Free Lunch, How the Wealthiest Americans Enrich Themselves at Government Expense (and Stick You with the Bill) by David Cay Johnston documents many of the ways that politicians and business owners collude to transfer massive amounts of tax revenues into the pockets of these business owners. Johnston is a reporter at the NYT and his beat is tax policy. Much of what he writes about here is derived from this NYT reporting. I often think of him as being one of the last best reasons to read that paper.
Johnston begins by talking about the fundamental shift in a major part of US economic policy — since the end of WWII policy was oriented to grow and support a middle class. In 1980, Ronald Reagan became President with the promise of re-orienting economic policy to the support of “free markets” with , of course, the benefits trickling down to everyone else. As Johnston documents in case after case, the “free market” is one of the first things that politicians and these business owners seek to restrain via extraordinary subsides (consisting of taxpayer dollars) to these business owners. As a result, taxpayers now shoulder much of the business risk incurred by business owners without getting much of the benefit. And the effort to socialize business risk while privatizing business profits is a wholly bi-partisan affair – both Democrats and Republicans have been all too eager to transfer your tax dollars to their business interests.
One of the (now) famous stories here is how Cabela’s got the town of Hamburg, PA to pony up for its new store: “The tribute Cabela’s demanded from Hamburg [Pennsylvania] amounted to roughly $8,000 for each man, woman, and child in town.” In return, the town fathers helped put a local hunting goods store out of business (one who used a Cabela’s catalog on his counter to show how his customers were getting a better deal); and never got anywhere near an even return on its investment. Johnson notes that between 2004 and 2006, Cabela’s profits were $223.4 million, but collected about $293.7 million in subsidies, more than its reported profits. And while Cabela’s balance sheets look great, the local governments handing over the cash that accomplishes this are starving their libraries, their schools, their first responders.
Each chapter in the book goes into detail on a single scheme: the sham of Title Insurance; ENRON and their manipulation of the electric markets; the use of eminent domain to transfer land and its value to wealthy businesses (here he provides a great breakdown showing that the entire value of the Rangers by the time Bush sold them is due to the tax breaks and subsidies received); sports stadiums (George Steinbrenner has gotten $655M and counting for the new Yankees venue) and many others.
He even goes into the story of Magnequench – and how the Chinese got neodymium magnet (crucial magnet technology used in guided missiles) research and manufacture moved completely out of the United States. This is a company that Hillary Clinton famously has run an ad denouncing the closure of the plant. Johnston notes that this plant was able to move to China with the help of the Bill Clinton administration – as David Sirota documents recently.
Johnston’s tone here is certainly not one he could get away with in the pages of the NYT – you can tell that he is more than a little outraged and the writing here takes a moral tone. This seems appropriate, though, when the subject is how the government rewrites the principles of Adam Smith to suit the lobbyists of the wealthiest businesses and individuals in the US.
Free Lunch is another great read for this campaign season – the better to decode the campaign promises with. You won’t hear another politician extolling the free market on behalf of some interest group in the same way ever again. And you’ll likely recognize a tactic or two being implemented right here in the McDowell/SEU scam.