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

by Jane Mayer

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.

“No thoughtful person can question that the American economic system is under broad attack,” Powell declared in his memo. What distinguished his jeremiad from many other conservative screeds was his argument that the greatest threat was posed not by a few “extremists of the left,” but rather by “perfectly respectable elements of society.” The real enemies, he suggested, were “the college campus, the pulpit, the media, the intellectual and literary journals, the arts and sciences,” and “politicians.” Powell called on corporate America to fight back. He urged America’s capitalists to wage “guerilla warfare” against those seeking to “insidiously” undermine them. Conservatives must capture public opinion, he argued, by exerting influence over the institutions that shape it, which he identified as academia, the media, the churches, and the courts. He argued that conservatives should control the political debate at its source by demanding “balance” in textbooks, television shows, and news coverage. Donors, he argued, should demand a say in university hiring and curriculum and “press vigorously in all political arenas.” The key to victory, he predicted, was “careful long-range planning and implementation,” backed by a “scale of financing available only through joint effort.”

One measure of the movement’s impact was that starting in 1973, and for successive decades afterward, the public’s trust in government continually sank. If there was a single unified message pushed by those financing the conservative movement, it was that government rather than business was America’s problem. By the early 1980s, the reversal in public opinion was so significant that Americans’ distrust of government for the first time surpassed their distrust of business.

Charles Koch has acknowledged that he miscalculated earlier, writing in his 2007 book, The Science of Success, “We were caught unprepared by the rapid increase in regulation.” As he explained it, “While business was becoming increasingly regulated, we kept thinking and acting as if we lived in a pure market economy.” From Charles’s standpoint, the problem wasn’t so much Koch Industries’ conduct as the legal regime in which it operated. He seemed to be arguing that in the “pure market economy” that he favored, no such regulations would exist. As the Kochs took stock, it was clear that America was far from the laissez-faire utopia they idealized in the Freedom School.

Gus diZerega, the former family friend, suggested that the Kochs’ youthful ardor for libertarianism had largely devolved into a rationale for corporate self-interest. “Perhaps he has confused making money with freedom,” he said of Charles. One conservative who worked closely with the Kochs but declined to be identified in order not to inflame the relationship went so far as to call their tax-exempt giving “a shell game.” He contended they merely saw philanthropy as preferable to paying taxes. “People say, ‘Wow—they’re so generous!’ ” he marveled. “It’s just the best available option for them. If they didn’t give it to their causes, they would have to give it to the government. At least this way they control how it’s spent.”

Crane had privately ridiculed Charles’s management philosophy, which Charles trademarked under the name Market-Based Management, or MBM, and later distilled into his book The Science of Success. In essence, Charles believed that businesses’ corporate culture should replicate the competitiveness of the free market. Employees at almost every level of his company were compensated on the basis of the value they created, competing with each other for bonuses, which constituted large portions of their annual pay. Charles described MBM as a “holistic system” containing “five dimensions: vision, virtue and talents, knowledge processes, decision rights and incentives.”

In 1997, for instance, the EPA moved to reduce surface ozone, a form of air pollution caused, in part, by emissions from oil refineries. Susan Dudley, an economist who became a top official at the Mercatus Center, came up with a novel criticism of the proposed rule. The EPA, she argued, had not taken into account that by blocking the sun, smog cut down on cases of skin cancer. She claimed that if pollution were controlled, it would cause up to eleven thousand additional cases of skin cancer each year. In 1999, the District of Columbia Circuit Court embraced Dudley’s pro-smog argument. Evaluating the EPA rule, the court found that the EPA had “explicitly disregarded” the “possible health benefits of ozone.” In another part of the opinion, the court also ruled, 2–1, that the EPA had overstepped its authority.

Afterward, the Constitutional Accountability Center, a watchdog group, revealed that the judges in the majority had previously attended one of the all-expenses-paid legal seminars for judges that were heavily funded by the Kochs’ foundations. This one had taken place on a Montana ranch run by a group that the Kochs helped subsidize called the Foundation for Research on Economics and the Environment. The judges claimed that their decision was unaffected by the junket. Their embrace of the Mercatus Center’s novel argument, however, soon proved embarrassing. The Supreme Court overruled their position unanimously, noting that the Clean Air Act’s standards are absolute and not subject to cost-benefit analysis.

By the end of 2002, the Gramms had gone into semiretirement, but at the Mercatus Center the zeal to exempt enormously risky markets, including energy derivatives favored by Koch Industries, lived on. The consequences wouldn’t become fully visible until the economic crash of 2008. By then, George Mason University was both the largest single recipient of Koch funds for higher education and the largest research university in Virginia. George Mason was the Kochs’ largest libertarian academic project but far from the only one. By

2015, according to an internal list, the Charles Koch Foundation was subsidizing pro-business, antiregulatory, and antitax programs in 307 different institutions of higher education in America and had plans to expand into 18 more. The schools ranged from cash-hungry West Virginia University to Brown University, where the Kochs, in the tradition of the Olin Foundation, established an Ivy League “beachhead.”

But the Obama administration had never proposed government health care like that in Canada or Great Britain. Reached later, after the implementation of Obama’s Affordable Care Act, Donald Jacobsen, professor of molecular medicine at the Cleveland Clinic Lerner College of Medicine, who cared for Kendrick, recalled her as a generous donor but dismissed as nonsense her argument that Obama’s health-care plan ever threatened treatment of the kind that she received. “I can assure you that ‘Obamacare’ did not diminish our research efforts in any way,” he said. “However, the sequestration efforts of the right-wing conservatives and their Tea Party colleagues have hampered progress in medical research. The National Institutes of Health is suffering greatly, and it is very difficult for all investigators to obtain funding. You can’t blame the Affordable Care Act, but you certainly can blame the Republicans.”

But for the fossil fuel industry, winning over public opinion was no easy feat. As the new millennium dawned, the general public was broadly in favor of environmental regulations. As late as 2003, over 75 percent of Republicans supported strict environmental regulations, according to polls. For help on their public relations campaign, in 2002 the opponents of carbon regulations hired Frank Luntz, who warned that “the environment is probably the issue on which Republicans in general—and President Bush in particular—is most vulnerable.” To win, he argued, global warming deniers had to portray themselves as “preserving and protecting” the environment.

It was particularly disturbing to Mann that there appeared to be overlap between hard-core climate change deniers and Second Amendment enthusiasts, whipped up, he came to believe, by “cynical special interests.” Mann says, “The disaffected, the people who have trouble putting dinner on the table, were being misled into believing that action on climate change meant that ‘They’ want to take away your freedom and probably your guns, too. There was a very skillful campaign to indoctrinate them,”

Among the few remaining restraints that the majority of the Court endorsed was the long-standing expectation that any spending in a political campaign should be visible to the public. Justice Anthony Kennedy, who wrote the majority opinion, predicted that “with the advent of the Internet, prompt disclosure of expenditures” would be easier than ever. This, he suggested, would prevent corruption because “citizens can see whether elected officials are ‘in the pocket’ of so-called moneyed interests.” The assumption soon proved wrong. Instead, as critics had warned, more and more of the money flooding into elections was spent by secretive nonprofit organizations that claimed the right to conceal their donors’ identities. Rich activists such as Scaife and the Kochs had already paved the way to weaponize philanthropy. Now they and other allied donors gave what came to be called dark money to nonprofit “social welfare” groups that claimed the right to spend on elections without disclosing their donors. As a result, the American political system became awash in unlimited, untraceable cash.

When Congress created the legal framework for “social welfare” groups almost a century earlier, it never anticipated that they would become a means by which the rich would hide their political spending. In fact, to qualify as tax-exempt, such groups had to certify that they would be “operated exclusively for the promotion of social welfare.” The IRS later loosened the guidelines, though, allowing them to engage marginally in politics, so long as this wasn’t their “primary” purpose. Lawyers soon stretched the loophole to absurd lengths. They argued, for instance, that if a group spent 49 percent of its funds on politics, it complied with the law because it still wasn’t “primarily” engaged in politics. They also argued that one such group could claim no political spending if it gave to another such group, even if the latter spent the funds on politics. Experts likened the setup to Russian nesting dolls. For example, at the end of 2010, the Center to Protect Patient Rights reported on its tax return that it spent no money on politics. Yet it granted $103 million to other conservative groups, most of which were actively engaged in the midterm elections.

2006, only 2 percent of “outside” political spending came from “social welfare” groups that hid their donors. In 2010, this number rose to 40 percent, masking hundreds of millions of dollars.

The numbers regarding Koch Industries’ pollution were incontrovertible. In 2012, according to the EPA’s Toxic Release Inventory database, which documents the toxic and carcinogenic output of eight thousand American companies, Koch Industries was the number one producer of toxic waste in the United States. It generated 950 million pounds of hazardous materials that year. Of this total output, it released 56.8 million pounds into the air, water, and soil, making it the country’s fifth-largest polluter. The company was also among the largest emitters of greenhouse gases in America, spewing over twenty-four million tons of carbon dioxide a year into the atmosphere by 2011, according to the EPA, as much as is typically emitted by five million cars.

Behind the scenes, Sean Noble, with the assent of the Kochs, had been furtively trying for months to persuade Paul Ryan to run for the White House. The billionaire backers were eager for him to apply his “sharp knives” to the federal budget. But Ryan had demurred. Neither he nor his wife relished a presidential marathon. “Wouldn’t it be easier just to be picked as vice president?” he asked an emissary from the Kochs, in a meeting in the congressman’s Washington office. “Because then it’s only, like, two months.”

The search for a more promising candidate set off a torrid courtship of Chris Christie, the tough-guy governor of New Jersey. David Koch invited Christie to his Manhattan office, where the two spent almost two hours bonding over Christie’s brawls with the unions and other liberal forces. The governor’s scrappy blue-collar style, combined with his plutocrat-friendly economic policies, made him an almost irresistible prospect. By June, the Kochs had given Christie the keynote speaker slot at their seminar, where he could audition for his party’s leading role in front of the people who could pay his way.

During 2011 alone, tax records show, the AAI, which soon changed its name to Freedom Partners, accumulated over a quarter of a billion dollars. The new business league, which was at first run by Wayne Gable, the head of lobbying for Koch Industries, was less than candid with the Internal Revenue Service about its intentions. According to its founding documents, it told the IRS it “does not currently plan to attempt to influence any election” and in the future might do so but only to “an insubstantial” extent. From the start, however, the organization financed many of the same political front groups that the Kochs had mobilized in the 2010 midterms. This time, though, their underground guerrilla war against Obama was waged by a “business league” and treated as a partially tax-deductible business expense. From November 2011 to October 2012, the Kochs’ new “business league” transferred $115 million to Sean Noble’s Center to Protect Patient Rights and $32.3 million to David Koch’s group, Americans for Prosperity.

While amassing one of the most lucrative fortunes in the world, the Kochs had also created an ideological assembly line justifying it. Now they had added a powerful political machine to protect it. They had hired top-level operatives, financed their own voter data bank, commissioned state-of-the-art polling, and created a fund-raising operation that enlisted hundreds of other wealthy Americans to help pay for it. They had also forged a coalition of some seventeen allied conservative groups with niche constituencies who would mask their centralized source of funding and carry their message. To mobilize Latino voters, they formed a group called the Libre Initiative. To reach conservative women, they funded Concerned Women for America. For millennials, they formed Generation Opportunity. To cover up fingerprints on television attack ads, they hid behind the American Future Fund and other front groups. Their network’s money also flowed to gun groups, retirees, veterans, antilabor groups, antitax groups, evangelical Christian groups, and even $4.5 million for something called the Center for Shared Services, which coordinated administrative tasks such as office space rentals and paperwork for the others. Americans for Prosperity, meanwhile, organized chapters all across the country. The Kochs had established what was in effect their own private political party.

David Koch not only embraced Romney but threw a $75,000-per-couple fund-raiser for him at his Southampton estate. Romney and Koch were described as exuding a “confident glow” as they and their wives descended the stairs following a private half-hour chat before the other guests arrived. A few weeks later, Romney chose Ryan as his running mate. The pick was opposed by Romney’s campaign consultant, Stuart Stevens, and proved baffling to Obama because of the unpopularity of Ryan’s extreme budget plan. But conservative donors, including David Koch and his wife, Julia, had lobbied for Ryan. It was one more indication that an invisible wealth primary was shaping the discourse and the field long before the rest of the country had the chance to vote.

Yet the presidential campaign still proved difficult for them to manage. With the eclipse of the party professionals by outside funders, virtually any novice with enough cash, including other donors in their own circle, could now disrupt the process.

Contrary to predictions, the Citizens United decision hadn’t triggered a tidal wave of corporate political spending. Instead, it had empowered a few extraordinarily rich individuals with extreme and often self-serving agendas. As the nonpartisan Sunlight Foundation concluded in a postelection analysis, the superrich had become the country’s political gatekeepers.

Phillips maintained that the conservative groups were vastly outspent in the health-care fight by the law’s supporters. “It’s David versus Goliath,” he claimed. But according to Kantar Media’s Campaign Media Analysis Group, which tracks spending on television ads, $235 million was spent on ads demonizing the law in the two years following its passage. Only $69 million was spent on ads supporting it.

But as the Kochs assessed the damage after 2012 and began planning their next moves, they embraced Brooks’s advice. They then launched what was essentially the best public relations campaign that money could buy. Underlying it all was the simple point that Brooks had stressed. If the “1 percent” wanted to win control of America, they needed to rebrand themselves as champions of the other “99 percent.”

start of 2014 as Harry Reid, the Democratic majority leader in the U.S. Senate, began attacking the Kochs almost daily from the Senate floor for, as he put it in one outburst, “trying to buy America. It’s time that the American people spoke out against this terrible dishonesty of these two brothers, who are about as un-American as anyone that I can imagine.”

Freedom fighters, as Fink labeled the donors, needed to explain to American voters that their opposition to programs for the poor did not stem from greed, and their opposition to the minimum wage wasn’t based on a desire for cheap labor. Rather, as their new talking points would portray it, unfettered free-market capitalism was simply the best path to human “well-being.”

But the Kochs had long had other kinds of perpetrators in mind. The platform of the Libertarian Party in 1980—the year David Koch ran on its ticket—called for an end to the prosecution of all tax evaders. The Kochs also objected vociferously to the many environmental crimes with which they had been charged.

His use of the new buzz phrase “well-being” seemed almost offhand. But during another session at the summit that June, a speaker explained to the donors just how deliberate and politically disarming the term was. James Otteson, a conservative professor of political economy at Wake Forest University, called it “a game changer.”

“Who can be against well-being? The framing is absolutely critical,” Otteson exclaimed.

At Florida State University, where a Koch foundation grant in 2008 gave the foundation a say on faculty hires, criticism erupted into a public fight. Students complained that the Koch influence was nefarious and omnipresent. Jerry Funt, an undergraduate, said that in the public university’s introductory economics course, “We learned that Keynes was bad, the free-market was better, that sweatshop labor wasn’t so bad, and that the hands-off regulations in China were better than those in the U.S.” Their economics textbook, he said, was co-written by Russell Sobel, the former recipient of Koch funding at West Virginia University who had taught that safety regulations hurt coal miners. The textbook, which Funt described as arguing that “climate change wasn’t caused by humans and isn’t a big issue,” had been given an F by an environmental group. But when critics raised objections, the Kochs defended their purchase of influence over public universities as merely providing “fresh” college thinking.

The Kochs were also directing millions of dollars into online education, and into teaching high school students, through a nonprofit that Charles devised called the Young Entrepreneurs Academy. The financially pressed Topeka school system, for instance, signed an agreement with the organization which taught students that, among other things, Franklin Roosevelt didn’t alleviate the Depression, minimum wage laws and public assistance hurt the poor, lower pay for women was not discriminatory, and the government, rather than business, caused the 2008 recession. The program, which was aimed at low-income areas, also paid students to take additional courses online.

The Koch constellation also added Aegis Strategic, an organization that aimed to recruit and train candidates. This way the Koch network could avoid the kinds of flaky misfits who had plagued Republicans in 2012.

Among the new power brokers, few if any could match the political clout of the Kochs. The reach of their “integrated network” was unique. One reflection of their singular status was their relationship with the new majority leader of the Senate, Mitch McConnell. Only a few months before assuming that position, McConnell had been an honored speaker at their June donor summit. There, he had thanked “Charles and David” and added, “I don’t know where we would be without you.” Soon after he was sworn in, McConnell hired a new policy chief—a former lobbyist for Koch Industries. McConnell then went on to launch a stunning all-out war on the Environmental Protection Agency, urging governors across the country to refuse to comply with its new restrictions on greenhouse gas emissions.