Two weeks ago, along a marble corridor in the Rayburn House Office Building in Washington, I watched about 40 well-dressed, well-coiffed men (and two women) delivering huge value for their employers.
Except that we, the taxpayers, weren't employing them. The nation's banks, mortgage lenders, stockbrokers, private-equity funds and derivatives traders were.
They were lobbyists the best bargain in Washington. And even amid a popular revolt this year against the moneyed interests they represent, they delivered huge returns.
On September 18, 1793, President George Washington laid the cornerstone for the U.S. Capitol. While the silver trowel and marble gavel used for the ceremony are still displayed, repeated efforts to locate the cornerstone itself have been unsuccessful.
At times, policymaking seems as shrouded in mystery as the location of the Capitol's cornerstone. That's why you need an experienced partner to help you unravel the mystery.
That's the pitch you'll find on the website for Capitol Tax Partners, one of 1,900 firms that house more than 11,000 lobbyists registered to operate in Washington. Last year, according to the Center for Responsive Politics (CRP), firms like Capitol Tax were paid a total of $3.49 billion for unraveling the mysteries of the tax code for businesses involved in everything from health insurance to defense contracting to international trade. According to Capitol Tax co-founder Lindsay Hooper, in the case of his firm, this meant providing "input and technical advice on various tax matters" to such clients as Morgan Stanley, 3M, Goldman Sachs, Chanel, Ford and the Private Equity Council, which is a trade group trying to head off a plan to increase taxes on what's called carried interest, a form of income enjoyed by the heavy hitters who run venture-capital and other types of private-equity funds. (Time Warner, the parent company of TIME magazine, is also a current client of Capitol Tax Partners.)
Here's what a bargain lobbying is: Since 2009, the Private Equity Council has paid Capitol Tax, which has eight partners, a $30,000-a-month retainer to keep its members' taxes low. Counting fees paid to four other firms and the cost of its in-house lobbying staff, the council reported spending $4.2 million on lobbying from the beginning of 2009 through March of this year. Now let's assume it spent an additional $600,000 since the beginning of April, for a total of $4.8 million. With other groups lobbying on the same issue, the overall spending to protect the favorable carried-interest tax treatment was maybe $15 million. Which seems like a lot except that this is a debate over how some $100 billion will be taxed, or not, over the next 10 years.
And what did the money managers get for their $15 million investment? About $10 billion in lower taxes. While lawmakers did manage to boost the taxes of hedge-fund managers and other folks who collect carried interest as part of their work, they agreed to a compromise (tucked into a pending tax bill) that will tax part of those earnings at the regular rate and another part at a lower capital-gains rate. The result? A tax bite about $10 billion smaller than what the reformers wanted. That payoff is all the more remarkable when you realize that this tax break is going to some of the wealthiest Americans and that all the reformers wanted originally was for those folks to pay the same graduated income-tax rate that normal wage earners do. And there was even a parting gift from Congress: with a little-noticed, lobbyist-inspired tweak in the proposal making it effective in 2011 instead of the proposed 2010 Capitol Tax and the others achieved an immediate, additional tax savings for their clients of about $2 billion.
A Lobbyist's Super Bowl
The battle over that carried-interest provision was dwarfed by the real action this year the massive financial-regulatory-reform bill hammered out by a House-Senate conference committee and targeting what the White House says were the causes of the economy's near meltdown in 2008. The legislation, which would bring more change to Wall Street than anything else enacted since the New Deal, was a Super Bowl for lobbyists. But with the legislation, unlike the Super Bowl, where there's one winner and one loser, every yard the lobbyists gained bought handsome returns for their clients, even as the final score that dominated the headlines was that major financial reform had passed and Big Business had lost. This is the story of how they grind out those yards.