If you believe Bruce had no idea Stu Levine was getting paid off and no idea what Stu Levine was doing with that money, I guess it’s no surprise that he’s not exactly sure where his losses came from. That doesn’t translate well into transforming the financial woes of Illinois.
By Jeff Coen and Bob Secter, Tribune reporters
12:04 AM CDT, July 2, 2014
IRS data show Bruce Rauner to be one of the 11,000 richest tax filers in the nation, but most of the millions he made in recent years was taxed at 15 percent — less than half the top federal rate for the wealthy, a review of tax documents released by the GOP governor hopeful shows.
One reason behind that sharp discount is that Rauner took advantage of a strategy that yielded big tax savings on his share of investment fees paid to his private equity firm, GTCR. That strategy is allowed under tax rules but has come under IRS scrutiny.
An analysis of the limited records Rauner has released, conducted by the Tribune in consultation with tax experts, gives the fullest picture yet of the steps he took to trim his tax bill. In ways both big and small, the Republican businessman’s financial profile is one driven by tax-reducing strategies often out of reach for those of more modest means:
•Rauner’s campaign is built around his resounding success at the helm of GTCR, through which he earned millions of dollars a year. But a major portion of that money was reported to the IRS as capital gains taxed at a preferential 15 percent, including money from so-called management fee waivers used by many private equity firms to reduce tax bills for key partners.
•For three years, Rauner reported little regular business income, the tax category that includes partnership earnings and is subject to a top tax rate of 35 percent. Instead he claimed losses of $3.1 million in 2011 and $12.7 million the year before.
•Complicated tax rules related to those business income losses freed Rauner from paying any Social Security or Medicare taxes in 2010 and 2011, despite his reporting healthy earnings in other income categories and listing a combined adjusted gross income for those years of about $55 million.
•In 2012, Rauner claimed an additional $53 million in adjusted gross income, bringing his total for three years to $108 million and easily placing him in the top federal tax bracket of 35 percent then in effect. Tax breaks, however, reduced his effective tax rate for those years to slightly more than 19 percent, about the same rate paid by Democratic Gov. Pat Quinn, whom Rauner is trying to unseat.
Rauner’s combined federal tax bill was $20.7 million from 2010 through 2012. Quinn’s, according to his tax returns for those years, totaled about $106,600 on income of about $568,000, giving the governor an effective tax rate of 18.8 percent.
Likely the wealthiest office seeker in Illinois history, Rauner has used more than $6 million of a personal fortune he pegs at more than $500 million to substantially bankroll his campaign for governor. Yet Rauner has offered voters only a narrow glimpse into his personal finances, releasing three years of basic tax forms without the kind of detailed, supporting documentation such as schedules that many other candidates often make public.
Experts say the limited nature of his tax disclosure makes it difficult to draw a complete financial picture of Rauner, and the candidate himself has been reluctant to fill in many of the gaps.
In a Tribune interview focused on his taxes, Rauner said his returns “very carefully” adhered to the tax code and that he paid everything owed. At the same time, he said he could not recall some details surrounding losses he claimed and deductions he took.
“My income is based upon a whole lot of things. It’s capital gains through carried interest. It’s through management fees I get across all the funds,” said Rauner, who characterized his earnings as “lumpy” because they fluctuated widely from year to year.
“I’ve been a very large owner in every GTCR fund over 32 years. I also have other personal investments, some of which generate ordinary income of various types, some of which generate capital gains, some of which generate interest income,” Rauner said. “Breaking apart all that detail is hard to do.”
Central to Rauner’s campaign is his financial success, which he argues is proof of the kind of leadership savvy needed to turn around a financially ailing state. But that approach comes against the backdrop of a broad national argument over the meaning of an ever-widening gap between incomes of the wealthy that keep growing and those of the middle class that have been stagnant for years.
That debate led to political headaches in 2012 for former Massachusetts Gov. Mitt Romney, then the Republican presidential nominee.
And there are significant parallels between Romney and Rauner, both of whom made fortunes at the helm of private equity firms. During his campaign, Romney released two years worth of voluminous tax returns that provided considerable fodder for critics who argued that he took ample advantage of tax code loopholes favoring the wealthy.
While Romney released more than 700 pages of returns and schedules, Rauner’s financial disclosures have been much less extensive.
The campaign of the Illinois Republican has released copies of the two-page 1040 tax forms filed jointly by Rauner and his wife, Diana, for 2010, 2011 and 2012without any accompanying documents. The candidate sought an extension on filing his 2013 tax returns and has yet to submit them, a spokesman said.
In 2012, the intense focus on Romney’s wealth and taxes spilled over into the business practices of his old firm, Bain Capital, which was found to have engaged in the same sort of fee waivers that have helped Rauner lower his taxes. Since then, the practice has attracted the attention of the IRS, with a top attorney for the tax agency disclosing at a legal conference in Chicago last year that it has begun looking into the broad use of the strategy across the private equity industry.
“We don’t like what we see in all cases,” the IRS attorney, Clifford Warren, was quoted as saying by several tax industry trade publications.
Experts say most large private equity firms have employed the strategy, some more aggressively than others.
Private equity firms make money for their partners in a variety of ways. Most, including GTCR, take a 20 percent cut of earnings from the large investment pools they oversee — revenue referred to as “carried interest” but treated as preferentially taxed capital gains. To encourage investment, federal tax law has long conferred special low tax rates on such investment profits.
Another lucrative source of equity firm revenue is management fees, essentially charges for the service of overseeing investments. Most equity firms levy a 2 percent annual charge on the assets they manage for clients, but Rauner has said the GTCR charge is 1.5 percent.
Service fees charged by most professionals, be they money managers or plumbers, are typically considered regular income and subject to taxation at the top of whatever tax bracket the individual qualifies for under the federal progressive tax system, tax experts said. In Rauner’s case, that was 35 percent through 2012.
At its core, the fee waiver strategy is an accounting maneuver that blurs the line between management fees charged by equity firms like GTCR to manage funds for investors and profits generated by the firms’ investments in the funds they manage.
In short, equity firms technically waive collecting on millions of dollars of management fees they are owed, but that hardly means they forgo the value of those fees. Instead, that gets reflected as a stake in the very investments they manage.
When the investment fund turns a profit, often within months, the equity firm receives the cash value of the waived fees and distributes that among its partners.
All that maneuvering might sound esoteric, but it carries profound tax consequences. Tax rates changed in 2013, but before that it meant the difference between paying a 35 percent rate on fee income or a 15 percent rate on investment income.
Put another way, for every $10 million in management fees an equity firm waived, it could save its partners $2 million in taxes.
“It’s a technique that is entirely tax-driven,” said Victor Fleischer, a professor who teaches tax law at the University of San Diego and has written extensively about fee waivers. “There’s no business motivation behind it.”
Brian Krob, a corporate lawyer for the Chicago firm of Ungaretti & Harris, said equity firms began charging management fees years ago to cover administrative costs of overseeing huge pools of money. But as the industry exploded in size a decade ago, he said, the income from fees greatly outpaced the costs of running the funds.
With that, the fees became profit centers in their own right for equity firms, which quickly began devising creative ways to minimize the tax consequences, Krob said.
For years, Rauner said, GTCR had relied on a traditional fee structure as it organized a series of investment funds. Clients paid management fees to GTCR, which then distributed the money among Rauner and his partners, who then were taxed on that income at top rates, he said.
That changed in 2009, he recalled, when the firm was organizing a new investment pool, known by Roman numeral as Fund X, that grew to more than $3.7 billion. At that size, the fund could generate more than $56 million annually in management fees for GTCR.
This time the partners opted to forgo taking fees in cash and instead use fee waivers, Rauner recalled, adding that he was hesitant about the strategy but acquiesced to the wishes of other partners. For one thing, he said, the approach required more paperwork.
Rauner said tax consequences were only one of many considerations weighed. “The tax element is one of the factors,” he said. “It’s all about trading off less certainty for more upside. If you really, really hit it out of the park you can make more money from carried interest just from raw performance. But there’s less certainty to it.”
Critics, however, contend the strategy involves little risk because equity firms like GTCR, as managers of the investment pools, can be paid the cash value of fees as soon as there is a profit.
“It’s a total tax game. There is no nontax reason for it,” said Gregg Polsky, formerly a professor in residence at the IRS who now teaches at the University of North Carolina School of Law. “In reality, everyone knows that. It creates the appearance of risk to try and get a tax result.”
Polsky said equity firms are at the controls of the investment funds they manage. He said the only scenario that could prevent them from recouping waived fee revenue is if a fund lost money from start to finish without a single profitable quarter.
“If hell freezes over, they might not get their 2 percent, but that’s not going to happen,” Polsky said.
Rebecca Wilkins, an expert on fee waivers with the Washington-based Citizens for Tax Justice, said the maneuver gives private equity partners a tax edge over even CEOs of Fortune 500 companies. Those executives, she noted, may be paid millions of dollars in salary, bonuses and stock options, but those are earnings on which they typically are taxed at the highest rates.
“By taking their compensation in this way, they are avoiding ordinary income tax rates, which were 35 percent at the time, plus Social Security and Medicare taxes,” she said.
For most wage earners, those so-called payroll taxes are deducted directly from paychecks. But Rauner said he hasn’t taken a regular salary since the early 1980s.
For business executives like Rauner, the IRS provides an alternative method for paying Social Security and Medicare taxes called the self-employment tax.
Rauner’s tax returns report a payment of $15,777 of self-employment tax in 2012 but no payments in 2010 or 2011. He said he and his wife didn’t owe the tax in those two years because it is applied to only certain types of income — in his case the category that showed multimillion-dollar losses in regular business income.
That is not to say that Rauner did not report making millions of dollars off GTCR and other enterprises, but his tax returns spread it among a variety of income categories and it is impossible to determine why he declared such big losses in one of those without the supporting tax documents Rauner declines to release.
Asked to explain those losses, Rauner said he couldn’t recall details but speculated that a portion was likely connected with large ranching operations he owns in Montana and Wyoming. “Some of it’s farm and ranch income or losses,” he said. “That goes up and down year to year. Some of it’s operating losses from other investments that I have made.”
Despite owing no payroll taxes for two years, Rauner at the same time did remit what are known as household employment taxes, his returns show. Those are tax withholdings deducted from the pay of two personal assistants to cover their Social Security and Medicare taxes, among other things.
Rauner said he would not be releasing additional tax documents beyond the 1040s he had made public. The experts consulted by the Tribune said such broader disclosure would almost certainly shed light on the business losses he claimed as well as other strategies used to minimize Rauner’s tax bill.
“Obviously, in virtually every year the vast bulk of my income is capital gains, because that’s where my assets go, to purchase equities, ownership in both business and real estate,” Rauner said.
He said his returns show large variations from year to year in interest income, self-employment income and other categories.
“Some of those categories of income are susceptible or part of the Social Security, Medicare taxation system and some of those sources of income are not. But some of those sources of income are positive in some years and losses in some years. That’s just the nature of the business.”
Copyright © 2014 Chicago Tribune Company, LLC
Having been accused repeatedly of being a mindless fanboy/shill for our lame duck President, I decided to take 30 seconds away from my normal focus: upcoming elections (not re-fighting elections already won, but, hey, if the Prez is such a big stupid head why did you lose to him twice, wingnuts? Cuz we Dems are so so much dumber we didn’t see the golden opportunity for electing two GOP nominees that were pretty well disliked by their own party HOW COULD WE NOT SEE THE APPEAL WE SO SO DUMB MINDLESS LIBTARD PEOPLE!!!!!!!) so here you go, wingnuts. Eat it.
Fri Jun 27, 2014 at 10:36 AM PDT
I’ve been wanting to visit a place where all the women are strong and the men are good-looking, and the children above average. (Applause.) And this clearly is an example of what Minnesota produces. So yesterday, Rebekah and I had lunch at Matt’s Bar, had a “Jucy Lucy” — (applause) — which was quite tasty. We had a town hall at Minnehaha Park, although I did not take a kayak over the falls, which seemed dangerous. (Laughter.) We got ice cream at Grand Ole Creamery — very good, very tasty.
And then this morning, Al Franken and I and Secretary Tom Perez, our Secretary of Labor who’s here — Tom, stand up — (applause) — we stopped by a community organization that helps with a lot of job programs and job placement programs. And this program in particular was focused on young moms. It was really interesting talking to them, because there are teenage mothers, 16 to 18, and it was a great pleasure for me to be able to say to all of them that my mom was a teenage mom, and she was 18 when she had me — and to be able to say to all of them that here in this country, it is possible for the child of a teenage mom, a single mom, to end up being President of the United States. (Applause.) And I think that it maybe gave them something to think about.
So you guys have been great hosts, Minnesota.
AUDIENCE MEMBER: Thank you!
THE PRESIDENT: You’re welcome. (Laughter.)
AUDIENCE MEMBER: We love you!
THE PRESIDENT: I love you back. (Laughter and applause.)
So I want to give you a sense of how this visit came up. As some of you know, every day we get tens of thousands of correspondence at the White House. And we have a big correspondence office, and every night the folks who manage the correspondence office select 10 letters for me to read.
And the job of these letters is not to just puff me up — so it’s not like they only send me letters saying, Mr. President, you’re doing great. (Laughter.) Sometimes the letters say thank you for something I may have done. Sometimes the letters say, you are an idiot and the worst President ever. (Laughter.) And most of the stories, though, are stories of hardship, or hard-won success, or hopes that haven’t been met yet. Some appreciate a position that I may have taken; some disagree with what I’m doing. Some consider policies like the Affordable Care Act to be socialism; some tell stories about the difference that same policy may have made in folks’ lives.
So I’m getting a good sample of what’s happening around the country. And last month, three young girls wrote to me that boys aren’t fair because they don’t pass the ball in gym class. (Laughter.) So there’s a wide spectrum — and I’m going to prepare an executive order on that.
But the letter that Rebekah sent stood out — first of all, because she’s a good writer, and also because she’s a good person. And the story that she told me reminded Michelle and I of some of our own experiences when we were Rebekah and her husband’s age. And in many ways, her story for the past five years is our story, it’s the American story.
In early 2009, Rebekah and Ben, her husband, they were newly married, expecting their first son, Jack. She was waiting tables, he was in construction. Like millions of middle-class families who got hammered by the Great Recession — the worst recession since the Great Depression — life was about to get pretty hard. “If only we had known,” she wrote, “what was about to happen to the housing and construction market.”
Ben’s business dried up. But as a new husband and dad, he did what he had to, so he took whatever jobs he could, even if it forced him to be away from his family for days at a time. Rebekah realized she needed to think about how her career would unfold, so she took out student loans and enrolled in St. Paul College, and retrained for a new career as an accountant.
And it’s been a long, hard road for them. They had to pay off debt. They had to sacrifice for their kids and for one another. But then last year, they were able to buy their first home, and they’ve got a second son. And they love where they work, and Ben’s new job lets him be home for dinner each night. (Applause.) And so what Rebekah wrote was, “It’s amazing what you can bounce back from when you have to. We’re a strong, tight-knit family who has made it through some very, very hard times.”
And that describes the American people. We, too, are a strong, tight-knit family who has made it through some very, very hard times. And today, over the past 51 months, our businesses have created 9.4 million new jobs. Our housing market is rebounding. Our auto industry is booming. Our manufacturing sector is adding jobs for the first time since the 1990s. We’ve made our tax code fairer. We’ve cut our deficits by more than half. More than 8 million Americans have signed up for private insurance plans through the Affordable Care Act. (Applause.) So here in Minnesota, you can now say that the women are strong, the men are good-looking, the children are above average, and 95 percent of you are insured. (Applause.)
And it’s thanks to the hard work of citizens like Rebekah and Ben and so many of you that we’ve come farther, we’ve recovered faster than just about any other advanced economy on Earth. More and more companies are deciding that the world’s number-one place to create jobs and invest is once again the United States of America. (Applause.) That’s the good news. And you don’t hear it very often.
By every economic measure, we are better off now than we were when I took office. (Applause.) You wouldn’t know it, but we are. We’ve made some enormous strides. But that’s not the end of the story. We have more work to do.
It wasn’t the end of Rebekah’s story, because she went on to write in her letter, “We did everything right. The truth is, in America, where two people have done everything they can to succeed and fight back from the brink of financial ruin -– through job loss and retraining, and kids, and credit card debts that are set up to keep you impoverished forever, and the discipline to stop spending any money on yourselves or take a vacation in five years — it’s virtually impossible to live a simple middle-class life.” That’s what Rebekah wrote. Because their income is eaten up by childcare for Jack and Henry that costs more each month than their mortgage. And as I was telling Rebekah — Michelle and I, when we were their age, we had good jobs and we still had to deal with childcare issues and couldn’t figure out how to some months make ends meet.
They forego vacations so they can afford to pay off student loans and save for retirement. “Our big splurge,” Rebekah wrote, “is cable TV, so we can follow our beloved Minnesota Wild, and watch Team USA in the Olympics!” (Applause.) They go out once a week for pizza or a burger. But they’re not splurging. And at the end of the month, things are tight. And this is like this wonderful young couple, with these wonderful kids, who are really working hard.
And the point is, all across this country, there are people just like that, all in this audience. You’re working hard, you’re doing everything right. You believe in the American Dream. You’re not trying to get fabulously wealthy. You just want a chance to build a decent life for yourselves and your families, but sometimes it feels like the odds are rigged against you.
And I think sometimes what it takes for somebody like Rebekah to sit down and write one of these letters. And I believe that even when it’s heartbreaking and it’s hard, every single one of those letters is by definition an act of hope.
Because it’s a hope that the system can listen, that somebody is going to hear you; that even when Washington sometimes seems tone deaf to what’s going on in people’s lives and around kitchen tables, that there’s going to be somebody who’s going to stand up for you and your family.
And that’s why I’m here — because I want to let Rebekah know, and I wanted to let all of you know that — because you don’t see it on TV sometimes. It’s not what the press and the pundits talk about. I’m here to tell you I’m listening, because you’re the reason I ran for President. (Applause.) Because those stories are stories I’ve lived. The same way that when I saw those young teenage moms, I thought of my mother. And when I see Rebekah and Ben, I think of our struggles when Malia and Sasha were young. And they’re not distant from me and everything we do.
I ran for President because I believe this country is at its best when we’re all in it together and when everybody has a fair shot, and everybody is doing their fair share. (Applause.) And the reason I believe that is because that’s how I came here. That’s how I got here. That’s how Michelle and I were able to succeed. (Applause.) And I haven’t forgotten.
And so even though you may not read about it or see it on TV all the time, our agenda, what we’re fighting for every day, is designed not to solve every problem, but to help just a little bit. To create more good jobs that pay good wages — jobs in manufacturing and construction; energy and innovation. That’s why we’re fighting to train more workers to fill those jobs. That’s why we’re fighting to guarantee every child a world-class education, including early childhood education and better childcare. (Applause.) That’s why we’re fighting to make sure hard work pays off with a wage you can live on and savings you can retire on, and making sure that women get paid the same as men for the same job, and folks have flexibility to look after a sick child or a sick parent. (Applause.)
That’s what we’re fighting for. We’re fighting so everybody has a chance. We’re fighting to vindicate the idea that no matter who you are, or what you look like, or how you grew up, or who you love, or who your parents were, or what your last name is, it doesn’t matter — America is a place where if you’re doing the right thing, like Ben and Rebekah are, and you’re being responsible and you’re taking care of your family, that you can make it.
And the fact is, we can do that. If we do some basic things, if we make some basic changes, we can create more jobs and lift more incomes and strengthen the middle class. And that’s what we should be doing. And I know it drives you nuts that Washington isn’t doing it. And it drives me nuts. (Applause.) And the reason it’s not getting done is, today, even basic commonsense ideas can’t get through this Congress.
And sometimes I’m supposed to be politic about how I say things — (laughter) — but I’m finding lately that I just want to say what’s on my mind. (Applause.) So let me just be clear — I want you think about this — so far this year, Republicans in Congress have blocked or voted down every single serious idea to strengthen the middle class. You may think I’m exaggerating, but let me go through the list. They’ve said no to raising the minimum wage. They’ve said no to fair pay. Some of them have denied that there’s even a problem, despite the fact that women are getting paid 77 cents for every dollar a man is getting paid.
They’ve said no to extending unemployment insurance for more than three million Americans who are out there looking every single day for a new job, despite the fact that we know it would be good not just for those families who are working hard to try to get back on their feet, but for the economy as a whole. Rather than invest in working families getting ahead, they actually voted to give another massive tax cut to the wealthiest Americans.
AUDIENCE: Booo —
THE PRESIDENT: Don’t boo, by the way. I want you to vote. (Laughter and applause.) I mean, over and over again, they show that they’ll do anything to keep in place systems that really help folks at the top but don’t help you. And they don’t seem to mind. And their obstruction is keeping a system that is rigged against families like Ben’s and Rebekah’s.
Now, I’m not saying these are all bad people; they’re not. When I’m sitting there just talking to them about family, we get along just fine. Many of them will acknowledge when I talk to them — yes, I know, I wish we could do something more, but I can’t — but they can’t be too friendly towards me because they’d be run out of town by the tea party. (Laughter.)
But sometimes I get a sense they just don’t know what most folks are going through. They keep on offering a theory of the economy that time and again failed for the middle class. They think we should give more tax breaks to those at the top. They think we should invest less in things like education. They think we should let big banks, and credit card companies, and polluters, and insurers do only whatever is best for their bottom line without any responsibility to anybody else. They want to drastically reduce or get rid of the safety net for people trying to work their way into the middle class.
And if we did all these things, they think the economy will thrive and jobs will prosper, and everything will trickle down.
And just because they believe it, it doesn’t mean the rest of us should be believing it — because we’ve tried what they’re peddling, and it doesn’t work. We know from our history that our economy does not grow from the top down, it grows from the middle out. We do better when the middle class does better. We do better when workers are getting a decent salary. We do better when they’ve got decent benefits. (Applause.) We do better when a young family knows that they can get ahead. And we do better when people who are working hard know that they can count on decent childcare at an affordable cost, and that if they get sick they’re not going to lose their homes.
We do better when if somebody is stuck in a job that is not paying well enough, they know they can go get retrained without taking on huge mountains of debt. That’s when things hum. And with just a few changes in priorities, we could get a lot of that done right now if Congress would actually just think about you and not about getting reelected, not about the next election, not about some media sound bite, but just focus on you. (Applause.)
So that’s why I’ve said, look, I want to work with Democrats and Republicans. My favorite President, by the way, was the first Republican President — a guy named Abraham Lincoln. So this is not a statement about partisanship. This is a statement about America and what we’re fighting for. And I’m not going to let gridlock and inaction and willful indifference and greed threaten the hard work of families like yours. And so we can’t afford to wait for Congress right now. And that’s why I’m going ahead and moving ahead without them wherever I can. (Applause.)
That’s why I acted to raise more workers’ wages by requiring federal contractors to pay their employees a fair wage of at least $10.10 an hour. (Applause.) That’s why I acted to help nearly five million Americans make student loan payments cap those payments at 10 percent of their income. That’s why I made sure more women have the protections they need to fight for fair pay in the workplace. (Applause.) That’s why we went ahead and launched new hubs to attract more high-tech manufacturing jobs to America.
And, now, some of you may have read — so we take these actions and then now Republicans are mad at me for taking these actions. They’re not doing anything, and then they’re mad that I’m doing something. I’m not sure which of the things I’ve done they find most offensive, but they’ve decided they’re going to sue me for doing my job. I mean, I might have said in the heat of the moment during one of these debates, “I want to raise the minimum wage, so sue me when I do.” (Laughter.) But I didn’t think they were going to take it literally.
But giving more working Americans a fair shot is not about simply what I can do — it’s about what we can do together. So when Congress doesn’t act, not only have I acted, I’ve also tried to rally others to help. I told CEOs, and governors, and mayors, and state legislatures, for example, they don’t have to wait for Congress to raise the minimum wage. Go ahead and raise your workers’ wages right now. And since I first asked Congress to raise the minimum wage, 13 states and D.C. have raised theirs, including Minnesota, where more than 450,000 of your neighbors are poised to get a raise. (Applause.)
When Gap raised wages for its employees, job applications went up through the roof. It was good for business. I even got a letter from a proud mom right here in Minneapolis who just wanted me to know that her son starts his employees at $15 an hour, at Aaron’s Green Cleaning here in town. (Applause.) There they are! (Applause.) So the letter said, “We are very proud of his people-centered business philosophy! Three cheers for a decent living wage!”
So we don’t have to wait for Congress to do some good stuff. On Monday, we held the first-ever White House Summit on Working Families, and we heard from a lot of other families like Ben and Rebekah. They count on policies like paid leave and workplace flexibility to juggle everything. We had business owners who came and told me they became more profitable when they made family life easier for their employees.
So more companies are deciding that higher wages and workplace flexibility is good for business — it reduces turnover, more productive workers, more loyal workers. More cities and states are deciding this is good policy for families. So the only holdout standing in the way of change for tens of millions of Americans are some Republicans in Congress.
Because I just want to be real blunt: If you watch the news, you just see, okay, Washington is a mess, and the basic attitude is everybody is just crazy up there. But if you actually read the fine print, it turns out that the things you care about right now Democrats are promoting. (Applause.) And we’re just not getting enough help.
And my message to Republicans is: Join us. Get on board. If you’re mad at me for helping people on my own, then why don’t you join me and we’ll do it together? (Applause.) We’ll do it together. I’m happy to share the credit. You’re mad at me for doing some things to raise the minimum wage, let’s pass a law — Republicans and Democrats giving America a raise.
If you’re mad at me for taking executive action to make it easier for women to find out if they’re not getting treated fairly in the workplace, let’s do it together. You can share the credit. (Applause.) You’re worried about me trying to fix a broken immigration system, let’s hold hands and go ahead and make sure that this country continues to be a nation of laws and a nation of immigrants. I want to work with you, but you’ve got to give me something. You’ve got to try to deliver something — anything. (Applause.)
They don’t do anything — (laughter) — except block me. And call me names. It can’t be that much fun. (Laughter.) It’d be so much more fun if they said, you know what, let’s do something together. If they were more interested in growing the economy for you, and the issues that you’re talking about, instead of trying to mess with me — (laughter) — then we’d be doing a lot better. That’s what makes this country great, is when we’re all working together. That’s the American way.
Now more than ever, with the 4th of July next week, Team USA moving on down in Brazil — (applause) — we should try to rally around some economic patriotism that says we rise or fall as one nation and one people. Let’s rally around the idea that instead of giving tax breaks for millionaires, let’s give more tax breaks for working families to help pay for childcare or college. (Applause.)
Instead of protecting companies that are shifting profits overseas to avoid paying their fair share, let’s put people to work rebuilding our roads and our bridges and our airports. (Applause.) Let’s invest in manufacturing startups so that we’re creating good jobs making products here in America, here in Minnesota. (Applause.) Rather than stack the deck in favor of those who have already got an awful lot, let’s help folks who have huge talent and potential and ingenuity but just need a little bit of a hand up so that we can tap the potential of every American.
I mean, this isn’t rocket science. There are some things that are complicated — this isn’t one of them. Let’s make sure every 4-year-old in America has access to high school — high-quality preschool — (applause) — so that moms like Rebekah and dads like Ben know their kids are getting the best quality care and getting a head start on life. Let’s redesign our high schools to make sure that our kids are better prepared for the 21st century economy. Let’s follow the lead of Senator Franken and Secretary Perez and give more apprenticeships that connect young people to rewarding careers. (Applause.)
Let’s tell every American if they’ve lost their job because it was shipped overseas, we’re going to train you for an even better one. (Applause.) Let’s rally around the patriotism that says our country is stronger when every American can count on affordable health insurance and Medicare and Social Security, and women earn pay equal to their efforts, and family can make ends meet if their kid get sick, and when nobody who works full-time is living in poverty. We can do all these things.
And so let me just — let me wrap up by saying this. I know sometimes things get kind of discouraging. And I know that our politics looks profoundly broken, and Washington looks like it’s never going to deliver for you. It seems like they’re focused on everything but your concerns. And I know that when I was elected in 2008 and then reelected in 2012, so many of you were hoping that we could get Washington to work differently, and sometimes when I get stymied you’d think, oh, maybe not; maybe it’s just too tough, maybe things won’t change. And I get that frustration. And the critics and the cynics in Washington, they’ve written me off more times than I can count.
But I’m here to tell you, don’t get cynical. Despite all of the frustrations, America is making progress. Despite the unyielding opposition, there are families who have health insurance now who didn’t have it before. And there are students in college who couldn’t afford it before. And there are workers on the job who didn’t have jobs before. And there are troops home with their families after serving tour after tour. (Applause.) Don’t think that we’re not making progress.
So, yes, it’s easy to be cynical; in fact, these days it’s kind of trendy. Cynicism passes off for wisdom. But cynicism doesn’t liberate a continent. Cynicism doesn’t build a transcontinental railroad. Cynicism doesn’t send a man to the moon. Cynicism doesn’t invent the Internet. Cynicism doesn’t give women the right to vote. Cynicism doesn’t make sure that people are treated equally regardless of race.
Cynicism is a choice, and hope is a better choice. And every day I’m lucky to receive thousands of acts of hope — every time somebody sits down and picks up a pen, and writes to me and shares their story, just like Rebekah did. And Rebekah said in her letter — she ended it, she said, “I’m pretty sure this is a silly thing to do to write a letter to the President, but on some level I know that staying silent about what you see and what needs changing, it never makes any difference. So I’m writing to you to let you know what it’s like for us out here in the middle of the country, and I hope you will listen.”
And I’m here because Rebekah wrote to me and I want her to know I’m listening. I’m here as President, because I want you all to know that I’m listening. (Applause.) I ran for office to make sure that anybody who is working hard to meet their dreams has somebody in Washington that is listening. And I’m always going to keep listening. And I’m always going to keep fighting. (Applause.)
And your cares and your concerns are my own, and your hopes for your kids and your grandkids are my own. And I’m always going to be working to restore the American Dream for everybody who’s willing to work for it. (Applause.) And I am not going to get cynical; I’m staying hopeful, and I hope you do too.
Thank you. God bless you. God bless America. (Applause.)
END 10:50 A.M. CDT
Photo Credit: Maslowski Marcin/Shutterstock.com
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Last year eight Americans — the four Waltons of Walmart fame, the two Koch brothers, Bill Gates, and Warren Buffett — made more money than 3.6 million American minimum-wage workers combined. The median pay for CEOs at America’s large corporations rose to $10 million per year, while a typical chief executive now makes about 257 times the average worker’s salary, up sharply from 181 times in 2009. Overall, 1% of Americans own more than a third of the country’s wealth.
As the United States slips from its status as the globe’s number one economic power, small numbers of Americans continue to amass staggering amounts of wealth, while simultaneously inequality trends toward historic levels. At what appears to be a critical juncture in our history and the history of inequality in this country, here are nine questions we need to ask about who we are and what will become of us. Let’s start with a French economist who has emerged as an important voice on what’s happening in America today.
French economist Thomas Piketty’s surprise bestseller, Capital in the Twenty-First Century, is an unlikely beach read, though it’s selling like one. A careful parsing of massive amounts of data distilled into “only” 700 pages, it outlines the economic basis for the 1%-99% divide in the United States. (Conservative critics, of course, disagree.)
Just in case you aren’t yet rock-bottom certain about the reality of that divide, here are some stats: the top 1% of Americans hold 35% of the nation’s net worth; the bottom 80%, only 11% percent. The United States has such an unequal distribution of wealth that, in global rankings, it falls among the planet’s kleptocracies, not the developed nations that were once its peers. The mathematical measure of wealth-inequality is called “Gini,” and the higher it is, the more extreme a nation’s wealth-inequality. The Gini for the U.S. is 85; for Germany, 77; Canada, 72; and Bangladesh, 64. Nations more unequal than the U.S. include Kazakhstan at 86 and the Ukraine at 90. The African continent tips in at just under 85. Odd company for the self-proclaimed “indispensable nation.”
Piketty shows that such inequality is driven by two complementary forces. By owning more of everything (capital), rich people have a mechanism for getting ever richer than the rest of us, because the rate of return on investment is higher than the rate of economic growth. In other words, money made from investments grows faster than money made from wages. Piketty claims the wealth of the wealthiest Americans is rising at 6%-7% a year, more than three times as fast as the economy the rest of us live in.
At the same time, wages for middle and lower income Americans are sinking, driven by factors also largely under the control of the wealthy. These include the application of new technology to eliminate human jobs, the crushing of unions, and a decline in the inflation-adjusted minimum wage that more and more Americans depend on for survival.
The short version: A rising tide lifts all yachts.
2) So why don’t the unemployed/underemployed simply find better jobs?
Another way of phrasing this question is: Why don’t we just blame the poor for their plight? Mention unemployment or underemployment and someone will inevitably invoke the old “pull yourself up by your bootstraps” line. If workers don’t like retail or minimum-wage jobs, or if they can’t find good paying jobs in their area, why don’t they just move? Quit retail or quit Pittsburgh (Detroit, Cleveland, St. Louis) and…
Move to where to do what? Our country lost one-third of all decent factory jobs — almost six million of them — between 2000 and 2009, and wherever “there” is supposed to be, piles of people are already in line. In addition, many who lost their jobs don’t have the means to move or a friend with a couch to sleep on when they get to Colorado. Some have lived for generations in the places where the jobs have disappeared. As for the jobs that are left, what do they pay? One out of four working Americans earn less than $10 per hour. At 25%, the U.S. has the highest percentage of low-wage workers in the developed world. (Canada and Great Britain have 20%, Japan under 15%, and France 11%.)
One in six men, 10.4 million Americans aged 25 to 64, the prime working years, don’t have jobs at all, a portion of the male population that has almost tripled in the past four decades. They are neither all lazy nor all unskilled, and at present they await news of the uncharted places in the U.S. where those 10 million unfilled jobs are hidden.
Moving “there” to find better work isn’t an option.
3) But aren’t there small-scale versions of economic “rebirths” occurring all over America?
Travel through some of the old Rust Belt towns of this country and you’ll quickly notice that “economic rebirth” seems to mean repurposing buildings that once housed factories and shipping depots as bars and boutiques. Abandoned warehouses are now trendy restaurants; a former radiator factory is an artisanal coffee shop. In other words, in a place where a manufacturing plant once employed hundreds of skilled workers at union wages, a handful of part-timers are now serving tapas at minimum wage plus tips.
In Maryland, an ice cream plant that once employed 400 people with benefits and salaries pegged at around $40,000 a year closed its doors in 2012. Under a “rebirth” program, a smaller ice cream packer reopened the place with only 16 jobs at low wages and without benefits. The new operation had 1,600 applicants for those 16 jobs. The area around the ice cream plant once produced airplanes, pipe organs, and leather car seats. No more. There were roughly 14,000 factory jobs in the area in 2000; today, there are 8,000.
General Electric’s Appliance Park, in Louisville, Kentucky, employed 23,000 union workers at its peak in 1973. By 2011, the sputtering plant held onto only about 1,800 workers. What was left of the union there agreed to a two-tier wage scale, and today 70% of the jobs are on the lower tier — at $13.50 an hour, almost $8 less than what the starting wage used to be. A full-time worker makes about $28,000 a year before taxes and deductions. The poverty line for a family of four in Kentucky is $23,000. Food stamp benefits are available to people who earn up to 130% of the poverty line, so a full-timer in Kentucky with a family still qualifies. Even if a worker moved to Kentucky and lucked out by landing a job at the plant, standing on your tiptoes with your lips just above sea level is not much of a step up.
Low paying jobs are not a rebirth.
4) Can’t people just get off their couches and get back to work?
There are 3.8 million Americans who have been out of work for 27 weeks or more. These are the country’s long-term unemployed, as defined by the Department of Labor. Statistically, the longer you are unemployed, the less likely it is that you’ll ever find work again. Between 2008 and 2012, only 11% of those unemployed 15 months or more found a full-time job, and research shows that those who do find a job are less likely to retain it. Think of it as a snowball effect: more unemployment creates more unemployable people.
And how hard is it to land even a minimum-wage job? This year, the Ivy League college admissions acceptance rate was 8.9%. Last year, when Walmart opened its first store in Washington, D.C., there were more than 23,000applications for 600 jobs, which resulted in an acceptance rate of 2.6%, making the big box store about twice as selective as Harvard and five times as choosy as Cornell.
Telling unemployed people to get off their couches (or out of the cars they live in or the shelters where they sleep) and get a job makes as much sense as telling them to go study at Harvard.
5) Why can’t former factory workers retrain into new jobs?
Janesville, Wisconsin, had the oldest General Motors car factory in America, one that candidate Obama visited in 2007 and insisted would be there for another 100 years. Two days before Christmas that year and just before Obama’s inauguration, the plant closed forever, throwing 5,000 people out of work. This devastated the town, because you either worked in the plant or in a business that depended on people working in the plant. The new president and Congress quickly paid for a two-million-dollar Janesville retraining program, using state community colleges the way the government once used trade schools built to teach new immigrants the skills needed by that Janesville factory a century ago.
This time around, however, those who finished their retraining programs simply became trained unemployables rather than untrained ones. It turned out that having a certificate in “heating and ventilation” did not automatically lead to a job in the field. There were already plenty of people out there with such certificates, never mind actual college degrees. And those who did find work in some field saw their take-home pay drop by 36%. This, it seems, is increasingly typical in twenty-first-century America (though retraining programs have been little studied in recent years).
Manufacturing is dead and the future lies in a high-tech, information-based economy, some say. So why can’t former factory workers be trained to do that? Maybe some percentage could, but the U.S. graduated 1,606,000 students with bachelor’s degrees in 2014, many of whom already have such skills.
Bottom Line: Jobs create the need for training. Training does not create jobs.
6) Shouldn’t we cut public assistance and force people into the job market?
At some point in any discussion of jobs, someone will drop the nuclear option: cut federal and state benefits and do away with most public assistance. That’ll motivate people to find jobs — or starve. Unemployment money and food stamps (now called the Supplemental Nutrition Assistance Program, or SNAP) encourage people to be lazy. Why should tax dollars be used to give food to people who won’t work for it? “If you’re able-bodied, you should be willing to work,” House Majority Leader Eric Cantor said discussing food stamp cuts.
The problem with such statements is 73% of those enrolled in the country’s major public benefits programs are, in fact, from working families — just in jobs whose paychecks don’t cover life’s basic necessities. McDonald’s workers alone receive $1.2 billion in federal assistance per year.
Why do so many of the employed need food stamps? It’s not complicated. Workers in the minimum-wage economy often need them simply to survive. All in all, 47 million people get SNAP nationwide because without it they would go hungry.
In Ohio, where I did some of the research for my book Ghosts of Tom Joad, the state pays out benefits on the first of each month. Pay Day, Food Day, Mother’s Day, people call it. SNAP is distributed in the form of an Electronic Bank Transfer card, or EBT, which, recipients will tell you, stands for “Eat Better Tonight.” EBT-friendly stores open early and stay open late on the first of the month because most people are pretty hungry come the Day.
A single person with nothing to her name in the lower 48 states would qualify for no more than $189 a month in SNAP. If she works, her net monthly income is multiplied by .3, and the result is subtracted from the maximum allotment. Less than fifty bucks a week for food isn’t exactly luxury fare. Sure, she can skip a meal if she needs to, and she likely does. However, she may have kids; almost two-thirds of SNAP children live in single-parent households. Twenty percent or more of the child population in 37 states lived in “food insecure households” in 2011, with New Mexico (30.6%) and the District of Columbia (30%) topping the list. And it’s not just kids. Households with disabled people account for 16% of SNAP benefits, while 9% go to households with senior citizens.
Almost 22% of American children under age 18 lived in poverty in 2012; for those under age five, it’s more than 25%. Almost 1 in 10 live in extreme poverty.
Our system is trending toward asking kids (and the disabled, and the elderly) to go to hell if they’re hungry. Many are already there.
7) Why are Walmart and other businesses opposed to SNAP cuts?
Public benefits are now a huge part of the profits of certain major corporations. In a filing with the Securities and Exchange Commission, Walmart was oddly blunt about what SNAP cuts could do to its bottom line:
“Our business operations are subject to numerous risks, factors, and uncertainties, domestically and internationally, which are outside our control. These factors include… changes in the amount of payments made under the Supplemental Nutrition Assistance Plan and other public assistance plans, [and] changes in the eligibility requirements of public assistance plans.”
How much profit do such businesses make from public assistance? Short answer: big bucks. In one year, nine Walmart Supercenters in Massachusetts received more than $33 million in SNAP dollars — more than four times the SNAP money spent at farmers’ markets nationwide. In two years, Walmart received about half of the one billion dollars in SNAP expenditures in Oklahoma. Overall, 18% of all food benefits money is spent at Walmart.
Pepsi, Coke, and the grocery chain Kroger lobbied for food stamps, an indication of how much they rely on the money. The CEO of Kraft admittedthat the mac n’ cheese maker opposed food stamp cuts because users were “a big part of our audience.” One-sixth of Kraft’s revenues come from food stamp purchases. Yum Brands, the operator of KFC, Taco Bell, and Pizza Hut, tried to convince lawmakers in several states to allow its restaurants to accept food stamps. Products eligible for SNAP purchases are supposed to be limited to “healthy foods.” Yet lobbying by the soda industry keeps sugary drinks on the approved list, while companies like Coke and Pepsi pull in four billion dollars a year in revenues from SNAP money.
Poverty is big business.
8) Should We Raise the Minimum Wage?
One important reason to raise the minimum wage to a living one is that people who can afford to feed themselves will not need food stamps paid for by taxpayers. Companies who profit off their workers’ labor will be forced to pay a fair price for it, and not get by on taxpayer-subsidized low wages. Just as important, people who can afford to feed themselves earn not just money, but self-respect. The connection between working and taking care of yourself and your family has increasingly gone missing in America, creating a society that no longer believes in itself. Rock bottom is a poor foundation for building anything human.
But won’t higher wages cause higher prices? The way taxpayers functionally subsidize companies paying low-wages to workers — essentially ponying up the difference between what McDonald’s and its ilk pay and what those workers need to live via SNAP and other benefits — is a hidden cost squirreled away in plain sight. You’re already paying higher prices via higher taxes; you just may not know it.
Even if taxes go down, won’t companies pass on their costs? Maybe, but they are unlikely to be significant. For example, if McDonald’s doubled the salaries of its employees to a semi-livable $14.50 an hour, not only would most of them go off public benefits, but so would the company — and yet a Big Mac would cost just 68 cents more. In general, only about 20% of the money you pay for a Big Mac goes to labor costs. At Walmart, increasing wages to $12 per hour would cost the company only about one percent of its annual sales.
Despite labor costs not being the most significant factor in the way low-wage businesses set their prices, one of the more common objections to raising the minimum wage is that companies, facing higher labor costs, will cut back on jobs. Don’t believe it.
The Los Angeles Economic Round Table concluded that raising the hourly minimum to $15 in that city would generate an additional $9.2 billion in annual sales and create more than 50,000 jobs. A Paychex/IHS survey, which looks at employment in small businesses, found that the state with the highest percentage of annual job growth was Washington, which also has the highest statewide minimum wage in the nation. The area with the highest percentage of annual job growth was San Francisco, the city with the highest minimum wage in the nation. Higher wages do not automatically lead to fewer jobs. Many large grocery chains, including Safeway and Kroger, are unionized and pay well-above-minimum wage. They compete as equals against their non-union rivals, despite the higher wages.
Will employers leave a state if it raises its minimum wage independent of a nationwide hike? Unlikely. Most minimum-wage employers are service businesses that are tied to where their customers are. People are not likely to drive across state lines for a burger. A report on businesses on the Washington-Idaho border at a time when Washington’s minimum wage was nearly three bucks higher than Idaho’s found that the ones in Washington were flourishing.
While some businesses could indeed decide to close or cut back if the minimum wage rose, the net macro gains would be significant. Even a small hike to $10.10 an hour would put some $24 billion a year into workers’ hands to spend and lift 900,000 Americans above the poverty line. Consumer spending drives 70% of our economy. More money in the hands of consumers would likely increase the demand for goods and services, creating jobs.
Yes, raise the minimum wage. Double it or more. We can’t afford not to.
9) Okay, after the minimum wage is raised, what else can we do?
To end such an article, it’s traditional to suggest reforms, changes, solutions. It is, in fact, especially American to assume that every problem has a “solution.” So my instant suggestion: raise the minimum wage. Tomorrow. In a big way. And maybe appoint Thomas Piketty to the board of directors of Walmart.
But while higher wages are good, they are likely only to soften the blows still to come. What if the hyper-rich like being ever more hyper-rich and, with so many new ways to influence and control our political system and the economy, never plan to give up any of their advantages? What if they don’t want to share, not even a little more, not when it comes to the minimum wage or anything else?
The striking trend lines of social and economic disparity that have developed over the last 50 years are clearly no accident; nor have disemboweled unions, a deindustrialized America, wages heading for the basement (with profits still on the rise), and the widest gap between rich and poor since the slavery era been the work of the invisible hand. It seems far more likely that a remarkably small but powerful crew wanted it that way, knowing that a nation of fast food workers isn’t heading for the barricades any time soon. Think of it all as a kind of “Game of Thrones” played out over many years. A super-wealthy few have succeeded in defeating all of their rivals — unions, regulators, the media, honest politicians, environmentalists — and now are free to do as they wish.
What most likely lies ahead is not a series of satisfying American-style solutions to the economic problems of the 99%, but a boiling frog’s journey into a form of twenty-first-century feudalism in which a wealthy and powerful few live well off the labors of a vast mass of the working poor. Once upon a time, the original 99% percent, the serfs, worked for whatever their feudal lords allowed them to have. Now, Walmart “associates” do the same. Then, a few artisans lived slightly better, an economic step or two up the feudal ladder. Now, a technocratic class of programmers, teachers, and engineers with shrinking possibilities for upward mobility function similarly amid the declining middle class. Absent a change in America beyond my ability to imagine, that’s likely to be my future — and yours.
Fed. Ct.: Rauner’s GTCR orchestrated “bust out” scheme; lawsuit has merit
By DOUG IBENDAHL • May 6, 2014
The U.S. Bankruptcy Court for the Middle District of Florida has issued a ruling which contains some very bad news for GOP gubernatorial nominee Bruce Rauner.
The Federal Court’s March 14 Opinion describes a “bust out” scheme orchestrated by GTCR, the private equity firm chaired by Rauner for years up until October 2012. The Court ruled that claims against GTCR for aiding and abetting a breach of fiduciary duty have merit and therefore can proceed.
The Court also ruled that claims for breach of fiduciary duty can proceed against Edgar Jannotta, formerly one of Rauner’s fellow GTCR principals. Jannotta is currently one of the largest financial contributors to Rauner’s campaign.
Under Rauner’s chairmanship of GTCR the firm was accused of complicity in the wrongful deaths of multiple nursing home residents. GTCR was then later accused of participating in a scheme allegedly intended to fraudulently transfer assets for the purpose of hiding them from successful plaintiffs and other creditors.
Litigation in U.S. Bankruptcy Court is just part of the ongoing fallout from the disastrous attempt by GTCR’s principals (including Rauner) to get richer by building a nationwide nursing home empire.
You can read the Judge’s entire 40-page Opinion from March 14 HERE.
Among other things, this latest Federal Court ruling further exposes two big lies by Rauner. First, Rauner has repeatedly claimed his firm was not involved in day-to-day operations. But here is what the Federal Judge wrote: “[a]side from raising capital for THI [Trans Healthcare, Inc.], the GTCR Group was also instrumental in THI’s day-to-day management and administration.” (See p. 4 of the Opinion for more.)
Second, Rauner has repeatedly claimed his firm got out of the nursing home business prior to the deaths which became the subject of lawsuits and enormous jury awards. Again, the Federal Court’s Opinion details the timeline and proves Rauner’s claims are false.
The Judge’s Opinion observes that the alleged “bust out” scheme “has all the makings of a legal thriller.”
The Judge is definitely correct. Page 9 of the Opinion for example describes one part GTCR’s alleged “bust out” scheme which would be comical if not for the tragic circumstances:
In the second linked transaction, THI sold all of its stock in THMI to the Debtor for $100,000. The Debtor had been incorporated just months before the transaction by the law firm of Troutman Sanders, where Forman (one of FLTCH’s owners) was a partner. The Debtor’s sole shareholder is Barry Saacks, an elderly graphic artist who currently lives in a nursing home. Although Saacks has some recollection of being asked if he was interested in buying computer equipment, he was not aware that he owns the Debtor or that he acquired the stock in THMI. And, it turns out, Saacks (who did not have any money to buy any computer equipment in the first place) did not pay the purchase price—FLTCH apparently loaned him the $100,000—nor did he ever receive any of THMI’s assets. In short, the complaint paints this as a sham transaction. (Emphasis added.)
There is definitely some complexity in this litigation and that’s reflected in the Opinion. But it’s a must read for every Illinois voter. We previously used the term “bust out” to describe Rauner’s firm’s experience in the nursing home business. But it’s not every day you see a Federal Judge using the term and so vividly explaining its application.
While the Illinois press has largely given Rauner and his firm a pass, our judicial system fortunately has not.
Doug Ibendahl is a Chicago Attorney and a former General Counsel of the Illinois Republican Party.
Those high-flown principles put forward by the militiamen defending Cliven Bundy’s rights … do they apply to anybody else?
The best summaries I’ve seen of the conflict between Nevada rancher Cliven Bundy and the federal Bureau of Land Management are from the local St. George News and the Washington Post. Cutting it down somewhat: the BLM charges that Bundy has been grazing his cattle on public land without paying grazing and tresspass fees for 20 years. (They got their first court order telling him to stop in 1998; he ignored it.) The claimed fees now amount to over $1 million, and so April 5 the BLM started seizing some of Bundy’s illegally grazing cattle.
Armed militiamen who support Bundy started gathering at a camp on April 10, and on April 12 the BLM backed down after what the Las Vegas Review-Journal described as “a 20-minute standoff … [w]ith rifles pointing toward each side”. The BLM released a statement:
Based on information about conditions on the ground, and in consultation with law enforcement, we have made a decision to conclude the cattle gather because of our serious concern about the safety of employees and members of the public.
The Bundy Ranch blog described the scene like this:
The result was a group of Bundy’s family members and supporters making a slow advance on a line of armed agents who kept ordering them to halt. At one point, the protesters were even told “one more step and you’re dead,” but the group kept coming, eventually walking easily through the line of federal agents and SWAT members who obviously didn’t have the courage of their convictions. According to InfoWars, the BLM had already announced it was leaving, but the county sheriff refused Bundy’s demand to disarm the federal agents and return his cattle. Within about a half hour, the cattle were released from the federal pen.
In other words, federal agents tried to enforce the law, were met with armed resistance from a mob, and decided to temporize rather than start killing people. On the extreme Right, this was celebrated as a victory for Freedom. Bundy’s son said, “The people have the power when they unite. The war has just begun.”
And the mainstream Right went along. The Powerline blog wrote “Why You Should Be Sympathetic Toward Cliven Bundy” while admitting “legally, Bundy doesn’t have a leg to stand on.” National Review‘s Kevin Williamson made “The Case for a Little Sedition“, saying
Of course the law is against Cliven Bundy. How could it be otherwise? The law was against Mohandas Gandhi, too
Fox News commentator Andrew Napolitano described the BLM (and not the miltiamen) as “a group of thugs dressed in military uniform with loaded M16s pointed at a rancher and his family.” Fox News produced this sympathetic segment, in which National Review editor Rich Lowry described the resistance as “in the finest American tradition of civil disobedience going back to Henry David Thoreau.”
To me, the Bundy incident has captured much of the basic sickness of conservatism in America: The rhetoric is full of high principle, but it’s hard to find any actual principle that would apply to anyone other than People Like Us — people like the people who belong to the conservative fringe.
It’s tempting to characterize this kind of thing as racism. Certainly that’s what the NYT’s Timothy Egan is suggesting with:
If you changed that picture to Black Panthers surrounding a lawful eviction in the inner city, do you think right-wing media would be there cheering the outlaws?
But it’s more subtle than that. Probably a black man who behaved like a far-fringe-rightist in all other ways could become People Like Us and come to have similar “rights” recognized. But the Black Panthers are clearly not People Like Us, so it would be an absolute horror if they were to arm themselves and resist the law. Likewise, it would be a horror if a Hispanic militia decided to liberate one of Sheriff Arpaio’s detention camps for immigrants. If some miltiamen got killed in such an attempt, I doubt Fox News would lament about “government overreach”. The Occupy protesters weren’t People Like Us, so they could be thrown off public land with impunity. Imagine the outrage if Occupy had militarized Zuccotti Park!
One of the reasons Bundy is supposed to deserve sympathy is that “his family has been ranching on the acres at issue since the late 19th century”. You can imagine how far similar sympathy would extend if armed Native Americans were threatening to kill whites over land their people had been hunting and fishing on for thousands of years. Hispanics have been wandering back and forth across the Rio Grande for centuries, but if they do it today, we have to enforce the Rule of Law. If people get killed, well, so be it.
But not People Like Us. When we feel wronged and take up arms, everyone should sympathize, the government should show restraint, and the media should re-litigate our case to the general public.
A number of Bundy’s sympathizers are rehashing the bizarre claims he has made in court: that the federal government can’t own land inside a state, or that the federal government is itself illegitimate. Bundy repeatedly refers to the federal government’s ownership as “unconstitutional”, probably because his reading of the Constitution never got as far as Article IV:
The Congress shall have Power to dispose of and make all needful Rules and Regulations respecting the Territory or other Property belonging to the United States
This is why we have courts, to adjudicate disputes like this. Bundy made his argument in court and lost. Most people don’t then get to appeal their case to the Court of Nuts With Guns. But People Like Us do.
Whenever Bundy supporters are given media time, I would like to see them challenged to state their position in such a way that they would support similar rights for people not at all like them and not already part of the conservative movement. And I’d like to see mainstream conservative pundits confronted with a different challenge: Are there any limits to what you will support if the people doing it are on your side?
I recently had a bad flashback. I was lying in bed trying to fall asleep when I was hit with a vivid memory from my time as a Transportation Security Administration officer at Chicago’s O’Hare Airport. It was 2008, and I was conducting a bag check when three of my TSA colleagues got into an argument with a passenger at the checkpoint. Things got pretty heated.
The subject of debate? Whether mashed potatoes were a liquid or a solid.
In the end, of course, the TSA agents had the last word: Since the potatoes took the shape of their container, they were determined to be a liquid—specifically, a gel. That’s the official TSA line. “Liquids, aerosols and gels over 3.4 ounces cannot be brought through security.” The potatoes were forcibly surrendered.
If you’re anything like me, you may have thought, “Well, mashed potatoes are technically gelatinous, so…”—which sends one down the rabbit hole of bureaucratic absurdity that ends with a passenger looking a TSA officer in the eye and saying, “Do you really think my mashed potatoes are a terrorist threat?” And the officer, if he or she is just an all-around tool, saying: “Ma’am, possibly. Rules are rules.”
I’ve had a lot of flashbacks lately—nearly buried memories that have come flooding back ever since Politico Magazine published “Dear America, I Saw You Naked,” my first-person account of working for the TSA and anonymously blogging about my adventures in airport security.
Another one: It’s 2010, and a passenger is trying to bring her live goldfish through security. One of my co-workers informs her that the fish can go through but the water cannot. The woman is on the verge of tears when a supervisor steps in to save the fish’s life.
And another: Working alongside a screener who always demanded that pacifiers be removed from infants’ mouths and submitted for X-ray screening before the babies and their mothers were permitted to pass through the metal detectors.
Perhaps the biggest surprise to come out of what I now see as the life-changing experience of having my story go viral is the realization of just how much I still have left to tell about my six years at the TSA—the strange checkpoint happenings, the colorful passengers and the outrageous, real-life TSA characters.
Americans took my initial report as confirmation of what they always dreaded about a humiliating experience so many millions of them had shared. But I also realized that there was a part of the story I hadn’t fully told: about a government agency and its leaders, and how they came up with the absurd policies that turned me and my colleagues into just-following-orders Mashed Potato Police.
Soon after the article went up on the Politico website, I sent a note to my editor marveling at the fact that I had 30 new Twitter followers, up from a grand total of 240. I’d thought my article would get passed around in government and civil-liberties circles—a curiosity story of an anonymous TSA blogger unmasking himself, and that would be it.
Little did I know that within a few hours I’d be getting an average of three emails a minute—in the middle of the night—including interview requests from Good Morning America, Today, NBC Nightly News, The Kelly File and many others. And while my 30 new followers had at first seemed like a big deal, a few days later I had more than 5,000. Stephen Colbert even joked about my story. Stephen Colbert!
I got more emails in response to the article than I had in my entire year and a half writing my blog, Taking Sense Away, even when I revealed on the blog that the “nude” scanners didn’t work and that TSA employees were making predictably awful jokes about passengers’ bodies. I got only one piece of hate mail in response to my Politico Magazine article: an anonymous message that informed me that I was a “goon” because, it said, “Once a TSA goon, always a TSA goon.”
A few people did reach out to warn me that I am almost certainly being monitored by intelligence agencies now that I have revealed myself as a critic of the TSA. “My ex-husband is now a senior executive at the NSA at Fort Meade,” one said. “The NSA will probably track you.”
I’m not sure how credible these warnings are, but after being the subject of two official government responses—in which TSA denied and downplayed the claims made on my blog and in my essay—it’s hard not to worry that I’m being watched. I’ve received so many letters making this point that I now take it for granted that my every online move is being monitored by someone, somewhere. If the truth is more banal, so be it: I’d much rather be paranoid and wrong.
Most of the responses from current and former TSA employees were just as supportive as those from the general public—and that was another surprise. Quite a few read like letters from inmates: “Hi Jason. Remember me? We worked Terminal 1 together for a year-long bid. I am so glad you made it out and are doing something interesting with your life! Patting down crotches all day was the worst, wasn’t it?”
But some TSA employees saw my essay as an attempt to smear frontline workers. They were angry that I seemed to place responsibility for the agency’s problems squarely on the shoulders of low-ranking employees, rather than focusing on upper management and underlying organizational problems.
That was the argument in the email that gave me the most pause, a note from one of my former co-workers at O’Hare: “Obviously, TSA is not my dream job,” it said. “Sometimes I go home crying. I’d love it if you wrote more about the incompetency of the managers who got their jobs because of who they know. What you did will definitely make my job harder, because who will be attacked? Every worker on the floor in a uniform. Am I angry? No. But write more. Tell about those unqualified managers who take no part in the checkpoint operation, and who humiliate their workers. I know you’ve seen it all. Tell them.”
It’s an important point, and in fact that was my goal in launching my blog while still working on the TSA payroll: to call attention to the agency’s systemic flaws, while also defending the good, hardworking members of the nearly 50,000-deep frontline TSA workforce.
The agency was the product of a panicked national moment—fertile soil for poor decision-making—and irrationality was etched into the TSA’s DNA. Like most passengers, the average screener regrets the atmosphere of “permanent emergency” that has permeated airport checkpoints since 9/11,a reactionary culture passed down from TSA leadership year after year. And yet the most common concerns among TSA screeners usually stem from organizational flaws closer to the checkpoint floor.
One of the agency’s biggest problems is its arbitrary promotion system, which is also the source of a lot of outrage in letters I’ve gotten from current and former TSA workers. I saw signs of rampant cronyism and favoritism at O’Hare while I was there, and the emails I’ve received from around the country contain similar observations. And it’s not just me seeing this: Last year, the Equal Employment Opportunity Commission announced it would launch an investigation after a Department of Homeland Security Inspector General report found “rampant” favoritism at the TSA.
The second most common cause for complaint that I’ve heard from floor-level employees is the yearly re-certification system. While I was there, an officer’s suitability for his or her job was determined in large part by a two-hour test administered once a year, in which a TSA screener was put before two clipboard-wielding test administrators and observed while giving patdowns and doing bag searches on test subjects.
In practice, this meant that screeners who were rude to co-workers and passengers or just generally incompetent but had made it through their probationary period could hang onto their jobs by learning to work the system. All they had to do was give a convincing two-hour performance once a year—their conduct the rest of the time carried relatively little weight.
I personally experienced the absurdity of the TSA’s certification bureaucracy when I was informed one day—more than two years after I’d been hired, and after having checked thousands of driver’s licenses and passports—that I was not on-record as having ever received travel-document training from the TSA. Apparently, my certification papers had been lost, so I was pulled off the travel-document checking position on the spot and de-certified until I took the training class again.
“So does this mean,” I asked my supervisor, “that all the passports and driver’s licenses that I’ve cleared through security over the past two years have been security breaches?”
“Let’s not think about that,” my supervisor said.
Coming out from anonymity has allowed me to take part in trying to change the TSA: I was contacted by a staffer for Sen. Tom Coburn, the ranking member on the Homeland Security and Government Affairs Committee, and the watchdog group Judicial Watch, which asked me to help in an investigation of assault and molestation claims against the TSA. I told Judicial Watch everything I knew about how complaints are handled at TSA checkpoints, including that the yellow complaint cards passengers are given to voice their concerns are widely regarded as a joke by TSA supervisors. “Rarely does anyone actually read those” was something I heard all the time.
I also signed a declaration for blogger and civil liberties activist Jonathan Corbett’s ongoing lawsuit against the TSA over its use of the body scanners, swearing that everything in my essay about the agency was true so that he could submit it as evidence. He had a 24-hour deadline; if I’d had more time I would have added a statement describing how I had repeatedly witnessed TSA breaking its promise to the public that the screeners who reviewed the full-body scanner images would never come face-to-face with the passengers whose naked bodies they’d just seen.
In a few places around the Internet, I’ve found my name and Edward Snowden’s mentioned in the same sentence—in one case framed as “Jason Harrington is no Edward Snowden.” But let’s be clear: I never fancied my crotch-patting tales to be on par with revelations of top-secret global surveillance programs.
One thing I wrote—my very first blog post, which informed the public that many TSA employees felt the radiation-emitting Rapiscan imagers were ineffective, and that the TSA tried to work around the machines’ inherent flaws with secret directives involving additional patdowns—qualified as a whistleblowing act. Other than that, I’ve mostly just been telling stories of public interest.
That doesn’t mean I don’t consider some of what the TSA has been doing the last few years scandalous; I do. Perhaps the most egregious waste of money at the agency right now is the SPOT program, in which “Behavior Detection Officers” are supposed to read people’s body language in order to identify would-be terrorists.
A decade in, we’ve now spent a billion dollars on the program despite the fact that it’s based on pseudoscience that has been debunked in one study after another, and there’s no proof it has turned up even one terrorist threat. Many of the Behavior Detection Officers I knew at O’Hare privately admitted that their program amounted to a lot of walking around all day getting paid a lot of money for doing nothing.
I used to hear all the time from both passengers and TSA agents that airport security would make great fodder for a TV show or book. Since my essay was published, I’ve heard from agents and producers who share that sentiment, and I recently signed with a literary agent. With any luck, my true TSA stories will be bound for bookshelves soon.
One of the most common questions I get now is: “Do you get extra screening when you fly these days?” I haven’t flown since my essay was published, but I will soon.
Then again, there’s a train that can get me to New York. It may take 16 hours longer, but sleeper cars are kind of nice, and besides, the nation’s railways are relatively clear of the Transportation Security Administration. For now.
The Fine Print
With one of the biggest Republican gatherings of the year in full swing at the Conservative Political Action Conference, a group of Democratic operatives in Washington is fighting back — waging a full-out public relations war to counter CPAC.
“We are kind of the central apparatus for tracking and research, really, on the progressive side. And so at an event like CPAC, we put our resources to work,” said American Bridge PAC president Brad Woodhouse, speaking to “The Fine Print” during a rare tour of the Democratic group’s so-called war room.
The room is filled with rows of desks equipped with double-monitor computer screens, which a group of about 40 Democratic operatives are using to monitor and fact-check speeches at CPAC as they happen, issue rapid responses, and monitor the media and social networking sites.
“Over here, we have people who are monitoring. Today they’re monitoring CPAC,” Woodhouse said, as he pointed to people working around the room. “They’re monitoring tweets, they’re monitoring news coverage [and] they’re looking at transcripts.”
American Bridge also has “trackers,” who are essentially Democratic spies on the ground at CPAC, recording events and monitoring the events both on and off the official stage of the conference.
“We’re literally in filming Ted Cruz just like ABC is,” Woodhouse said. “We’re also out in the hallways capturing conversations and that kind of thing.”
It’s all part of an effort to differentiate the Democratic message from their Republican opponents, Woodhouse added. When asked which Republican speakers at the conference the war room soldiers most like to watch, he pointed to Sen. Rand Paul, R-Ky., as one of their favorites.
“He’s the gift that keeps on giving,” Woodhouse said of Paul. “His attacks on Hillary Clinton because of what Bill Clinton did 20 years ago … is going to really hurt them in the long run. So one thing, it’s nice to watch Rand Paul because it’s just so outlandish.”
In addition to rapid-response style reactions to the ongoing events at CPAC, Woodhouse said an equally important long-term strategy of his group is to catch moments — large and small — that might otherwise be missed and can help propel a campaign against a Republican candidate.
“We’re either there with a tracker filming it, just like the media … and we have media monitors that are watching the local coverage,” Woodhouse said. “We’re tracking whatever Republicans are saying, wherever they’re saying it.”
American Bridge PAC looks a lot like a permanent campaign — a characterization that Woodhouse didn’t reject but, instead, explained as necessary.
“One of the key things in campaigns is knowing what your opponent says, what they do, what they believe, and also having video of them saying and doing those things,” Woodhouse said. “So we look at this as real-time rapid response, but also as a place that curates.”
Of course, Republicans have war rooms of their own and use strategies similar to American Bridge PAC. But Woodhouse pointed to such groups more as evidence of American Bridge’s success rather than threats.
“Imitation is the best form of flattery,” Woodhouse said. “After the 2012 election … they saw what this organization did to highlight the Akin comments and Mourdock, and how much information we fed to the super PACs who had ads on Bain [Capital], for example. … So America Rising started on the Republican side after the election. They modeled themselves after us and so, you know, more power to them.”
For more of the interview with Woodhouse, including how American Bridge PAC decides whether to reveal new dirt on a Republican target or to hold it in a vault for later use, check out this episode of “The Fine Print.”
ABC News’ Chris Good, Michael Conte, Tom Thornton, Hank Brown, and Vicki Vennell contributed to this episode.