Peter Schweizer - Throw Them All Out

Milker bills are often introduced in the area of taxes, says McChesney. Members of Congress threaten to impose a new tax and then withdraw the bill after campaign contributions flow in. Of course, the contributions were the point in the first place.

In the summer of 2006, Senate Majority Leader Harry Reid announced that he wanted a tax hike on hedge funds. At the time those funds were taxed at the capital gains rate of 15%. Reid declared that Democrats would put at the top of their agenda taxing hedge fund profits as regular income rather than as capital gains, meaning rates of 25% or higher. So they began working on legislation.

In late January 2007, shortly after the Democrats had captured both houses of Congress, Senator Charles Schumer sat down to dinner with a number of top hedge fund managers at Bottega del Vino in Manhattan. The net worth of the managers at the table totaled more than $100 billion. As the New York Times recounted, hedge funds up to this point had spent very little money on lobbying and campaign contributions. They were quite content to be left alone by Washington. But Schumer, who headed the Democratic Senatorial Campaign Committee, wanted to change that. And with the threat of a tax increase, suddenly the hedge funds became very generous. According to the Federal Election Commission, over the course of the next eighteen months, hedge funds dumped nearly $12 million into campaign accounts—with 83% of the money going to Democrats. John Paulson, one of the most successful hedge fund managers, held fundraisers for the Democratic Senatorial Campaign Committee. James Simons, a hedge fund manager who made $1.7 billion in 2006 alone, donated $28,500 to the DSCC, and Schumer raked in $150,000 for his campaign chest. Bain Capital and Thomas H. Lee Partners, both Boston-based investment houses with hedge funds, gave generously to Senator John Kerry.

PAY UP, OR ELSE

The political class also profited indirectly, because the hedge funds hired lobbyists, often the friends and former aides of politicians, to fight the bill. The Blackstone Group, which manages a huge hedge fund, had previously spent $250,000 a year on lobbying. Now Blackstone hired a number of Democratic Party lobbyists, including Schumer's former staff counsel, and spent more than $5 million on lobbying in 2007 alone. The Managed Funds Association, a lobbying group for hedge funds, also hired Democratic Party lobbyists, including a firm that employed Schumer's former aide for banking issues. Overall, dozens of former Democratic congressional staffers were hired with lucrative contracts to fight the bill.

Then, in the late fall of 2007, Senator Reid and his colleagues suddenly changed their tune. The Senate schedule, it seemed, was just too crowded to deal with the issue. The threat of a tax increase for hedge funds was withdrawn.

Politicians are so good at throwing their weight around that the banking industry had to lobby for legislation that would prohibit banks from lending to congressional candidates during election time. Why would they do that? Presumably out of fear that politicians would pressure them for special deals.

In our system of government, the legislative branch polices itself and the President is allowed to skirt conflict of interest laws because, well, he's the president. It is time for that to change.

Government is a trust, and the officers of the government are trustees, and the both, the trust and the trustees, are created for the benefit of the people.

—HENRY CLAY

THERE'S A STORY about a politician who returns from Washington to his home district to run for reelection. When his constituents learn that he is not yet a millionaire, they promptly vote him out of office. He must be stupid.

There seems to be only one sure-fire way to prevent the Permanent Political Class from getting drummed out of power: maintain extremely low standards. We have come to accept minor indiscretions, financial malfeasance, and profiteering on the taxpayer dime as regular occurrences. And as those indiscretions and crimes (for the rest of us) mount up and become more common, we become even more tolerant of them. The standards become lower still. To steal a phrase from the late Senator Daniel Patrick Moynihan (on a different subject), we have defined deviancy down in Washington. The quality of our leadership is so low because we expect so little.

The political class is able to exploit honest graft because they have been given a position of privilege and power, and they work very hard to persuade us that their well-being is necessary for our well-being. They work very hard to persuade us that they, and only they, are capable of "running" the country, or "managing" the economy. This, of course, is the classic appeal of the con: I may be a rogue, but I'm indispensable. George Washington Plunkitt made a similar appeal for Tammany Hall. Without the political machine in place, he warned, "it would mean chaos. It would be just like takin' a lot of dry-goods clerks and settin' them to run express trains." 1

At the root of the Permanent Political Class is a profound sense of arrogance. A good military commander should never consider himself to be irreplaceable, but many politicians in Washington believe precisely that of themselves. It is an ugly form of elitism, less overt than what we would see from the royalty of Europe in the seventeenth and eighteenth centuries, when the Sun King could proclaim, "I am the state." The modern, subtler version of this arrogance is the politician's belief that if we restrict his ability to engage in legal graft, the nation will suffer, because we won't be able to attract bright people (like them!) to run the country.

Over the past forty years we have been governed by the best-educated political class in our history. Today, debts mount, the financial markets are in turmoil, the economy is in terrible shape—and the Washington games continue. The problem is not a lack of smart people in Washington. There is no "smart gap." There is, however, a "character gap." Like the financial crisis on Wall Street, the root of the problem is not ignorance but arrogance.

The Permanent Political Class tells us: We need them. Only they can dissect the entrails of the latest bill or understand the complexities of financial reform. They are making so many sacrifices on our behalf, they say. They are smart and well educated and could be making a lot more money somewhere else, they claim. We should tolerate a little honest graft on the side, or the occasional financial indiscretion, like failing to report income on their tax returns.

Yet, of course, the political class is hardly the only group of people in the country making a sacrifice for public service. Our soldiers are underpaid. Those who enter West Point, the Air Force Academy, or Annapolis, or those who go through ROTC at a rigorous school, are just as smart. They certainly could be doing something else with their time. They choose the armed forces as an act of service; they are not looking to get rich as officers. Enlisted soldiers are not looking to cash in by joining the infantry. In the military they will never earn anything close to what they might earn in the private sector. And many of our best leaders over the last century or more have come out of our armed services. These are individuals who could have been running large corporations or institutions for far more money. Two-, three-, and four-star generals make less than a freshman member of Congress, even though they may be responsible for the safety and operation of more than 100,000 troops. If today we had a five-star general like Dwight Eisenhower—and we don't—he would still be paid less than a freshman congressman. 2And yet it is impossible to imagine that the military brass would ever argue that they deserve to make a little "on the side" as indirect compensation for their service.