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Media Praise 'Mavericks' for Blocking Aid to American People
"President Joe Biden’s agenda, once seemingly on life support after a small coterie of right-wing Democrats announced they’d oppose pairing a social spending bill with infrastructure legislation, has a new lease on life—thanks to progressive Democrats who held the line.
But you wouldn’t know that from corporate media, which disparaged attempts by left-leaning Democrats in Congress to stay the course on the two bills as the divisive behavior of fringe actors. “Take the win,” a frustrated and bemused Chris Cuomo (CNN, 9/30/21) told progressives.
Meanwhile, the obstructionists, who number less than a dozen in the House and Senate, are treated as the lawmakers with their ear to the ground, bold truth tellers who know what the American people really want. Corporate media values—bipartisanship, the “maverick” title, "moderation," militarism and more—are regularly deployed to maintain the status quo. That they’re only regularly used to describe the actions of center-right and right-wing politicians shouldn’t be surprising.
Quirky critic of 'woke politics'An Axios story (10/1/21) on Arizona Sen. Kyrsten Sinema began with "free advice for anyone trying to bully the wine-drinking triathlete into supporting President Biden's $3.5 trillion budget bill: She doesn’t play by Washington’s rules—and she's prepared to walk away."
Chief among the impedimentary lawmakers receiving a spitshine on their image is Arizona Sen. Kyrsten Sinema. Perhaps the biggest roadblock to a deal, Sinema is portrayed in corporate media as a quirky, party-bucking, principled politician—rather than the reflexive obstructionist she’s proven to be in negotiations (Vanity Fair, 9/30/21).
That lack of purpose in talks with party leaders is paired with her cozying up to big corporate donors. As Sinema has stifled the social spending legislation, she’s reaped the benefits, taking in hundreds of thousands from the financial, insurance and real estate sectors, according to Open Secrets. She held a fundraiser on September 27 (New York Times, 9/27/21) with industry lobbyists opposed to the tax burden they fear would be a byproduct of the bill, and another high-dollar affair on October 2 with her PAC’s major donors (New York Times, 10/1/21).
When it comes to reworking Sinema’s image, Axios (10/1/21) has been one of the worst offenders, setting up the senator to readers as someone you might think has left-leaning politics, but doesn’t:
Progressives could be forgiven for presuming that Sinema, 45, the first openly bisexual member of Congress, who's easy to spot in her trademark sleeveless dresses, wry wigs and acrylic glasses, would share their woke politics.
They've been befuddled, and increasingly enraged, when she behaves more like the late Republican Sen. John McCain, another Arizonan who didn't mind challenging party orthodoxies.
According to the Arizona Republic's Laurie Roberts (9/30/21), "Sinema’s brand is all about being a party unto her own."
Gannett’s Arizona Republic (online as AZCentral), a conservative paper in Sinema’s home state, has argued in favor of the embattled senator even as her refusal to negotiate in real terms about what she wants frustrates Democratic colleagues. In an opinion piece aiming to recast Sinema’s aimless intransigence as evidence of her independence, columnist Laurie Roberts (9/30/21) claimed that by killing Biden’s agenda, Sinema was acting to save it:
She has charted a middle course, in search of solutions that have bipartisan support. Sort of like a certain president who now is pressing for the entire wish list of progressive proposals.
And Bill Maher, the increasingly right-leaning host of HBO’s Real Time (10/1/21), threw his support behind Sinema as well as West Virginia Sen. Joe Manchin, sneering that the two senators “might have their thumb more on the pulse on the average Democrat in the country” than the 95-member Congressional Progressive Caucus does.
A popular agendaYet the average Democrat—and the average American—supports the full Biden agenda over just passing the infrastructure bill (USA Today, 8/25/21; Daily Beast, 9/16/21). The social spending legislation enjoys majority support of Americans, and doesn’t gain in popularity when it’s pared down (HuffPost, 8/18/21), as centrists have suggested.
The infrastructure bill is popular, too; the $1 trillion spending on roads, broadband and other essential infrastructure has strong support. But spending on expanding existing, popular programs that saw their stock rise during the uncertainty of the pandemic offers the public a different vision of the United States than has been given over the past five decades. The social spending bill is “poised to be the most far-reaching federal investment since FDR’s New Deal or LBJ’s Great Society,” as the Associated Press (9/15/21) put it.
Polling in Sinema’s Arizona shows that voters there have soured on the senator. She’s seen her popularity nosedive with independents and Democrats. A slight bump with Republicans won’t be enough to save her when she’s up for re-election if the numbers hold; GOP voters vote GOP.
Sinema’s policy decisions, including her blocking of Biden’s agenda, are not the priorities of her base. Around 30% of Arizona Democrats view her unfavorably, with 56% supporting her. Nearly 80% of Arizona Democrats have a favorable view of fellow Democratic Sen. Mark Kelly (The Hill, 9/30/21).
Unreasonable leftiesTime's headline (10/1/21) put the blame on progressives for blocking Joe Biden's agenda--though the article acknowledges that the social spending bill "forms the core of Biden’s domestic policy agenda."
Nevertheless, the framing of the conflict between progressives and the president on the one side and a small group of center-right Democrats on the other consistently plays the former against one another, making the left-leaning caucus members appear unreasonable. Time (10/1/21) deployed just this tactic, characterizing progressives as hostage-taking zealots whose actions could “sink the bipartisan infrastructure bill.” Biden’s agenda was described as “uncertain” due to progressive resistance in the piece’s headline ("Joe Biden's Agenda Uncertain After Progressives Force Delay on Infrastructure Vote") and opening paragraphs; it’s only in the ninth paragraph, well down the page, that Time admitted that “the progressive position is in line with Biden’s agenda.”
By contrast, the New York Times' Jonathan Martin and Jonathan Weisman (10/4/21) described the small cohort of moderates threatening to hold up the bill in glowing terms, in an article ominously headlined, “Biden Throws In With Left, Leaving His Agenda in Doubt.” As Rep. Ilhan Omar communications director Jeremy Slevin noted, Martin and Weisman describe the nine right-wing Democrats threatening to torpedo the agenda in the House as “well-liked” members, who express their “hope” that the president can “bridge” the divide.
On the other hand, Omar and the other progressives working to support the Biden agenda are presented as stopping the infrastructure bill from going through—in one two-sentence paragraph, Martin and Weisman use “blockade” twice and “blockaders” once to describe the left-leaning members.
Cost, not benefitsThe spending bill’s price tag—$3.5 trillion—is frequently used in corporate media coverage as a catch-all for the omnibus bill. The New York Times has used the topline number in headlines repeatedly (8/23/21, 8/24/21, 9/9/21, 9/11/21, 9/18/21, to cite a smattering of examples), focusing perception of the bill primarily on its cost rather than its benefits.
It’s a clever rhetorical trick that obfuscates the purposes of social spending, and it’s notably not the approach corporate media take to military spending, which, if maintained at current levels, would amount to nearly $8 trillion over the same time period. And it’s not used for the infrastructure bill, which is instead primarily referred to as bipartisan, as though its concessions to Republicans (Washington Post, 6/3/21)—notably ruling out raising corporate taxes, after cutting the bill’s $2.2 trillion price tag in half—are a virtue.
Times reporter Weisman courted controversy at the end of September for his Twitter editorializing of the back and forth between the two sides, declaring it was time to take center-right Democratic Sen. Joe Manchin "at his word" and give up on moving the $3.5 trillion bill forward.
“The expansive social policy and climate bill once envisioned isn’t going to happen,” Weisman said. “Here’s what could. Look at extending temporary provisions in the American Rescue Plan with some climate to assuage progressives.”
Time to take @Sen_JoeManchin at his word. The expansive social policy and climate bill once envisioned isn’t going to happen. Here’s what could. Look at extending temporary provisions in the American Rescue Plan with some climate to assuage progressives. https://t.co/xh3AuUDGcZ
— Jonathan Weisman (@jonathanweisman) September 30, 2021
The point of "climate," of course, is not to "assuage progressives"—but to keep humanity from destroying the climate".
"When he arrived in South Africa on March 20, 1976, Milton Friedman was a bona fide celebrity. He had been invited by the University of Cape Town to deliver a series of lectures on economic policy, but his itinerary was jammed with interviews, fetes, and gaudy extravagances fit for a senator or Hollywood royalty. Newspaper reporters harangued him, the crowded pre-cable TV spectrum reserved room for his insights, and he spent so much of the ensuing three weeks being whirlwinded by the local elite that he barely carved out time to enjoy the wildlife.
A 42-page travelogue recorded by Friedman recounts the experience. Milton and his wife, Rose, slept late after their arrival, savoring an afternoon walk along the glittering Sea Point Promenade in the shadow of Lion’s Head mountain before dinner with the chairmen of a burgeoning fashion chain and a prominent investment house. Two newspaper interviews the next day were followed by an evening at the Dutch country estate of tobacco magnate Anton Rupert. Cocktails at the U.S. Embassy, lunch with the chairman of Mobil Oil South Africa, and a black-tie dinner with the head of the De Beers diamond monopoly would ensue.
After two decades on the intellectual front lines of American politics, Friedman was a bestselling author and no stranger to fine living. But he was astonished by both “the extraordinary affluence of the White community” and the “extraordinary inequality of wealth” in South Africa. Friedman was not a man to scold opulence, and yet he found the tension permeating apartheid South Africa palpable in both taxicabs and hotel ballrooms. The “hardboiled attitudes” of Mobil chairman Bill Beck and his friends were difficult for him to endure. The “complete segregation” of the population was “striking.”
All of which makes a contemporary reading of Friedman’s Cape Town lectures a harrowing experience. His first speech was an unremitting diatribe against political democracy—an explicit rejection of, in Friedman’s words, “one person, one vote,” delivered to a nation in which more than half of the population was disenfranchised by race. Voting, Friedman declared, was inescapably corrupt, a distorted “market” in which “special interests” inevitably dictated the course of public life. Most voters were “ill-informed.” Voting was a “highly weighted” process that created the illusion of social cooperation that whitewashed a reality of “coercion and force.” True democracy, Friedman insisted, was to be found not through the franchise, but the free market, where consumers could express their preferences with their unencumbered wallets. South Africa, he warned, should avoid the example of the United States, which since 1929 had allowed political democracy to steadily encroach on the domain of the “economic market,” resulting in “a drastic restriction in economic, personal, and political freedom.”
Friedman did not subscribe to biological theories of racial inferiority. His time in South Africa does not instruct us on his moral character or any unique failures of political judgment. It offers instead a window into the deepest currents of his intellectual contributions. The program Friedman prescribed for apartheid South Africa in 1976 was essentially the same agenda he called for in America over his entire career as a public intellectual—unrestrained commerce as a cure-all for inequality and unrest.
That this prescription found political purchase with the American right in the 1960s is not a surprise. Friedman’s opposition to state power during an era of liberal reform offered conservatives an intellectual justification to defend the old order. What remains remarkable is the extent to which the Democratic Party—Friedman’s lifelong political adversary—came to embrace core tenets of Friedmanism. When Friedman passed away in 2006, Larry Summers, who had advised Bill Clinton and would soon do the same for Barack Obama, acknowledged the success of Friedman’s attack on the very legitimacy of public power within his own party. “Any honest Democrat will admit that we are now all Friedmanites,” he declared in The New York Times.
No longer. In the early months of his presidency, Joe Biden has pursued policy ambitions unseen from American leaders since the 1960s. If implemented, the agenda he described in an April 28 address to Congress would transform the country—slashing poverty, assuaging inequality, reviving the infrastructure that supports daily economic life, and relieving the financial strains that childcare and medical care put on families everywhere. It will cost a lot of money, and so far at least, Biden isn’t letting the price tag intimidate him. “I want to change the paradigm,” he repeated three times at a press conference in March
Friedman was born in 1912 to Hungarian Jewish immigrants who ran a dry goods store in Rahway, New Jersey. Recognized as brilliant from an early age, he graduated from high school at 16 and earned a degree from Rutgers before his twentieth birthday. Though he would pursue graduate studies in economics on an on-again, off-again basis for the next 14 years, Friedman spent most of the Great Depression and World War II in the employ of Franklin Delano Roosevelt’s federal government, moving between influential positions at the National Resources Planning Board and the Treasury Department, where he helped establish the modern income tax withholding system to help finance the war effort.
Friedman made quite a splash. His dissertation, based on research he co-conducted with future Nobel laureate Simon Kuznets, suggested that professional licensing regulations raised the cost of important expert services—including medical services. But it was a 1946 pamphlet on housing policy co-written with fellow Chicagoan George Stigler that transformed Friedman from an obscure ex-bureaucrat into an academic sensation. Titled “Roofs or Ceilings? The Current Housing Problem,” Friedman and Stigler’s paper argued that California’s rent regulations ultimately ended up raising the price of housing, hurting the very low-income people politicians sought to help. The argument was simple: By artificially depressing the price of housing, regulators deprived potential homebuilders of an incentive—higher profits—to build more homes, which would in time bring down housing costs.
The blunt unsophistication of the pamphlet was an intellectual call to arms. Friedman and Stigler weren’t really writing about housing at all—they were writing about economics itself, calling for a return to the simple nineteenth-century analyses that Friedman would later credit for producing the “free market” and “the greatest expansion of human freedom the world had ever seen.” The reaction was furious. Writing in The Washington Post, economist Robert Bangs decried the “drivel” in Friedman’s “insidious little pamphlet,” and denounced him for publishing it through a “propaganda front for reactionary interests” (which was true—“Roofs or Ceilings?” was released by the Foundation for Economic Education, one of a handful of specialty right-wing organizations that sprang up in the postwar world aiming to unwind the New Deal).
Friedman had thus cultivated a very particular brand. Academically he was a succès de scandale—not many economists in 1946 were being written up in The Washington Post. Politically, though, the pamphlet was a dead letter. Whatever people thought about Friedman himself, arguing that government regulation simply couldn’t work had been losing at the ballot box for 14 years. The country did not recall the Hoover years with fondness; Harry Truman’s biggest electoral problem was the fact that he wasn’t FDR. Friedman had made a name for himself, but in doing so he had yoked himself to a far fringe of American politics that exercised almost no influence over public discourse—yet.
Friedman spent most of the 1950s trying to shore up his reputation as an academic, which had taken a hit for his associations with the hard right. In 1953, he published one of his most influential works of theory, “The Methodology of Positive Economics”—a sweeping statement on the power of economics to break down barriers between people and resolve political disagreements. It was a declaration of principles from a man who recognized he lived on the political outskirts. Liberals might disagree with his ideas, Friedman suggested, but their complaints were really superficial—ultimately, he argued, he was engaged in the same intellectual project and motivated by the same values as his opponents: building a fair and prosperous society.
It was a brilliant essay that captured the imaginations of people far to Friedman’s political left in the profession. It also wasn’t true. The chief political disputes of the 1950s and 1960s, as today, really were about moral values, not technical predictions. And by 1954, that conflict erupted spectacularly with the Supreme Court’s Brown v. Board of Education decision that prohibited segregation in public schools.
Act II: The Entry Into Politics—and RaceFriedman responded to Brown in 1955 with “The Role of Government in Education,” an essay that called for the ostensibly race-neutral program of privatizing the school system by providing families with education vouchers that could be spent where parents wished. As in his essay on housing nine years before, Friedman appealed to the simple nineteenth-century logic of market competition and equilibrium to make his case. Public schools were a “monopoly” that put private schools at an unfair “disadvantage.” By transitioning from public schools to vouchers, families would enjoy a diversity of education options, and market competition over the quality of education would in time enhance the lot of students everywhere.
Though Friedman claimed to be striking a middle ground between “forced nonsegregation” and “forced segregation,” he was in practice taking the side of the segregationists. His voucher proposal wasn’t original—it had already been implemented by segregationists in Prince Edward County, Virginia, who were using it to get around Brown and allow white families to maintain a separate, publicly financed all-white educational system. Friedman lamely acknowledged in an infamous footnote, “This fact came to my attention after this paper was essentially in its present form.”
Much of Friedman’s political relevance within the Republican Party derived from his willingness to defend conservative policies on race during the 1950s and 1960s. “Missing from most analyses of Friedman’s economic thought is the inseparable role of race,” said Darrick Hamilton, the director of the New School’s Institute on Race and Political Economy. “The racialization of poverty and ideas about those who are deserving and undeserving allows us to have a system without empathy where those in despair are treated as surplus populations.”
“The Role of Government in Education” marks the earliest appearance of what remains Friedman’s most damaging belief—the idea that bigotry and violence could be forced out of public life by the magic of the market. Friedman would insist on this basic proposition again and again throughout his career. In 1972, he would go so far as to suggest that the free market could have put a stop to the war in Vietnam if people had really wanted it to end. Enough chemists would have refused to make napalm that the cost of producing the explosive would have become prohibitively high. This was the appropriate way to stop a war—not the crude “voting mechanism” of “the political system.”
Such arguments are difficult to take seriously today, but they worked with a substantial slice of the political spectrum in the 1950s and 1960s, particularly liberals. Where most hard-nosed conservatives were content to espouse white supremacy or pro-war attitudes, Friedman instead appealed to the liberal faith in the basic decency of humanity. Surely government intervention would not be necessary if people were the generally kind and caring sort that liberals imagined them to be. His appeal to liberal sensibilities was more than accidental. Throughout his life, Friedman preferred to be identified as either a “neoliberal” or a “classical liberal,” invoking the prestige of the great eighteenth- and nineteenth-century economists—while conveniently gliding past their often profound differences with his political project. (John Stuart Mill, for instance, identified as a “socialist,” while Adam Smith supported a variety of incursions against laissez-faire in the name of the public interest.) While many of his friends embraced the label of “conservative,” Friedman resisted. “Good God, don’t call me that,” he told an interviewer in 1978. “The conservatives are the New Dealers like [John Kenneth] Galbraith who want to keep things the way they are. They want to conserve the programs of the New Deal.”
But whatever the semantics, the political alliance was unmistakable. Friedman began contributing to William F. Buckley’s National Review and turned down an offer to join Dwight D. Eisenhower’s Council of Economic Advisers, concluding that the moderate Eisenhower would demand too many intellectual concessions of him: “I think society needs a few kooks, a few extremists.” (Friedman’s quote is recorded by historian Angus Burgin in his wonderful 2012 book, The Great Persuasion.) But being a professional kook was a lonely crusade. In 1962, Friedman’s neoliberal colleague Friedrich Hayek left the University of Chicago and decamped to the political wilderness of the University of Freiburg in West Germany. Friedman’s longtime benefactor Harold Luhnow had gone insane, financing Holocaust-deniers and claiming the supernatural ability to connect his mind with Soviet Premier Nikita Khrushchev before shuttering his philanthropy outright.
But before he did so, Luhnow had paid Friedman to develop a series of lectures that the two men hoped could be collected into a Cold War–era update on Hayek’s aging publishing smash, The Road to Serfdom. The product of that effort, 1962’s Capitalism and Freedom, became the bestselling work of Friedman’s career and a rallying cry for young American free marketeers. Capitalism and Freedom argued that the market was the true realm of democratic expression. People voiced their preferences for the way society ought to be ordered with their pocketbooks, and industry responded by providing what was profitable. The political system, by contrast, inherently functioned as a restriction on individual liberty by limiting the kinds of preferences people could demand from the market. Democracies could choose between “laissez-faire” freedom or state socialism, but they could not have both—and in Friedman’s telling, the style of government the United States had been pursuing since the New Deal was on the wrong side of that line.
In 1964, Friedman tried to put these ideas into practice by advising the presidential campaign of far-right Arizona Senator Barry Goldwater. As the Republican nominee toured the country insisting that he agreed personally with the goals of the Civil Rights Act and the Brown decision, Goldwater voiced an objection in principle to the use of federal power to “impose that judgment … on the people of Mississippi or South Carolina.” Segregation was “their business, not mine.” Advising Goldwater, Friedman called this attack on the legal foundation of the civil rights movement an “excellent” expression of the principle of “equal treatment of all, regardless of race.”
Friedman wrote: “The man who objects to buying from or working alongside a Negro, for example, thereby limits his range of choice. He will generally have to pay a higher price for what he buys or receive a lower return for his work. Or, put the other way, those of us who regard color of skin or religion as irrelevant can buy some things more cheaply as a result.” The relentless logic of the market would drive such inefficiency from public life.
Of course, the voters who backed Goldwater in 1964 didn’t believe a word of that. They supported Goldwater because they believed he would maintain the Jim Crow order, not because they expected economic freedom to unleash a wave of radical egalitarian social change across the South. This was clear to conservative political commentators during the campaign. As Robert Novak wrote (with his partner Rowland Evans) for The Washington Post in June 1963, “These Republicans want to unmistakably establish the Party of Lincoln as the white man’s party.”
From the twenty-first century, it is hard to believe Friedman was merely naïve and not breathtakingly cynical about these political judgments, particularly given the extreme rhetoric he used to attack anti-discrimination efforts. In Capitalism and Freedom, he even compared the Fair Employment Practices Commission that FDR established to prohibit discrimination in the defense industry to “the Hitler Nuremberg laws,” arguing that prohibiting discrimination and promoting discrimination both “involve a kind of state action that ought not to be permitted.” And yet he appears to have genuinely believed what he said about markets eliminating racism. Friedman’s travelogue from South Africa was a private recording he created to help him remember his trip. It contains the same basic political ideas Friedman presented in the Goldwater campaign, alongside clear discomfort with the racist attitudes of the South African business elite. Friedman knew that he was entering a political coalition with violent racists by joining the Goldwater effort, but, as he had stated in Capitalism and Freedom, he believed politics to be an inherently dirty business. There had been a paranoid catastrophism to much of the right since The Road to Serfdom. The belief that America was on the verge of full-blown communism could make ugly compromises appear necessary.
It is worth noting, however, that not everyone made the same compromises. Hayek, for instance, supported the Civil Rights Act. Backing Goldwater was an all-in career gamble that isolated Friedman from nearly every mainstream Republican leader, from Nelson Rockefeller to George Romney. But it paid off in one key respect: Goldwater’s landslide loss accelerated the purge of moderates from the party. The future of the party would belong to men like Milton Friedman. Though Republicans emerged from the 1964 election in a state of historic political weakness, Friedman had leaped to the top of the heap. In just a few years, his gamble would bear fruit.
This open association with the radical right would have destroyed Friedman’s professional reputation had he not continued to publish top-tier economic research. In 1963, he at last delivered on the empirical promises he made to the field in 1953, publishing the work that made him the most famous economic thinker of his era, A Monetary History of the United States, 1867–1960. Co-written with Anna Jacobson Schwartz, the book offered a sweeping, meticulous account of changes in the quantity of money across the American economy over the course of nearly a century, with detailed explanations for the various forms of currency creation and destruction that occurred along the way. Friedman had never published anything nearly so ambitious, and would never do so again.
Constructing a 93-year account of fluctuations in the money supply is a curious endeavor to assume for its own sake. But of course Friedman had an intellectual motivation, which he detailed in a famous 1967 speech before the American Economic Association: He hoped to dethrone the ghost of John Maynard Keynes.
Ever since the publication of The General Theory of Employment, Interest and Money in 1936, Keynes and his theory of effective demand had dominated policymaking around the world. In Keynesian theory, the price of credit and the quantity of money were sideshows to the real drivers of economic activity: the purchasing power of the consumer and the investment decisions of the state. In the Keynesian framework, if the economy was in recession, it was because somebody, somewhere wasn’t spending enough. If people were being laid off, that meant somebody, somewhere couldn’t afford to buy whatever it was that person might have produced. The political corollary was straightforward: If people were out of work, the government should spend money—preferably at a deficit—to create employment. If you wanted to fix unemployment, you paid people to work.
The Keynesian aura of authority, Friedman recognized, resulted from the consensus opinion that Keynes had cured the Depression with his appeal to deficits and public works spending. And so Friedman’s book took direct aim at the Keynesian account of the Great Depression, hoping to show that the entire Keynesian project of the subsequent quarter-century was based on a mistake. He called his alternative macroeconomic framework “monetarism.” The problem in the 1920s and 1930s, Friedman argued, was not a collapse in consumer demand—it was a collapse in the quantity of money. The Federal Reserve had botched the job—where it should have maintained a healthy amount of money in the economy, it had instead allowed the money supply to fall by failing to rescue the banking system when it fell apart in the early years of the Depression. There was truth to this. The Fed really did botch the Great Depression. Letting the banks fail in multiple waves between 1929 and 1932 was a disastrous policy choice that subsequent central bankers have strenuously avoided.
Friedman elevated this account to a comprehensive theory of money and the economy. Everything important in the economy—inflation, deflation, unemployment—was a product of changes in the money supply, or expectations about changes in the money supply. And if you allowed a little inflation to take hold by letting too much money into the economy, a catastrophic spiral could set in, as consumers and businesses bid up prices inexorably without regard to how much money was really in circulation.
Friedman’s book did make many scholars revisit the Depression years. But it did not make an immediate dent in the Keynesian consensus. The history of inflation in the postwar period just didn’t fit his narrative. Outbreaks of inflation had occurred, but they had been brief and quickly contained—not some irrepressible spiral of chaos.
Act IV: The Age of Friedman Dawns…All of that would change in the 1970s. The name given to the economic dilemma of that era reflects the assumptions of the Keynesian economists who interpreted it. “Stagflation”—persistent high inflation and high unemployment at the same time, producing stagnant demand—became a concept because, under the existing doctrine, it should have been impossible.
Keynes himself never said anything about stagflation. But in the early 1960s, his most influential American interpreter, Paul Samuelson, had identified a remarkable statistical trend in U.S. inflation and unemployment data. There seemed to be a very clear trade-off between the two. More inflation meant lower unemployment. Higher unemployment indicated lower inflation. Policymakers, it seemed, could pick and choose how much of either evil they wanted. It worked for most of the 1960s. But during the 1970s the correlation fell apart. Unemployment and inflation rose together, and the era of “stagflation” was on. It wasn’t just an embarrassment for Samuelson and his Keynesian academic allies. It presented a genuine policy crisis.
Just why unemployment and inflation soared together in the 1970s remains in dispute to this day. Multiple oil crises were obviously part of the problem. When OPEC cut off the supply of fuel, the price of fuel increased, along with the price of everything that needed fuel to be shipped—in other words, everything. But the Johnson and Nixon administrations also spent an enormous amount of money on just about everything—from welfare to war to long-term investments in research, development, and infrastructure. Some of these investments were simply sunk costs—higher napalm output did not increase the productivity of any society. But there were almost certainly some time lags involved in the grander infrastructure upgrades. Faster trains, more efficient electrical grids, and early research into the internet elevated the long-run productive power of the economy. But in the short-term, they produced a lot of paychecks while the economy waited for its big boost.
Whatever the cocktail, stagflation arrived. And it gave Friedman the opportunity he had been waiting for. He was ready. In 1966, he had accepted a position with Newsweek that would allow him to maintain the public profile he craved without the weird right-wing associations that besmirched his academic reputation. His columns expressed essentially the same worldview he had espoused in National Review in the 1950s, but now it reached a far wider and politically diverse middle-class audience. By the Carter years, Friedman’s ideas had been reaching households for a decade. Free-market evangelism was no longer the domain of kooks—it was on the coffee tables in the homes of die-hard Democrats. When Friedman was awarded the Nobel Prize in economics in 1976, it bestowed a new aura of prestige on the simple story Friedman offered to explain the economic frustrations of the era: All of this Keynesian meddling had pushed the economy beyond its natural constraints, creating unnecessary economic pain. The very interventions that had been intended to help the most vulnerable had, in the long run, hurt them. Roofs, ceilings, vouchers, and votes.
Friedman was inspiring enormous changes not only to the politics of inflation, but also on another key front where long-held presumptions were suddenly under attack: the idea of corporate responsibility. In 1970, he had published what may be his single most influential piece of writing, this time for The New York Times Magazine, and it formed the core of what the magazine called the “Friedman doctrine.” Titled “The Social Responsibility of Business Is to Increase Its Profits,” the essay was a simple, powerful distillation of his beliefs about the power of the free market—and the horrors that lay outside it.
“Businessmen believe that they are defending free enterprise when they declaim that business is not concerned ‘merely’ with profit but also with promoting desirable ‘social’ ends; that business has a ‘social conscience’ and takes seriously its responsibilities for providing employment, eliminating discrimination, avoiding pollution and whatever else may be the catchwords of the contemporary crop of reformers,” Friedman wrote. “In fact they are—or would be if they or anyone else took them seriously— preaching pure and unadulterated socialism.”
Markets, Friedman claimed, established arenas for individual choice, allowing consumers to express themselves with their wallets. To pursue profit was to seek a legitimate reward from satisfied customers. Any activity that interfered with profits—however noble in appearance—thus undermined the ability of a business to do what the consuming public wanted it to do. Worse, Friedman claimed, by “spending someone else’s money for a general social interest,” socially conscious businessmen were in effect levying taxes on their shareholders and then deciding how to spend that tax revenue.
Friedman’s paean to greed continued themes that he had been presenting for years. When Friedman warned that socially conscious businessmen were the “unwitting puppets of the intellectual forces that have been undermining the basis of a free society these past decades,” he was trafficking in familiar Cold War paranoia. There were, as ever in Friedman’s writing, only two choices facing society—freedom or socialism. The New Dealers and their Keynesian accomplices had cast their lot with socialism, and it was essential that corporate executives not fall into the trap.
The Friedman doctrine is an embarrassment borne of overconfidence. If profit maximization is really the sole responsibility of each business, then why are there so many different kinds of business? Why settle for the meager profits of, say, automobile manufacturing when the blockbuster returns of high-leveraged financial speculation are available? And if profit is proof of true social value, then on what grounds could a society ever outlaw anything a profitable business does? And yet by the late 1970s, the intellectual alternatives to Friedmanism weren’t looking so hot. Friedman’s simple stories about how the economy worked—inflation and profit, freedom and competition—filled an intellectual void in a world where Keynesian economists struggled to explain stagflation.
What’s more, Friedman in the 1970s took care to highlight the areas in which he agreed with the cultural left. His repeatedly stated opposition to the draft was no small matter in the era of the Vietnam War, and his support for the legalization of recreational drugs created a bridge between hippies and neoliberals that remains intact today. Nouveau-hippies and conventional libertarians both love jam bands. It is astonishing to see so many different ideological adherents to music that is, let us not mince words, terrible.
Fundamentally however, Friedman won by losing. America in the late 1970s was a frustrated and angry place, and however weird some of Friedman’s ideas might have been, nobody in their right mind would have held him responsible for the condition of the country. He hadn’t been in power. Goldwater lost. The Civil Rights Act passed. Even Richard Nixon had declared himself a “Keynesian,” prompting Friedman to denounce the man he’d advised as a “socialist.”
The new consensus on Friedman’s work among economists has essentially reversed Summers’s verdict from 2006. “Almost nothing remains of his intellectual legacy,” according to Columbia University economist Jeffrey Sachs. “It has proven to be a disastrous misdirection for the world’s economies.”
All of that finally changed in August 1979, when a new Federal Reserve chairman named Paul Volcker began putting Friedman’s monetary ideas into practice.
Act V: …and ConquersMonetarism gave Friedman a unique policy flexibility that many of his neoliberal allies lacked. Friedrich Hayek, for instance, had maintained in the 1930s that recessions were an inevitable price to be paid for prior periods of economic excess. But Friedman recognized that telling the public “you just have to let the bottom drop out of the world” wasn’t a politically viable option, and his emphasis on the money supply gave him a policy lever to pull when the going got rough.
Manipulating the money supply had, however, never been attempted. Instead of doing that, the Fed regulated the price of credit, buying and selling securities to move interest rates up or down. But interest rates, Friedman insisted, were ultimately controlled by financial markets, not the government. The failure to cure inflation over the previous decade was a result of this persistent tactical error. When Volcker took office, inflation had eclipsed double digits for the second time in five years.
Volcker did it almost immediately. That fall, he gave a press conference stating that he would curb growth in the money supply no matter what the implications might be for interest rates. The results were horrific. When Volcker ascended to the chairmanship of the Federal Reserve, the unemployment rate had been slowly but steadily declining for more than four years, from a peak of 9.0 percent in May 1975 to a more respectable 6.0 percent. Under Volcker’s new monetary management, interest rates skyrocketed, slamming the economy into recession and driving unemployment to 10.8 percent in 1982, a level it would not match again for more than 37 years.
With even Friedman himself on the run from Volcker, the punishing recession of the early 1980s should have afforded Keynesian economists and the Democratic Party with opportunities to reassert the value and utility of political democracy. The program Friedman had pursued for decades was proving to be a disaster.
But by 1981, Friedman’s 35 years of laissez-faire evangelism had established a new rhetorical reality. The ascension of Ronald Reagan had moved Barry Goldwater’s fringe ideas about small government to the seat of American power. In 1980, PBS aired a show written and narrated by Friedman called Free to Choose, about the virtues of free markets and the inevitable failures of government intervention. This was an extraordinary level of visibility for an economist, something that had only been achieved previously by John Kenneth Galbraith, a member of the Kennedy-Camelot royalty. Friedman’s ideas not only dominated the bully pulpit, they had taken over the liberal redoubt of public television.
And his political opposition had collapsed. It was a Democrat, Jimmy Carter, who had nominated Volcker to the Fed to pursue Friedman’s monetarism. Ted Kennedy’s failed primary challenge to Carter was the last gasp of the old-line New Deal, Great Society–oriented Democratic Party (and even Kennedy backed deregulation of the airlines and trucking industry). When Jesse Jackson attempted to revive the old vision in 1984, the rank and file were no longer interested, and Jackson was able to secure only 18 percent of the popular vote. Without political patrons in Washington, the once-dominant Keynesian economists were reduced to oddball status in academia, writing for obscure left-wing journals or overhauling their intellectual framework to embrace core tenets of Friedmanism while attempting to make room for the occasional embarrassing budget deficit.
Friedman didn’t achieve this intellectual conquest alone. He had an entire academic and political movement behind him, replete with deep-pocketed funders. But he was the most prominent voice of that movement around the world, having advised not only American presidents but a military dictator in Chile, the communist government in China, and leaders of three political parties in apartheid South Africa. Friedman never warmed to the Democratic Party, but when Bill Clinton declared “the era of big government is over,” pursuing a policy of balanced budgets, free trade, and financial deregulation, he was, with a few exceptions, attempting to out-Friedman the Republicans. There was a fight within the Clinton administration over this turn, and many of Clinton’s oldest political allies felt betrayed—but the Friedman wing, represented by Robert Rubin and his protégé Larry Summers, emerged victorious.
Despite this comprehensive intellectual victory, Friedman could claim few policy achievements when he died in 2006. Volcker eventually abandoned his efforts to directly target the money supply, and no Fed chair has tried doing so since. Even under Ronald Reagan, the overall size of the government did not really decrease—government spending as a percentage of GDP was about where it had been in the 1960s and 1970s; its targets had simply shifted from social welfare to defense contracting.
But the intellectual assumptions of the entire political class had become Friedmanesque. This is what Larry Summers meant by his claim from the eve of the financial crisis that “we are now all Friedmanites”—everyone took the social benefits of laissez-faire for granted; political conflict was largely waged over which edges to sand off.
The financial crisis of 2008 should have demolished this thinking. Markets, the crash made clear, often simply don’t serve the public interest. But the Democratic leaders who ascended to power in the Obama administration had been educated at the height of Friedman’s intellectual hegemony. There simply weren’t many New Deal–style thinkers in the top echelons of the Democratic Party anymore. Obama was as intellectually serious as American presidents get, but his coterie of intellectuals had been working under Friedmanesque assumptions for so long that they could not adapt to the reality that events had discredited those assumptions. Obama ultimately devoted more political energy to reducing the long-term federal budget deficit than to combating economic inequality. A unique historical moment to reclaim political democracy became, instead, the era of bending the cost curve.
If Obama’s presidency revealed the durability of Friedman’s legacy within the Democratic Party, Donald Trump’s presidency revealed its fragility among Republicans. On an almost weekly basis, Trump subjected sacred tenets of Friedman’s worldview—from free trade to monetary policy to fiscal stimulus—to overt rhetorical abuse. And the party faithful loved it. But some of Trump’s most consequential policies—a massive tax cut for the rich and a big bank deregulation bill—were perfectly aligned with 1980s-era Friedmanism. For today’s GOP, Friedman’s ideas seem to be valuable only insofar as they can be used to persecute undesirable elements in a political milieu constructed almost entirely of identitarian grievance—Keynes for me, Friedman for thee.
Epilogue: What’s Next?Predicting the future course of Republican ideas is like estimating the blast radius of a bag of unlit fireworks. But whatever the GOP chooses to do with Friedman’s ghost, the future of his legacy—or lack thereof—lies with the Democratic Party. Friedman may have devoted his life to the American right, but the political magic of his persona was always on the left. His insistence that market mechanisms could be used to promote essentially progressive social values was the key to popularizing a worldview that ultimately amounted to little more than the celebration of political rule by the rich. In 2021, it is extremely difficult to imagine a Republican leader persuading Democrats that the QAnon brigade is really on board with Black Lives Matter, if you could just see it from the perspective of consumer choice.
Whatever the GOP chooses to do with Friedman’s ghost, the future of his legacy— or lack thereof—lies with the Democratic Party.
Friedman’s major theoretical contribution to economics—the belief that prices rose or fell depending on the money supply—simply fell apart during the crash of 2008. “Whether people openly admit it or not, his monetary views are no longer included in serious analysis and forecasting,” said Skanda Amarnath, research director at Employ America, a think tank focused on economic policy. “The Fed’s balance sheet swelled enormously during and after the financial crisis, and it did not matter a lick for inflation. There was a huge role for fiscal policy that Friedman just ignored.”
And few serious economists today accept Friedman’s hard divide between economic fact and political reality. “Friedman developed a fantasy land of theory that ignored the way economic power can be used to capture elements of the political system to generate additional economic gains for those at the top,” said the New School’s Hamilton. In 2021, 15 years after his body gave out, Milton Friedman is finally dead.
This vicious cycle has been degrading American democracy for decades. Joe Biden is the first president to desecrate not only the tenets of Friedman’s economic ideas, but the anti-democratic implications of his entire philosophy. He is also the first Democratic president since the 1960s who has formulated and publicly endorsed a coherent defense of American government as an expression of democratic energy. It is a powerful vision that enjoys the support of a large majority of American citizens. He has nothing to fear but Friedman himself."
Zachary D. Carter is a writer in residence with the Omidyar Network and the Hewlett Foundation, and the author of The Price of Peace: Money, Democracy, and the Life of John Maynard Keynes.
"A few words about the makers and the takers.
That, as you may recall, was the formulation once favored by Fox “News” and other organs of the political right to describe the dynamic between those at the top of the economic pyramid and those at the bottom. The poor — characterized as scavenging animals by more than one conservative — were said to contribute nothing to our society, while mooching off their financial betters.
But it is worth re-examining the whole “makers and takers” paradigm in light of last week’s jarring report from ProPublica, the non-profit online newsroom. It was based on a trove of IRS information provided by an anonymous source, and it laid out in granular detail the strategies used by the wealthiest people in America to get away with paying little or nothing in taxes.
Take, for instance, Jeff Bezos, Amazon founder and world’s richest man with a net worth estimated by Forbes at $192 billion. We are told that he paid nothing in taxes in 2007 and 2011 and a relative pittance in other years.
Not to pick on Bezos. Elon Musk, Michael Bloomberg, Warren Buffett and other ginormously rich people all reportedly employ the same strategy to avoid taxes. Which is to say, they pay themselves minimal salaries — as little as a dollar a year in some cases — and keep their wealth in the form of stocks, bonds and other financial instruments, which the IRS does not consider income and taxes at a much lower rate.
For comparison, ProPublica says the median American tax rate in recent years is 14 percent. But it calculates Bezos’ “true” tax rate between 2014 and 2018 — i.e., factoring the growth of his assets in with his reported income — at under 1 percent. It says that when people like him need actual cash, they simply borrow against their massive assets. Interest on such loans runs in the single digits, and the proceeds are not considered income and therefore are not taxable.
All of this is perfectly legal, by the way. Also, perfectly infuriating.
And here, let me just say: I believe in capitalism. I believe that when you incentivize earning, you incentivize risk-taking, innovation and hard work.
But I also believe something is wrong when CEO pay rose by about 1,000 percent between 1978 and 2018, while worker pay edged up just 12 percent.
Something is wrong when working full time doesn’t put a roof over your head or food on your table.
Something is wrong when an Amazon driver complains of 14-hour shifts and peeing in bottles to make his delivery quotas.
Something is wrong when employees at Tyson and other meat packers report wearing diapers to work because conveyor belts are relentless and bathroom breaks denied.
I also believe that paying taxes is a patriotic duty. Onerous? You bet. But patriotic, just the same. It’s how we fund our governments, local and national, and the services they provide: everything from road maintenance, fire and police to military defense, food safety and environmental cleanup. We all benefit from those services, whether ginormously wealthy, pitiably poor or somewhere in between. Any tax code that allows the rich to freeload on that which is paid for by the rest of us is morally bankrupt and in need of overhaul.
Moreover, it gives the lie to the right wing’s lavish contempt for the poor. In the wake of ProPublica’s report, maybe we should reconsider who the “makers” really are.
And who is taking what from whom."
"Representative Kevin McCarthy of California, the top House Republican, recently took to social media to warn that Democrats have hatched a dastardly plot. “Democrats,” he said, “want to track every penny you earn so they can then tax you and your family at the maximum possible amount.”
Well, yes. Democrats want Americans to pay the full amount they owe in taxes.
What doesn’t get enough attention is that many Republicans seem not to agree.
Resistance to taxation is the rotten core of the modern Republican Party. Republicans in recent decades have sharply reduced the federal income tax rates imposed on wealthy people and big companies, but their opposition to taxation goes beyond that. They are aiding and abetting tax evasion.
Former President Donald Trump’s loud and proud declaration that paying very little in taxes “makes me smart” was just a more brazen articulation of what has become party orthodoxy.
The Democratic proposal targeted by Mr. McCarthy — in the video he posted online, he calls it “un-American” — would make it harder for wealthy people to cheat on their taxes.
The I.R.S. estimated in 2019 that Americans conceal from taxation more than half of income that is not subject to some form of third-party verification like a W-2, the form that the government uses to verify ordinary wage income. This blind spot costs the federal government hundreds of billions of dollars in unpaid taxes. In comparison, more than 95 percent of wage income is reported.
Under the current version of the Democrats’ plan, which is part of the Biden administration’s sweeping “Build Back Better” legislation, banks would be required to submit annual reports on accounts with total inflows and outflows exceeding $10,000, excluding paychecks and government benefits. The banks would report the total amount deposited in the account and the total amount withdrawn. There would be no reporting of individual transactions. The information would give the I.R.S. a better chance to catch cheaters — and it would provide a salutary reminder for people to pay what they owe.
The Biden administration recently cemented an international agreement to establish a 15 percent global minimum tax on corporate income. The long-sought deal would reduce the incentive for American firms to evade taxation by pretending to generate revenue in low-tax havens like Ireland and roughly half the islands in the Caribbean — a practice that has become all but business as usual in industries with intangible products, like finance, technology and pharmaceutical research.
The minimum corporate tax, like the bank reporting requirement, is not aimed at increasing what is owed. It is aimed at collecting what is owed already.
Improving tax collection has another important benefit. Democracy — and capitalism — rest on a lacework of mutual obligation. People fulfill their own responsibilities because they are confident others will, too. Collecting taxes, especially from the rich and powerful, is an affirmation of that faith.
Felicia Wong, the president of the Roosevelt Institute, a progressive think tank based in New York, said that the corporate tax agreement, which includes 136 countries, is valuable as a demonstration that governments have the ability to impose their will on multinational corporations in the service of the public interest — a hopeful model for confronting other problems, like climate change.
“It can and should create more faith in governance,” she said.
Both plans, however, must overcome the united opposition of congressional Republicans.
The Republican Party was reborn in the 1970s under the banner of resistance to taxation, led by anti-tax men like Jack Kemp and Ronald Reagan. It remains the party’s fixation, the one major area of policy on which congressional Republicans were able to agree during the Trump administration.
By way of ideological justification, Republicans like to talk about liberty, by which they mean a narrow and negative kind of freedom from civic duty and mutual obligation.
But the fervent opposition to taxation has always found its deeper wellsprings of motivation in concern about how the money will be spent. In the bellwether case of California, the rise of anti-tax activism was inextricably intertwined with the decline of a white electoral majority. It wasn’t a question of whether Americans should ever be required to help one another. The real question was who would be helped.
Opposition to progressive income taxation also draws strength from an imagined democratic ideal in which the people who vote for taxation, pay the taxes and get the benefits are all one and the same.
History tells a different story. From the outset, taxation in the United States was designed as an antidote to inequality. The government initially chose to raise revenue through tariffs collected from wealthy merchants. The introduction of a federal income tax in the early 20th century was a different means to the same end. In a historical analysis published last year, a pair of German political scientists, Laura Seelkopf and Hanna Lierse, showed that progressive taxation is a hallmark of democratic governance.
Political philosophers have long fretted that democracy allows the poor to plunder the rich. The opposite has proved more nearly true. Progressive taxation is not a threat to the wealthy. It is a small price to pay for prosperity.
Cutting taxes to starve social programs is, by itself, a threat to the sustainability of the American experiment in multicultural democracy. In enabling resistance to lawful taxation, Republicans are engaged in an even more direct assault.
Having failed to constrain government spending through the democratic process, they are seeking to undermine government.
Mr. McCarthy is right to frame a fairly technical change in tax rules as an issue that goes to the heart of American democracy. Democracies impose higher taxes than other forms of government because democracies are communities of common purpose. We create and maintain our society through our contributions.
Inside the Tax Records of the .001%
"In November 2017, with the administration of President Donald Trump rushing to get a massive tax overhaul through Congress, Sen. Ron Johnson stunned his colleagues by announcing he would vote “no."
Making the rounds on cable TV, the Wisconsin Republican became the first GOP senator to declare his opposition, spooking Senate leaders who were pushing to quickly pass the tax bill with their thin majority. “If they can pass it without me, let them," Johnson declared.
Johnson's demand was simple: In exchange for his vote, the bill must sweeten the tax break for a class of companies that are known as pass-throughs, since profits pass through to their owners. Johnson praised such companies as “engines of innovation." Behind the scenes, the senator pressed top Treasury Department officials on the issue, emails and the officials' calendars show.
Within two weeks, Johnson's ultimatum produced results. Trump personally called the senator to beg for his support, and the bill's authors fattened the tax cut for these businesses. Johnson flipped to a “yes" and claimed credit for the change. The bill passed.
The Trump administration championed the pass-through provision as tax relief for “small businesses."
Confidential tax records, however, reveal that Johnson's last-minute maneuver benefited two families more than almost any others in the country — both worth billions and both among the senator's biggest donors.
Dick and Liz Uihlein of packaging giant Uline, along with roofing magnate Diane Hendricks, together had contributed around $20 million to groups backing Johnson's 2016 reelection campaign.
The expanded tax break Johnson muscled through netted them $215 million in deductions in 2018 alone, drastically reducing the income they owed taxes on. At that rate, the cut could deliver more than half a billion in tax savings for Hendricks and the Uihleins over its eight-year life.
But the tax break did more than just give a lucrative, and legal, perk to Johnson's donors. In the first year after Trump signed the legislation, just 82 ultrawealthy households collectively walked away with more than $1 billion in total savings, an analysis of confidential tax records shows. Republican and Democratic tycoons alike saw their tax bills chopped by tens of millions, among them: media magnate and former Democratic presidential candidate Michael Bloomberg; the Bechtel family, owners of the engineering firm that bears their name; and the heirs of the late Houston pipeline billionaire Dan Duncan.
Usually the scale of the riches doled out by opaque tax legislation — and the beneficiaries — remain shielded from the public. But ProPublica has obtained a trove of IRS records covering thousands of the wealthiest Americans. The records have enabled reporters this year to explore the diverse menu of options the tax code affords the ultrawealthy to avoid paying taxes.
The drafting of the Trump law offers a unique opportunity to examine how the billionaire class is able to shape the code to its advantage, building in new ways to sidestep taxes.
The Tax Cuts and Jobs Act was the biggest rewrite of the code in decades and arguably the most consequential legislative achievement of the one-term president. Crafted largely in secret by a handful of Trump administration officials and members of Congress, the bill was rushed through the legislative process.
As draft language of the bill made its way through Congress, lawmakers friendly to billionaires and their lobbyists were able to nip and tuck and stretch the bill to accommodate a variety of special groups. The flurry of midnight deals and last-minute insertions of language resulted in a vast redistribution of wealth into the pockets of a select set of families, siphoning away billions in tax revenue from the nation's coffers. This story is based on lobbying and campaign finance disclosures, Treasury Department emails and calendars obtained through a Freedom of Information Act lawsuit, and confidential tax records.
For those who benefited from the bill's modifications, the collective millions spent on campaign donations and lobbying were minuscule compared with locking in years of enormous tax savings.
A spokesperson for the Uihleins declined to comment. Representatives for Hendricks didn't respond to questions. In response to emailed questions, Johnson did not address whether he had discussed the expanded tax break with Hendricks or the Uihleins. Instead, he wrote in a statement that his advocacy was driven by his belief that the tax code “needs to be simplified and rationalized."
“My support for 'pass-through' entities — that represent over 90% of all businesses — was guided by the necessity to keep them competitive with C-corporations and had nothing to do with any donor or discussions with them," he wrote.
By the summer of 2017, it was clear that Trump's first major legislative initiative, to “repeal and replace" Obamacare, had gone up in flames, taking a marquee campaign promise with it. Looking for a win, the administration turned to tax reform.
“Getting closer and closer on the Tax Cut Bill. Shaping up even better than projected," Trump tweeted. “House and Senate working very hard and smart. End result will be not only important, but SPECIAL!"
At the top of the Republican wishlist was a deep tax cut for corporations. There was little doubt that such a cut would make it into the final legislation. But because of the complexity of the tax code, slashing the corporate tax rate doesn't actually affect most U.S. businesses.
Corporate taxes are paid by what are known in tax lingo as C corporations, which include large publicly traded firms like AT&T or Coca-Cola. Most businesses in the United States aren't C corporations, they're pass-throughs. The name comes from the fact that when one of these businesses makes money, the profits are not subject to corporate taxes. Instead, they “pass through" directly to the owners, who pay taxes on the profits on their personal returns. Unlike major shareholders in companies like Amazon, who can avoid taking income by not selling their stock, owners of successful pass-throughs typically can't avoid it.
Pass-throughs include the full gamut of American business, from small barbershops to law firms to, in the case of Uline, a packaging distributor with thousands of employees.
So alongside the corporate rate cut for the AT&Ts of the world, the Trump tax bill included a separate tax break for pass-through companies. For budgetary reasons, the tax break is not permanent, sunsetting after eight years.
Proponents touted it as boosting “small business" and “Main Street," and it's true that many small businesses got a modest tax break. But a recent study by Treasury economists found that the top 1% of Americans by income have reaped nearly 60% of the billions in tax savings created by the provision. And most of that amount went to the top 0.1%. That's because even though there are many small pass-through businesses, most of the pass-through profits in the country flow to the wealthy owners of a limited group of large companies.
Tax records show that in 2018, Bloomberg, whom Forbes ranks as the 20th wealthiest person in the world, got the largest known deduction from the new provision, slashing his tax bill by nearly $68 million. (When he briefly ran for president in 2020, Bloomberg's tax plan proposed ending the deduction, though his plan was generally friendlier to the wealthy than those of his rivals.) A spokesperson for Bloomberg declined to comment.
Johnson's intervention in November 2017 was designed to boost the bill's already generous tax break for pass-through companies. The bill had allowed for business owners to deduct up to 17.4% of their profits. Thanks to Johnson holding out, that figure was ultimately boosted to 20%.
That might seem like a small increase, but even a few extra percentage points can translate into tens of millions of dollars in extra deductions in one year alone for an ultrawealthy family.
The mechanics are complicated but, for the rich, it generally means that a business owner gets to keep an extra 7 cents on every dollar of profit. To understand the windfall, take the case of the Uihlein family.
Dick, the great-grandson of a beer magnate, and his wife, Liz, own and operate packaging giant Uline. The logo of the Pleasant Prairie, Wisconsin, firm is stamped on the bottom of countless paper bags. Uline produced nearly $1 billion in profits in 2018, according to ProPublica's analysis of tax records. Dick and Liz Uihlein, who own a majority of the company, reported more than $700 million in income that year. But they were able to slash what they owed the IRS with a $118 million deduction generated by the new tax break.
Liz Uihlein, who serves as president of Uline, has criticized high taxes in her company newsletter. The year before the tax overhaul, the couple gave generously to support Trump's 2016 presidential campaign. That same year, when Johnson faced long odds in his reelection bid against former Sen. Russ Feingold, the Uihleins gave more than $8 million to a series of political committees that blanketed the state with pro-Johnson and anti-Feingold ads. That blitz led the Milwaukee Journal Sentinel to dub the Uihleins “the Koch brothers of Wisconsin politics."
Johnson's campaign also got a boost from Hendricks, Wisconsin's richest woman and owner of roofing wholesaler ABC Supply Co. The Beloit-based billionaire has publicly pushed for tax breaks and said she wants to stop the U.S. from becoming “a socialistic ideological nation."
Hendricks has said Johnson won her over after she grilled him at a brunch meeting six years earlier. She gave about $12 million to a pair of political committees, the Reform America Fund and the Freedom Partners Action Fund, that bought ads attacking Feingold.
In the first year of the pass-through tax break, Hendricks got a $97 million deduction on income of $502 million. By reducing the income she owed taxes on, that deduction saved her around $36 million.
Even after Johnson won the expansion of the pass-through break in late 2017, the final text of the tax overhaul wasn't settled. A congressional conference committee had to iron out the differences between the Senate and House versions of the bill.
Sometime during this process, eight words that had been in neither the House nor the Senate bill were inserted: “applied without regard to the words 'engineering, architecture.'"
With that wonky bit of legalese, Congress smiled on the Bechtel clan.
The Bechtels' engineering and construction company is one of the largest and most politically connected private firms in the country. With surgical precision, the new language guaranteed the Bechtels a massive tax cut. In previous versions of the bill, construction would have been given a tax break, but engineering was one of the industries excluded from the pass-through deduction for reasons that remain murky.
When the bill, with its eight added words, took effect in 2018, three great-great-grandchildren of the company's founder, CEO Brendan Bechtel and his siblings Darren and Katherine, together netted deductions of $111 million on $679 million in income, tax records show.
And that's just one generation of Bechtels. The heirs' father, Riley, also holds a piece of the firm, as does a group of nonfamily executives and board members. In all, Bechtel Corporation produced around $2.3 billion of profit in 2018 alone — the vast majority of which appears to be eligible for the 20% deduction.
Who wrote the phrase — and which lawmaker inserted it — has been a much-discussed mystery in the tax policy world. ProPublica found that a lobbyist who worked for both Bechtel and an industry trade group has claimed credit for the alteration.
In the months leading up to the bill's passage in 2017, Bechtel had executed a full-court press in Washington, meeting with Trump administration officials and spending more than $1 million lobbying on tax issues.
Marc Gerson, of the Washington law firm Miller & Chevalier, was paid to lobby on the tax bill by both Bechtel and the American Council of Engineering Companies, of which Bechtel is a member. At a presentation for the trade group's members a few weeks after Trump signed the bill into law, Gerson credited his efforts for the pass-through tax break, calling it a “major legislative victory for the engineering industry." Gerson did not respond to a request for comment.
Bechtel's push was part of a long history of lobbying for tax breaks by the company. Two decades ago, it even hired a former IRS commissioner as part of a successful bid to get “engineering and architectural services" included in one of President George W. Bush's tax cuts.
The company's lobbying on the Trump tax bill, and the tax break it received, highlight a paradox at the core of Bechtel: The family has for years showered money on anti-tax candidates even though, as The New Yorker's Jane Mayer has written, Bechtel “owed almost its entire existence to government patronage." Most famous for being one of the companies that built the Hoover Dam, in recent years it has bid on and won marquee federal projects. Among them: a healthy share of the billions spent by American taxpayers to rebuild Iraq after the war. The firm recently moved its longtime headquarters from San Francisco to Reston, Virginia, a hub for federal contractors just outside the Beltway.
A spokesperson for Bechtel Corporation didn't respond to questions about the company's lobbying. The spokesperson, as well as a representative of the family's investment office, didn't respond to requests to accept questions about the family's tax records.
Brendan Bechtel has emerged this year as a vocal critic of President Joe Biden's proposal to pay for new infrastructure with tax hikes.
“It's unfair to ask business to shoulder or cover all the additional costs of this public infrastructure investment," he said on a recent CNBC appearance.
As the landmark tax overhaul sped through the legislative process, other prosperous groups of business owners worried they would be left out. With the help of lobbyists, and sometimes after direct contact with lawmakers, they, too, were invited into what Trump dubbed his “big, beautiful tax cut."
Among the biggest winners during the final push were real estate developers.
The Senate bill included a formula that restricted the size of the new deduction based on how much a pass-through business paid in wages. Congressional Republicans framed the provision as rewarding businesses that create jobs. In effect, it meant a highly profitable business with few employees — like a real estate developer — wouldn't be able to benefit much from the break.
Developers weren't happy. Several marshaled lobbyists and prodded friendly lawmakers to turn things around.
At least two of them turned to Johnson.
“Dear Ron," Ted Kellner, a Wisconsin developer, and a colleague wrote in a letter to Johnson. “I'm concerned that the goal of a fair, efficient and growth oriented tax overhaul will not be achieved, especially for private real estate pass-through entities."
Johnson forwarded the letter from Kellner, a political donor of his, to top Republicans in the House and Senate: “All, Yesterday, I received this letter from very smart and successful businessmen in Milwaukee," adding that the legislation as it stood gave pass-throughs “widely disparate, grossly unfair" treatment.
House Ways and Means Committee Chairman Kevin Brady, R-Texas, responded with a promise to do more: “Senator — I strongly agree we should continue to improve the pass-through provisions at every step. You are a great champion for this." Congress is not subject to the Freedom of Information Act, but Treasury officials were copied on the email exchange. ProPublica obtained the exchange after suing the Treasury Department.
Kellner got his wish. In the final days of the legislative process, real estate investors were given a side door to access the full deduction. Language was added to the final legislation that allowed them to qualify if they had a large portfolio of buildings, even if they had small payrolls.
With that, some of the richest real estate developers in the country were welcomed into the fold.
The tax records obtained by ProPublica show that one of the top real estate industry winners was Donald Bren, sole owner of the Southern California-based Irvine Company and one of the wealthiest developers in the United States.
In 2018 alone, Bren personally enjoyed a deduction of $22 million because of the tax break. Bren's representatives did not respond to emails and calls from ProPublica.
His company had hired Wes Coulam, a prominent Washington lobbyist with Ernst & Young, to advocate for its interests as the bill was being hammered out. Before Coulam became a lobbyist, he worked on Capitol Hill as a tax policy adviser for Utah Sen. Orrin Hatch.
Hatch, then the Republican chair of the Senate Finance Committee, publicly took credit for the final draft of the new deduction, amid questions about the real estate carveout. Hatch's representatives did not respond to questions from ProPublica about how the carveout was added.
ProPublica's records show that other big real estate winners include Adam Portnoy, head of commercial real estate giant the RMR Group, who got a $14 million deduction in 2018. Donald Sterling, the real estate developer and disgraced former owner of the Los Angeles Clippers, won an $11 million deduction. Representatives for Portnoy and Sterling did not respond to questions from ProPublica.
Another gift to the real estate industry in the bill was a tax deduction of up to 20% on dividends from real estate investment trusts, more commonly known as REITs. These companies are essentially bundles of various real estate assets, which investors can buy chunks of. REITs make money by collecting rent from tenants and interest from loans used to finance real estate deals.
The tax cut for these investment vehicles was pushed by both the Real Estate Roundtable, a trade group for the entire industry, and the National Association of Real Estate Investment Trusts. The latter, a trade group specifically for REITs, spent more than $5 million lobbying in Washington the year the tax bill was drafted, more than it had in any year in its history.
Steven Roth, the founder of Vornado Realty Trust, a prominent REIT, is a regular donor to both groups' political committees.
Roth had close ties to the Trump administration, including advising on infrastructure and doing business with Jared Kushner's family. He became one of the biggest winners from the REIT provision in the Trump tax law.
Roth earned more than $27 million in REIT dividends in the two years after the bill passed, potentially allowing him a tax deduction of about $5 million, tax records show. Roth did not respond to requests for comment, and his representatives did not accept questions from ProPublica on his behalf.
Another carveout benefited investors of publicly traded pipeline businesses. Sen. John Cornyn, a Texas Republican, added an amendment for them to the Senate version of the bill just before it was voted on.
Without his amendment, investors who made under a certain income would have received the deduction anyway, experts told ProPublica. But for higher-income investors, a slate of restrictions kicked in. In order to qualify, they would have needed the businesses they're invested in to pay out significant wages, and these oil and gas businesses, like real estate developers, typically do not.
Cornyn's amendment cleared the way.
The trade group for these companies and one of its top members, Enterprise Products Partners, a Houston-based natural gas and crude oil pipeline company, had both lobbied on the bill. Enterprise was founded by Dan Duncan, who died in 2010.
The Trump tax bill delivered a win to Duncan's heirs. ProPublica's data shows his four children, who own stakes in the company, together claimed more than $150 million in deductions in 2018 alone. The tax provision for “small businesses" had delivered a windfall to the family Forbes ranked as the 11th richest in the country.
In a statement, an Enterprise spokesperson wrote: “The Duncan family abides by all applicable tax laws and will not comment on individual tax returns, which are a private matter." Cornyn's office did not respond to questions about the senator's amendment.
The tax break is due to expire after 2025, and a gulf has opened in Congress about the future of the provision.
In July, Senate Finance Chair Ron Wyden, D-Ore., proposed legislation that would end the tax cut early for the ultrawealthy. In fact, anyone making over $500,000 per year would no longer get the deduction. But it would be extended to the business owners below that threshold who are currently excluded because of their industry. The bill would “make the policy more fair and less complex for middle-class business owners, while also raising billions for priorities like child care, education, and health care," Wyden said in a statement.
Meanwhile, dozens of trade groups, including the Chamber of Commerce, are pushing to make the pass-through tax cut permanent. This year, a bipartisan bill called the Main Street Tax Certainty Act was introduced in both houses of Congress to do just that.
One of the bill's sponsors, Rep. Henry Cuellar, D-Texas, pitched the legislation this way: “I am committed to delivering critical relief for our nation's small businesses and the communities they serve."
