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For the Wealthiest, a Private Tax System That Saves Them Billions

The very richest are able to quietly shape tax policy that will allow them to shield billions in income.

WASHINGTON — The hedge fund magnates Daniel S. Loeb, Louis Moore Bacon and Steven A. Cohen have much in common. They have managed billions of dollars in capital, earning vast fortunes.

They have invested large sums in art — and millions more in political candidates.

Andrew Bossone shared a link.
The very richest are able to quietly shape tax policy that will allow them to shield billions in income.|By PATRICIA COHEN

Each has exploited an esoteric tax loophole that saved them millions in taxes. The trick? Route the money to Bermuda and back.

With inequality at its highest levels in nearly a century and public debate rising over whether the government should respond to it through higher taxes on the wealthy, the very richest Americans have financed a sophisticated and astonishingly effective apparatus for shielding their fortunes.

Some call it the “income defense industry,” consisting of a high-priced phalanx of lawyers, estate planners, lobbyists and anti-tax activists who exploit and defend a dizzying array of tax maneuvers, virtually none of them available to taxpayers of more modest means. (All you need is an experienced and affordable tax lawyer?)

In recent years, this apparatus has become one of the most powerful avenues of influence for wealthy Americans of all political stripes, including Mr. Loeb and Mr. Cohen, who give heavily to Republicans, and the liberal billionaire George Soros, who has called for higher levies on the rich while at the same time using tax loopholes to bolster his own fortune.

All are among a small group providing much of the early cash for the 2016 presidential campaign.

Operating largely out of public view — in tax court, through arcane legislative provisions and in private negotiations with the Internal Revenue Service — the wealthy have used their influence to steadily whittle away at the government’s ability to tax them.

The effect has been to create a kind of private tax system, catering to only several thousand Americans (the old money and new billionaires? Read this bogus charity trust of Zukerberg).

The impact on their own fortunes has been stark.

Two decades ago, when Bill Clinton was elected president, the 400 highest-earning taxpayers in America paid nearly 27 percent of their income in federal taxes, according to I.R.S. data.

By 2012, when President Obama was re-elected, that figure had fallen to less than 17 percent, which is just slightly more than the typical family making $100,000 annually, when payroll taxes are included for both groups.

The ultra-wealthy “literally pay millions of dollars for these services,” said Jeffrey A. Winters, a political scientist at Northwestern University who studies economic elites, “and save in the tens or hundreds of millions in taxes.”

Some of the biggest current tax battles are being waged by some of the most generous supporters of 2016 candidates.

They include the families of the hedge fund investors Robert Mercer, who gives to Republicans, and James Simons, who gives to Democrats; as well as the options trader Jeffrey Yass, a libertarian-leaning donor to Republicans.

Mr. Yass’s firm is litigating what the agency deemed to be tens of millions of dollars in underpaid taxes. Renaissance Technologies, the hedge fund Mr. Simons founded and which Mr. Mercer helps run, is currently under review by the I.R.S. over a loophole that saved their fund an estimated $6.8 billion in taxes over roughly a decade, according to a Senate investigation.

Some of these same families have also contributed hundreds of thousands of dollars to conservative groups that have attacked virtually any effort to raises taxes on the wealthy.

In the heat of the presidential race, the influence of wealthy donors is being tested.

At stake is the Obama administration’s 2013 tax increase on high earners — the first substantial increase in two decades — and an I.R.S. initiative to ensure that, in effect, the higher rates stick by cracking down on tax avoidance by the wealthy.

While Democrats like Bernie Sanders and Hillary Clinton have pledged to raise taxes on these voters, virtually every Republican has advanced policies that would vastly reduce their tax bills, sometimes to as little as 10 percent of their income.

At the same time, most Republican candidates favor eliminating the inheritance tax, a move that would allow the new rich, and the old, to bequeath their fortunes intact, solidifying the wealth gap far into the future.

And several have proposed a substantial reduction — or even elimination — in the already deeply discounted tax rates on investment gains, a foundation of the most lucrative tax strategies.

“There’s this notion that the wealthy use their money to buy politicians; more accurately, it’s that they can buy policy, and specifically, tax policy,” said Jared Bernstein, a senior fellow at the left-leaning Center on Budget and Policy Priorities who served as chief economic adviser to Vice President Joseph R. Biden Jr. “That’s why these egregious loopholes exist, and why it’s so hard to close them.”

The Family Office

Each of the top 400 earners took home, on average, about $336 million in 2012, the latest year for which data is available. If the bulk of that money had been paid out as salary or wages, as it is for the typical American, the tax obligations of those wealthy taxpayers could have more than doubled.

Instead, much of their income came from convoluted partnerships and high-end investment funds.

Other earnings accrued in opaque family trusts and foreign shell corporations, beyond the reach of the tax authorities.

The well-paid technicians who devise these arrangements toil away at white-shoe law firms and elite investment banks, as well as a variety of obscure boutiques.

But at the fulcrum of the strategizing over how to minimize taxes are so-called family offices, the customized wealth management departments of Americans with hundreds of millions or billions of dollars in assets.

Family offices have existed since the late 19th century, when the Rockefellers pioneered the institution, and gained popularity in the 1980s. But they have proliferated rapidly over the last decade, as the ranks of the super-rich, and the size of their fortunes, swelled to record proportions.

“We have so much wealth being created, significant wealth, that it creates a need for the family office structure now,” said Sree Arimilli, an industry recruiting consultant.

Family offices, many of which are dedicated to managing and protecting the wealth of a single family, oversee everything from investment strategy to philanthropy.

But tax planning is a core function.

While the specific techniques these advisers employ to minimize taxes can be mind-numbingly complex, they generally follow a few simple principles, like converting one type of income into another type that’s taxed at a lower rate.

Mr. Loeb, for example, has invested in a Bermuda-based reinsurer — an insurer to insurance companies — that turns around and invests the money in his hedge fund.

That maneuver transforms his profits from short-term bets in the market, which the government taxes at roughly 40 percent, into long-term profits, known as capital gains, which are taxed at roughly half that rate.

It has had the added advantage of letting Mr. Loeb defer taxes on this income indefinitely, allowing his wealth to compound and grow more quickly.

The Bermuda insurer Mr. Loeb helped set up went public in 2013 and is active in the insurance business, not merely a tax dodge. Mr. Cohen and Mr. Bacon abandoned similar insurance-based strategies in recent years.

“Our investment in Max Re was not a tax-driven scheme, but rather a sound investment response to investor interest in a more dynamically managed portfolio akin to Warren Buffett’s Berkshire Hathaway,” said Mr. Bacon, who leads Moore Capital Management. “Hedge funds were a minority of the investment portfolio, and Moore Capital’s products a much smaller subset of this alternative portfolio.” Mr. Loeb and Mr. Cohen declined to comment.

Organizing one’s business as a partnership can be lucrative in its own right.

Some of the partnerships from which the wealthy derive their income are allowed to sell shares to the public, making it easy to cash out a chunk of the business while retaining control.

But unlike publicly traded corporations, they pay no corporate income tax; the partners pay taxes as individuals. And the income taxes are often reduced by large deductions, such as for depreciation.

For large private partnerships, meanwhile, the I.R.S. often struggles “to determine whether a tax shelter exists, an abusive tax transaction is being used,” according to a recent report by the Government Accountability Office. The agency is not allowed to collect underpaid taxes directly from these partnerships, even those with several hundred partners. Instead, it must collect from each individual partner, requiring the agency to commit significant time and manpower.

The wealthy can also avail themselves of a range of esoteric and customized tax deductions that go far beyond writing off a home office or dinner with a client. One aggressive strategy is to place income in a type of charitable trust, generating a deduction that offsets the income tax.

The trust then purchases what’s known as a private placement life insurance policy, which invests the money on a tax-free basis, frequently in a number of hedge funds. The person’s heirs can inherit, also tax-free, whatever money is left after the trust pays out a percentage each year to charity, often a considerable sum.

Many of these maneuvers are well established, and wealthy taxpayers say they are well within their rights to exploit them.

Others exist in a legal gray area, its boundaries defined by the willingness of taxpayers to defend their strategies against the I.R.S. Almost all are outside the price range of the average taxpayer.

Among tax lawyers and accountants, “the best and brightest get a high from figuring out how to do tricky little deals,” said Karen L. Hawkins, who until recently headed the I.R.S. office that oversees tax practitioners. “Frankly, it is almost beyond the intellectual and resource capacity of the Internal Revenue Service to catch.”

(This cliché that the public institutions  cannot afford and lack the best minds and expertise)

The combination of cost and complexity has had a profound effect, tax experts said. Whatever tax rates Congress sets, the actual rates paid by the ultra-wealthy tend to fall over time as they exploit their numerous advantages.

From Mr. Obama’s inauguration through the end of 2012, federal income tax rates on individuals did not change (excluding payroll taxes). But the highest-earning one-thousandth of Americans went from paying an average of 20.9 percent to 17.6 percent. By contrast, the top 1 percent, excluding the very wealthy, went from paying just under 24 percent on average to just over that level.

“We do have two different tax systems, one for normal wage-earners and another for those who can afford sophisticated tax advice,” said Victor Fleischer, a law professor at the University of San Diego who studies the intersection of tax policy and inequality. “

At the very top of the income distribution, the effective rate of tax goes down, contrary to the principles of a progressive income tax system.”

A Very Quiet Defense

Having helped foster an alternative tax system, wealthy Americans have been aggressive in defending it.

Trade groups representing the Bermuda-based insurance company Mr. Loeb helped set up, for example, have spent the last several months pleading with the I.R.S. that its proposed rules tightening the hedge fund insurance loophole are too onerous.

The major industry group representing private equity funds spends hundreds of thousands of dollars each year lobbying on such issues as “carried interest,” the granddaddy of Wall Street tax loopholes, which makes it possible for fund managers to pay the capital gains rate rather than the higher standard tax rate on a substantial share of their income for running the fund.

The budget deal that Congress approved in October allows the I.R.S. to collect underpaid taxes from large partnerships at the firm level for the first time — which is far easier for the agency — thanks to a provision that lawmakers slipped into the deal at the last minute, before many lobbyists could mobilize.

But the new rules are relatively weak — firms can still choose to have partners pay the taxes — and don’t take effect until 2018, giving the wealthy plenty of time to weaken them further.

Shortly after the provision passed, the Managed Funds Association, an industry group that represents prominent hedge funds like D. E. Shaw, Renaissance Technologies, Tiger Management and Third Point, began meeting with members of Congress to discuss a wish list of adjustments.

The founders of these funds have all donated at least $500,000 to 2016 presidential candidates.

During the Obama presidency, the association itself has risen to become one of the most powerful trade groups in Washington, spending over $4 million a year on lobbying.

The buying power

lobbying clout of the wealthy is most often deployed through industry trade associations and lawyers, some rich families have locked arms to advance their interests more directly.

The inheritance tax has been a primary target.

In the early 1990s, a California family office executive named Patricia Soldano began lobbying on behalf of wealthy families to repeal the tax, which would not only save them money, but also make it easier to preserve their business empires from one generation to the next.

The idea struck many hardened operatives as unrealistic at the time, given that the tax affected only the wealthiest Americans. But Ms. Soldano’s efforts — funded in part by the Mars and Koch families — laid the groundwork for a one-year elimination in 2010.

The tax has been restored, but currently applies only to couples leaving roughly $11 million or more to their heirs, up from those leaving more than $1.2 million when Ms. Soldano started her campaign. It affected fewer than 5,200 families last year.

“If anyone would have told me we’d be where we are today, I would never have guessed it,” Ms. Soldano said in an interview.

Some of the most profound victories are barely known outside the insular world of the wealthy and their financial managers.

In 2009, Congress set out to require that investment partnerships like hedge funds register with the Securities and Exchange Commission, partly so that regulators would have a better grasp on the risks they posed to the financial system.

The early legislative language would have required single-family offices to register as well, exposing the highly secretive institutions to scrutiny that their clients were eager to avoid. Some of the I.R.S.’s cases against the wealthy originate with tips from the S.E.C., which is often better positioned to spot tax evasion.

By the summer of 2009, several family office executives had formed a lobbying group called the Private Investor Coalition to push back against the proposal. The coalition won an exemption in the 2010 Dodd-Frank financial reform bill, then spent much of the next year persuading the S.E.C. to largely adopt its preferred definition of “family office.”

So expansive was the resulting loophole that Mr. Soros’s $24.5 billion hedge fund took advantage of it, converting to a family office after returning capital to its remaining outside investors. The hedge fund manager Stanley Druckenmiller, a former business partner of Mr. Soros, took the same step.

The Soros family, which generally supports Democrats, has committed at least $1 million to the 2016 presidential campaign; Mr. Druckenmiller, who favors Republicans, has put slightly more than $300,000 behind three different G.O.P. presidential candidates.

A slide presentation from the Private Investor Coalition’s 2013 annual meeting credited the success to multiple meetings with members of the Senate Banking Committee, the House Financial Services Committee, congressional staff and S.E.C. staff. “All with a low profile,” the document noted. “We got most of what we wanted AND a few extras we didn’t request.”

A Hobbled Monitor

After all the loopholes and all the lobbying, what remains of the government’s ability to collect taxes from the wealthy runs up against one final hurdle: the crisis facing the I.R.S.

President Obama has made fighting tax evasion by the rich a priority. In 2010, he signed legislation making it easier to identify Americans who squirreled away assets in Swiss bank accounts and Cayman Islands shelters

His I.R.S. convened a Global High Wealth Industry Group, known colloquially as “the wealth squad,” to scrutinize the returns of Americans with incomes of at least $10 million a year.

But while these measures have helped the government retrieve billions, the agency’s efforts have flagged in the face of scandal, political pressure and budget cuts. Between 2010, the year before Republicans took control of the House of Representatives, and 2014, the I.R.S. budget dropped by almost $2 billion in real terms, or nearly 15 percent. That has forced it to shed about 5,000 high-level enforcement positions out of about 23,000, according to the agency.

Audit rates for the $10 million-plus club spiked in the first few years of the Global High Wealth program, but have plummeted since then.

The political challenge for the agency became especially acute in 2013, after the agency acknowledged singling out conservative nonprofits in a review of political activity by tax-exempt groups. (Senior officials left the agency as a result of the controversy.)

Several former I.R.S. officials, including Marcus Owens, who once headed the agency’s Exempt Organizations division, said the controversy badly damaged the agency’s willingness to investigate other taxpayers, even outside the exempt division.

“I.R.S. enforcement is either absent or diminished” in certain areas, he said. Mr. Owens added that his former department — which provides some oversight of money used by charities and nonprofits — has been decimated.

Groups like FreedomWorks and Americans for Tax Reform, which are financed partly by the foundations of wealthy families and large businesses, have called for impeaching the I.R.S. commissioner.

They are bolstered by deep-pocketed advocacy groups like the Club for Growth, which has aided primary challenges against Republicans who have voted in favor of higher taxes.

In 2014, the Club for Growth Action fund raised more than $9 million and spent much of it helping candidates critical of the I.R.S. Roughly 60 percent of the money raised by the fund came from just 12 donors, including Mr. Mercer, who has given the group $2 million in the last five years.

Mr. Mercer and his immediate family have also donated more than $11 million to several super PACs supporting Senator Ted Cruz of Texas, an outspoken I.R.S. critic and a presidential candidate.

Another prominent donor is Mr. Yass, who helps run a trading firm called the Susquehanna International Group. He donated $100,000 to the Club for Growth Action fund in September. Mr. Yass serves on the board of the libertarian Cato Institute and, like Mr. Mercer, appears to subscribe to limited-government views that partly motivate his political spending.

But he may also have more than a passing interest in creating a political environment that undermines the I.R.S. Susquehanna is currently challenging a proposed I.R.S. determination that an affiliate of the firm effectively repatriated more than $375 million in income from subsidiaries located in Ireland and the Cayman Islands in 2007, creating a large tax liability.

(The affiliate brought the money back to the United States in later years and paid dividend taxes on it; the I.R.S. asserts that it should have paid the ordinary income tax rate, at a cost of tens of millions of dollars more.)

In June, Mr. Yass donated more than $2 million to three super PACs aligned with Senator Rand Paul of Kentucky, who has called for taxing all income at a flat rate of 14.5 percent. That change in itself would save wealthy supporters like Mr. Yass millions of dollars.

Mr. Paul, also a presidential candididate, has suggested going even further, calling the I.R.S. a “rogue agency” and circulating a petition in 2013 calling for the tax equivalent of regime change. “Be it now therefore resolved,” the petition reads, “that we, the undersigned, demand the immediate abolishment of the Internal Revenue Service.”

But even if that campaign is a long shot, the richest taxpayers will continue to enjoy advantages over everyone else.

For the ultra-wealthy, “our tax code is like a leaky barrel,” said J. Todd Metcalf, the Democrats’ chief tax counsel on the Senate Finance Committee. ”Unless you plug every hole or get a new barrel, it’s going to leak out.”

How to Rid Money from Politics? Lawrence Lessig weighs Presidential Run

“96% of Americans believe it important to reduce the influence of money in politics. But 91% didn’t think it was possible”.

So that is the politics of resignation?


The 2016 presidential race is shaping up to be the most expensive political race in history.

Experts predict as much as $10 billion could be spent by candidates, parties and outside groups on the campaign.

A recent analysis by The New York Times shows fewer than 400 families are responsible for almost half the money raised to date.

The vast majority of the $388 million raised so far has been channeled to super PACs which can accept unlimited donations in support of candidates.

According to the Times, the political network overseen by the conservative billionaires Charles and David Koch plans to spend close to $900 million on the 2016 campaign.

That figure dwarfs how much the Republican National Committee and the party’s two congressional campaign committees spent in the 2012 election.

Meanwhile, Hillary Clinton has a set a fundraising goal of $2.5 billion. Today we are joined by a law professor who is considering challenging Clinton in the Democratic primary.

His platform is simple: Get money out of politics. Harvard professor Lawrence Lessig says that if he won the presidency, he would serve only as long as it takes to pass sweeping campaign finance reform. Then, he says, he would resign.


This is a rush transcript. Copy may not be in its final form.


Today we’re joined by a law professor who’s considering challenging Clinton in the Democratic primary. His platform is simple:

Get money out of politics. Harvard professor Lawrence Lessig says if he won the presidency, he would serve only as long as it takes to pass sweeping campaign finance reform legislation. Then, he says, he would resign. (Won’t stand well with voters who need Presidents to finish the term)

In 2012, Lawrence Lessig launched Rootstrikers to fight the corrupting influence of money in politics. He’s a legendary figure in the world of cyberlaw, credited with helping to create Creative Commons, an alternative copyright system.

Lawrence Lessig, welcome back to Democracy Now! Are you announcing your candidacy for president of the United States?

LAWRENCE LESSIG: Well, what we’ve said is that if by Labor Day, September 7th, two weeks from today, we’ve raised the initial million dollars that we’re kickstarting to fund this campaign, then I would run. And I would run on a platform not of campaign finance reform, which is kind of like referring to an alcoholic as someone with a liquid intake problem.

I would run on a platform of fundamental citizen equality, because what we’ve allowed to happen in this democracy is a radical inequality in the way citizens are represented. And since—the way we fund campaigns is just one example, but it’s the most grotesque example, of why we don’t have a democracy that works.

AMY GOODMAN: So, explain the problem right now. Talk about the amount of money that is going into this election, and put it in some kind of historical and global context.

LAWRENCE LESSIG: Well, you set it up perfectly, Amy. I mean, the point is, when you have a system that raises its money from such a tiny, tiny fraction of the public—400 families for all of the money raised or 130 families for half the money that’s been raised in the Republican Party—that tiny, tiny number have enormous influence inside of our political system.

And the influence they have is not some rational influence of the elite; it’s a completely destructive vetocracy that they create, where they’re able to block any kind of reform.

So if you want climate change legislation, what we know is we won’t have climate change legislation until we fix this corrupted inequality.

If you want to deal with the problem of Wall Street, we’re not going to deal with the largest contributor to congressional campaigns until we change the way campaigns are funded.

Every important issue gets tied to the way we are funding these campaigns, this inequality. And what I’ve said is, until we address that first, all of these other things that people are talking about, things that excite us, things that especially excite us progressives, all of them are a fantasy.

And we’ve got to stop with the fantasy politics and address the reality that we have to fix our democracy if we’re going to have a democracy that works.

AMY GOODMAN: So how do you do it? And how do you deal with money being equated with free speech?

LAWRENCE LESSIG:  The reforms that I’ve proposed, in what we’re calling the Citizen Equality Act, do not trigger any of the concerns the Supreme Court has talked about.

What the Supreme Court has said is you can’t be restricting speech.

So the step, the first step, that we’re describing is a way to dilute that incredible concentration of funders. So, by increasing bottom-up, citizen-funded elections, either through vouchers, which you could give to every voter that they could use to fund elections, or matching funds, the way John Sarbanes from Maryland has described, all of these would radically change the way campaigns are funded, and radically disempower the lobbyists and the special interests inside of our political system. That’s the first step.

What we need is a mandate strong enough to get that first step.

And what I’ve said is that none of the other candidates, even if they’re talking about the right issues, which I think only  Bernie Sanders and Martin O’Malley are even getting close to talking about the right issues—even if they’re talking about it, they can’t begin to describe a process, a plan for them to have the mandate to actually get this enacted.

They have a great plan for getting elected, but they don’t have a plan for actually getting us a democracy back.

AMY GOODMAN: How would you do it, if you were elected?

LAWRENCE LESSIG: So if I were elected, what I’ve said is I would serve only until we passed this thing we’ve called the Citizen Equality Act, which would establish citizen-funded elections, number one.

Number two, it would end the political gerrymandering that creates an incredible disempowerment for a vast number of Americans because of the way we design districts.

And number three, it would end the ridiculous systems that try to disempower or disable people from being able to vote.

That would get us the first steps of a democracy back. And when that’s passed, I would resign. And the vice president, the elected vice president, would become president.

But the point of this mandate is it would be a referendum on this reform, and this reform for citizen equality is the kind of equality that all of Americans should affirm. I mean, I agree with Bernie about the need to deal with wealth inequality, and there are many in the progressive left who agree with Bernie about that.

What I know is that America is not yet of the view that we should become Sweden. And the fact is, we can’t rally America unanimously to this—to that idea. But I think the idea of citizen equality, and the idea which is at the core of what representative democracy is, is an idea we could rally people to, and if we did, we could build a mandate powerful enough to begin to get us the democracy we deserve.

AMY GOODMAN: Since you say, Lawrence Lessig, if you became president, you would resign after you achieved your goal, your vice president would be particularly important. Who would you choose?

LAWRENCE LESSIG: Well, I personally would love to see a vice president that excites the Democratic base to create the kind of passion and energy that would be necessary to get elected. People like Bernie have done that, Elizabeth Warren have done that.

But what I’ve also said is that the referendum president, which I’m describing here, trying to create, actually should have different power for picking the vice president from a regular president.

You know, a regular nominee selects the vice president assuming or hoping that vice president is never president. But I want to select a vice president who I want to be president the very next day after I am inaugurated. So this person is a much more significant person in the traditional balance.

And I think that means that the convention, the party, has a much more significant role in selecting and deciding who that person should be. So we would select based on what the party ratifies as the values of the party, based on also what they think is most likely to succeed in November.

AMY GOODMAN: Have you spoken, for example, with Bernie Sanders or any of the presidential candidates about your possible bid, your run for the presidency?

LAWRENCE LESSIG: Well, I tried to reach out to Bernie before I announced. I haven’t had a chance to connect with him about that. But that’s the only person I’ve tried to reach out to, because Bernie is somebody who I have enormous respect for. He’s been a hero in the movement for the right kind of change for many, many years. And I had worked with him in trying to describe what kind of change would make his campaign credible. So I tried to reach out to him, but I haven’t had a chance to talk to him yet.

But I think the critical thing is to recognize that as much as people love what he is saying—and for good reason, they should love what he is saying—what we need is a way to make what he is saying possible. And what we don’t have right now is a way to make this change or any change, frankly, possible. And so that’s what I’m trying to focus this campaign on.

AMY GOODMAN: Earlier this month, 10 leading Republican presidential candidates faced off in the first debates of the 2016 presidential election. During the debate, Donald Trump defended his record of donating to Democratic candidates in previous races but admitted that the election system is broken.

DONALD TRUMP: I will tell you that our system is broken. I gave to many people. Before this, before two months ago, I was a businessman. I give to everybody. When they call, I give. And you know what? When I need something from them, two years later, three years later, I call them, they are there for me. And that’s a broken system.

CHRIS WALLACE: So what did you get? So what did you get from Hillary Clinton and Nancy Pelosi?

DONALD TRUMP: Well, I’ll tell you what. With Hillary Clinton, I said, “Be at my wedding,” and she came to my wedding. You know why? She had no choice, because I gave. I gave to a foundation that, frankly, that foundation is supposed to do good. I didn’t know her money would be used on private jets going all over the world. It was.

AMY GOODMAN: That’s Donald Trump. Lawrence Lessig, your response?

LAWRENCE LESSIG: So I think Donald Trump has been the biggest gift to this movement since the Supreme Court’s decision in Citizens United, because what it’s done is crystallize a recognition that this system is deeply corrupted.

You know, there he is, pulling back the curtain on the way the system works, making it possible, even in the Republican primary, for people to begin to talk about the corruption of the system. And I agree with him absolutely: This system is deeply corrupted.

The difference between Donald Trump and me—well, there’s $10 billion in difference, at least—but in addition to $10 billion, the difference is that Donald Trump’s solution is that we elect billionaires, and my solution is that we actually have the representative democracy our framers gave us. The idea of electing billionaires was what we fought a revolution about, and Donald Trump’s side in that revolution lost.

AMY GOODMAN: Earlier this year, Hillary Clinton talked about campaign finance reform when she kicked off her bid for the Democratic presidential nomination.

HILLARY CLINTON: We need to build the economy of tomorrow, not yesterday. We need to strengthen families and communities, because that’s where it all starts. We need to fix our dysfunctional political system and get unaccountable money out of it once and for all, even if that takes a constitutional amendment. And we need to protect our country from the threats that we see and the ones that are on the horizon. So, I’m here in Iowa to begin a conversation about how we do that.

AMY GOODMAN: Lawrence Lessig, how do we do that? And what is your response to Hillary Clinton’s approach to campaign finance reform?

LAWRENCE LESSIG: We haven’t seen a lot. She’s talked about a constitutional amendment, which of course I support the idea of a constitutional amendment, but I think we have to recognize that that’s not going to be a solution in the short run.

And in the short run, we have a critical number of problems we have to have the ability to solve. She’s also pushed the idea of disclosure. In that statement, she said “unaccountable money.”

But I’m not sure what accountable money does. I don’t know why it’s any better to have billions of dollars that we can account for than billions of dollars that we can’t account for. I mean, of course I want to account for it, but still it’s the billions of dollars that’s calling the shots.

What we need is to change the way elections are funded. We need a commitment to a very simple idea, that we, in a democracy, in a representative democracy, need to be represented equally.

And Hillary has not yet articulated any plan that would get us that in any time short of when we need to get there to deal with the critical problems that we face as a nation.

AMY GOODMAN: Lawrence Lessig, I wanted to get your response to Mark Schmitt, the senior fellow at the Roosevelt Institute and former editor of The American Prospect. He was on Democracy Now! explaining why he’s opposed to a constitutional amendment to overturn Citizens United.

MARK SCHMITT: I view it as a real distraction from some real progress that we can make on money in politics, because while you can build a movement around these various—there are like 17 different versions of the amendment. While you can build a movement around this concept, the message it sends is: We can’t do anything until we have a constitutional amendment. And under the current circumstances, “We can’t do anything until we have a constitutional amendment” is exactly the same as saying, “We can’t do anything.” And so, I think that’s just sending the wrong signal to people and overlooking the tremendous progress that’s actually being made.

AMY GOODMAN: That’s Mark Schmitt at the Roosevelt Institute. Your response, Lawrence Lessig?

LAWRENCE LESSIG: I think he’s completely right. I think the talk about constitutional amendments has excited an incredible base, and I think the movements that have pushed that have done enormous good to our democracy by getting people to recognize the fundamental problem we have to address.

But the truth is, we can address a vast majority of that problem tomorrow in a statute.

And so, when I talk about passing the Citizen Equality Act, that is a statute, that’s not amending the Constitution. It’s a first step that would have an enormous impact on the ability of democracy to actually function.

And I think if we can give people a sense of what’s possible, we can excite an incredible amount of energy. We, in 2013, did a poll and found 96 percent of Americans believe it important to reduce the influence of money in politics. But 91% didn’t think it was possible. So that is the politics of resignation.

And if you constantly talk about the constitutional amendment, or you make it sound like that’s what’s necessary to win, then those resigned people will stay resigned. They won’t show up to try to change the system. And that’s exactly the resignation we have to find a way to thaw.

AMY GOODMAN: Well, people are resorting to all sorts of efforts to change the system. Earlier this year, the U.S. mailman Doug Hughes made national headlines when he flew a tiny personal aircraft, known as the gyrocopter, onto the lawn of the U.S. Capitol in an act of civil disobedience. He was carrying letters to every member of Congress urging them to address corruption and to pass campaign finance reform.

The letter began with a quote from John Kerry’s farewell speech to the Senate: quote, “The unending chase for money I believe threatens to steal our democracy itself,” Kerry wrote. In April, Democracy Now! spoke to Doug Hughes and asked him to elaborate on the message he hoped to convey.

DOUG HUGHES: What my letter actually said to the Congress critters was they’ve got to decide whether they’re going to deny that corruption exists, or they’re going to pretend that they’re doing something about it, or they’re going to really roll up their sleeves and be a part of reform.

But I’m looking to the local media, particularly the print media, OK, at the local level, to hold the candidates’ feet to the fire and force them to take a stand on real reform and whether or not they’re going to vote for it or whether or not they’re going to try and take a halfway, mealy-mouthed stand on it, which means they’re going to try and preserve the status quo.

The idea is, the voters can decide well if they’re informed. The national media can’t and won’t inform the voters about where the candidates stand. But the local media, which has been, you know, very weak and impotent in the political process, can really take the ball, and they can be the moving force in informing the voters.

AMY GOODMAN: And earlier this year, activists carried out a rare protest inside the Supreme Court chamber to oppose the ruling in McCutcheon v. FEC, a case critics call the “next Citizens United.”

In a 5-to-4 vote last year, the court’s conservative justices eliminated a longstanding limit on how much donors can give in total to federal candidates, party committees and political action committees in a two-year election cycle.

Without any aggregate limit, a donor can now give millions of dollars directly to candidates and parties. In early April, the five activists with the group 99 Rise stood up inside the court to call on justices to reverse their decision.

99 RISE PROTESTER: Justices, is it not your duty to protect our right to self-government? Reverse McCutcheon! Overturn Citizens United. One person, one vote!

AMY GOODMAN: So, that’s the five activists with the group 99 Rise. And then you’ve got Doug Hughes. I believe he’s going to trial—he wouldn’t take any plea deal. A lot of the media didn’t even report he was doing this for campaign finance reform; they just said he flew a gyrocopter onto the grounds of the Capitol. Lawrence Lessig, talk about what groups are doing.

LAWRENCE LESSIG: I think there’s been an incredible amount of creative protest that’s been focused on this issue. Doug Hughes is a hero. We just opened up a kickstarter on Indiegogo to raise money for his legal defense fund.

We said we needed to raise $10,000 in 30 days. In one day, we raised the money that he needs to defend himself against the felony charges that he’s now facing. And 99 Rise has done an extraordinary job raising the attention of this issue in a lot of contexts, not just in the Supreme Court.

But what I think we need to do is to raise the level of the debate.

This is not just about telling some people they can’t speak or trying to silence the ability of certain interests to be in the political process. This is about achieving the fundamental equality of our democracy.

And I think that if we raise the level of the debate so we’re not talking about campaign finance, which is just one corner of this problem, and instead talk about the commitment of a representative democracy, as Madison said, one that would, quote, “be not where the rich would have no more power than the poor in this democracy,” we could build the political movement we have to build to win, because that’s what this has got to be a fight about, not in the court, not in the—not in the court at the Supreme Court, not in a court that’s deciding whether a protester should go to jail, but in the court of public opinion, where if the public is reminded of this commitment of equality in our democracy, they could see how we could get a democracy that could work again.

And if we did, then these problems that all of us roll our eyes about, of climate change or the debt or student debt or Wall Street or gun control, all of these problems would be problems we could actually solve. We could actually have a democracy that’s responsive again, because this inequality, this corrupted inequality, has been removed.

And it wouldn’t be a world where you’ve got to stand and say, “Black lives matter,” because we would have an equality in this system where that statement would be crazy to even imagine the necessity of uttering.

AMY GOODMAN: So, Lawrence Lessig, again, to summarize, your timetable on when you will announce your candidacy for president of the United States, under what conditions?

LAWRENCE LESSIG: So we’ve just crossed—we’re at about $550,000 of the million dollars that I said we needed to raise within two weeks. And if we get there and the two—the major candidates have not said this would be their primary focus, then I will enter the race.

And I will enter the race, and we will also try to recruit 50 referendum representatives to also run, to make it so that on day one of 2017, of the administration in 2017, we would have the majority necessary to pass this equality act. So, as of—in two weeks, we’ll know whether this race will happen. And if it does happen, I’m going to give it every ounce of my energy to make it possible for this democracy to utter the words that are so obvious and self-evident, that in a democracy all of us should be treated equal.

AMY GOODMAN: Professor Lawrence Lessig, I want to thank you for being with us.


AMY GOODMAN: Lawrence Lessig is considering running for the Democratic nomination for president in order protest money in politics, professor at Harvard Law School. His most recent book, Republic, Lost: How Money Corrupts Congress—and a Plan to Stop It.

This is Democracy Now! When we come back, Sarah Shourd joins us. She was in solitary confinement in Iran for more than a year. She’s going to comment on the Iran nuclear deal and also talk about solitary confinement in the United States. Stay with us.

Andrew Bossone shared this link

“96% of Americans believe it important to reduce the influence of money in politics. But 91% didn’t think it was possible. So that is the politics of resignation.”

The 2016 presidential race is shaping up to be the most expensive political race in history.
Experts predict as much as $10 billion could be spent by candidates,…

US Supreme Court on Presidential Contribution: “Unlimited spending on negative ads…”

The US citizens have been exercising successive pressures to limit the influence of money of the elite 1% class on selecting the candidates in campaign contributions.

It is obvious that money contribution selects the candidates for the final show down, on the assumption that it is the “people” who has the final say in selecting between the final two contenders of the two main parties.

For a century, there has been slow but steady improvements to reforming election contribution.  For example, Theodore Roosevelt prohibited in 1907 the large companies to directly contributing to candidates.  During the last Obama campaign, the little people amassed enormous cash flow with small amounts.

Lately, the Supreme Court butted in and upheld that “monetary contribution is a form of free expression…” such as free speech and writing of the richest citizens?

Sure, contributing money is a serious form of expressing opinions, but the Supreme Court took the extra step for codifying how the collected contribution should be spent. And what are the constraints?

The Supreme Court opened the door wide for establishing “Super PACS” with the specific purpose of collecting “unlimited” amount of contribution.  And what are the constraints?

First, the “Super PACS” must be “independent” of the campaign staff of the candidate.  Like, the head of the “Super PACS” that contributed $5 million to Newt Gingrich in South Carolina was his former spokesman…Most of that contribution was from a single rich person…

Second, all “Super PACS” contribution money should be spent on negative ads.  For example, the “Super PACS” can generate contributions from the rich in outside States, as long as the money is spent on negative images of the candidates in the other States…

Do you think the Supreme Court is being captured by the financial multinational liberal capitalists?

Something is going awry in this formation of the Supreme Court.  The Supreme Court is another branch of the power-to-be, and if all the branches at a particular period converge on a consensus, dictatorship is well rooted.

Should the citizens start another campaign of Occupy the Supreme Court?

In any case, the people have this right, guaranteed by the Constitution and confirmed by Supreme Court to occupy the Court.

Note: Post inspired from an article by Hisham Melhem in the Lebanese daily Al Nahar




June 2023

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