libertarians also opposed all income and corporate taxes, including capital gains taxes, and called for an end to the prosecution of tax evaders. Their platform called for the abolition too of the Securities and Exchange Commission, the Environmental Protection Agency, the FBI, and the CIA, among other government agencies. It demanded the abolition of “any laws” impeding employment—by which it meant minimum wage and child labor laws. And it targeted public schools for abolition too, along with what it termed the “compulsory” education of children. The Libertarians also wanted to get rid of the Food and Drug Administration, the Occupational Safety and Health Administration, seat belt laws, and all forms of welfare for the poor. The platform ...

Alan Scaife warned the family that wealthy capitalists like themselves were under attack. He invoked images of labor riots and class warfare. “He was concerned for the security of the country and gave us the feeling around the table that our entire future was at stake,” Scaife writes. A local newspaper editor, William Block of the Pittsburgh Post-Gazette, had similar recollections. He remembered Alan Scaife as overwrought during the 1940s about what he regarded as the growing threat that leftists posed to the rich. “Alan Scaife was terribly worried about inherited wealth,” he later recalled.

Before Congress instituted the federal income tax in 1913, following the passage of the Sixteenth Amendment to the Constitution, America’s tax burden fell disproportionately on the poor. High taxes were levied on widely consumed products such as alcohol and tobacco. Urban property was taxed at a higher rate than farms and estates. “From top to bottom, American society before the income tax was a picture of inequality, and taxes made it worse,” writes Isaac William Martin, a professor of sociology at the University of California in San Diego.

In his history, Rich People’s Movements: Grassroots Campaigns to Untax the One Percent, Martin notes that the passage of the income tax in 1913 was regarded as calamitous by many wealthy citizens, setting off a century-long tug-of-war in which they fought repeatedly to repeal or roll back progressive forms of taxation. Over the next century, wealthy conservatives developed many sophisticated and appealing ways to wrap their antitax views in public-spirited rationales. As they waged this battle, they rarely mentioned self-interest, but they consistently opposed high taxes that fell most heavily on themselves. And no figure was more instrumental in leading the early opposition than Andrew Mellon.

“Some of my friends—most I’d say—feel a sense of guilt about having money. I do not, and never have.” As he describes it, “An inheritance comes to the person but also to his community and country. It can do powerful good.” He notes, “I’ve felt good about being able to put dollars to work in the battle of ideas.”

Like the Koch family, the Scaifes designed the trusts so that all net income had to be donated to nonprofit charities for the next twenty years. After that, the $50 million principal could pass to each of the Scaife offspring free from inheritance taxes. In other words, two decades of philanthropy was the price for a tax-free inheritance. As Scaife wrote of the setup, “Isn’t it grand how tax law gets written?”

A consequence, however, was that the tax code turned many extraordinarily wealthy families, intent upon preserving their fortunes, into major forces in America’s civic sector. In order to shelter themselves from taxes, they were required to invent a public philanthropic role. In the instance of both the Kochs and the Scaifes, the tax law ended up spurring the funding of the modern conservative movement.

One attractive solution for enormously wealthy families like the Scaifes and the Kochs was to donate to their own private philanthropic foundations. By doing so, they could get the tax deductions and still keep control of how the charitable funds were spent.

Private foundations have very few legal restrictions. They are required to donate at least 5 percent of their assets every year to public charities—referred to as “nonprofit” organizations. In exchange, the donors are granted deductions, enabling them to reduce their income taxes dramatically. This arrangement enables the wealthy to simultaneously receive generous tax subsidies and use their foundations to impact society as they please. In addition, the process often confers an aura of generosity and public-spiritedness on the donors, acting as a salve against class resentment.

former president Theodore Roosevelt, assailed the idea, declaring, “No amount of charity in spending such fortunes can compensate in any way for the misconduct in acquiring them.”

thisssssss

Rob Reich, a professor of political science at Stanford University and co-director of the Stanford Center for Philanthropy and Civil Society, explains that private foundations, which “represent virtually by definition plutocratic voices,” were “troubling because they were considered deeply and fundamentally anti-democratic…an entity that would undermine political equality, affect public policies, and could exist in perpetuity.”

When the robber barons first began donating to charities, their gifts were not tax deductible. With the implementation of the federal income tax in 1913, however, the wealthy soon convinced Congress that unless they were granted a special tax break, philanthropists might no longer donate their fortunes for public purposes. So in 1917 donors were granted unlimited charitable deductions. The rationale was that despite their wealth they deserved the public subsidy, so long as their gifts profited the public, rather than their own private interests. Conservatives who opposed the use of the tax code for all kinds of other social engineering nonetheless fully embraced the loophole in this instance. Scaife

Powell was the author of a brilliant battle plan detailing how conservative business interests could reclaim American politics. In the spirit of Hannibal, it called for a devastating surprise attack on the bloated and self-satisfied establishment, which regarded itself as nonpartisan but which the conservatives regarded as liberal. Carrying out this attack would be an alternative opinion elite that would look like the existing one, except that it would be privately funded by avowedly partisan donors intent on implementing a pro-business—and, critics would say, self-serving—political agenda.

Powell took umbrage at the refusal by the Federal Communications Commission to grant the tobacco companies “equal time” to respond to their critics on television and argued that the companies’ First Amendment rights were being infringed. Powell’s legal argument failed in the courts, increasing his sense of corporate embattlement. Jeffrey Clements, in Corporations Are Not People, suggests Powell’s defense of the tobacco companies was a harbinger of the corporate rights movement and a big part of what led him to push in his memo for conservatives to empower more pro-business courts.

Though he continued to donate money to political campaigns and action committees, he began to invest far more in conservative institutions and ideas. His private foundations emerged as a leading source of funds for political and policy entrepreneurship. Think tanks, in particular, became what Piereson called “the artillery” in the conservative movement’s war of ideas.

Previously, Scaife had been the largest donor to the American Enterprise Institute (AEI), the older, rival conservative think tank in Washington, but Heritage had a new model that won him over. In contrast to the research centers of the past, it was purposefully political, priding itself on creating, selling, and injecting deeply conservative ideas into the American mainstream.

In fact, the Heritage Foundation was born out of two congressional aides’ frustration with the more conventional think tank model. One of them, Edwin Feulner Jr., was a Wharton School graduate and Hayek acolyte, with a flair for fund-raising. The other, Paul Weyrich, was a brilliant and fiercely conservative working-class Catholic press aide from Wisconsin, who described himself openly as a “radical” who was “working to overturn the present power structure.” The duo had become exasperated by AEI’s refusal to weigh in on legislative fights until after they were settled, a cautious approach reflecting the older think tank’s fear of losing its nonprofit status. Instead, they wanted to create a new sort of action-oriented think tank that would actively lobby members of Congress before decisions were made, take sides in fights, and in every way not just “think” but “do.” Lewis

Sorry mama

In the 1970s, with funding from a handful of hugely wealthy donors like Scaife, as well as some major corporate support, a whole new form of “think tank” emerged that was more engaged in selling predetermined ideology to politicians and the public than undertaking scholarly research. Eric Wanner, the former president of the Russell Sage Foundation, summed it up, saying, “The AEIs and the Heritages of the world represent the inversion of the progressive faith that social science should shape social policy.”

In effect, they reduced the older organizations that prided themselves on their above-the-fray public-service-oriented neutrality to mere combatants in a polarized war.