BILL MOYERS: From time to time over the next few months we will step outside the election bubble and look at the hard cold facts of power. We'll have the help of some journalists like Craig Unger, whose reporting raises uncomfortable questions few politicians of either party want to answer. For example: Why do some of the most powerful and privileged people in the country get a free lunch you pay for? You'll find some of the answers right here in this book by that very name: Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense (And Stick You With the Bill). The author is another of America's top investigative reporters—David Cay Johnston of The New York Times. He's won the Pulitzer Prize and the George Polk Award and many other accolades over his forty years as a journalist. Welcome to the Journal.
DAVID CAY JOHNSTON: Thank you for having me.
BILL MOYERS: How did you get interested? I mean, behind Free Lunch is a 40-year record of chasing the stories and writing about them in one—The Philadelphia Inquirer, the San Jose Mercury, The New York Times. What propelled you?
DAVID CAY JOHNSTON: Well, I was always interested when I was young in the exercise of power. My father, who grew up in New Orleans and then left it because he couldn't stand the racism, would stand my brother and I in front of the little 15-minute news in the '50s. We would see, you know, hoses being turned on demonstrators or whatever and he would say, you know, "There but for the grace of God go you, you know? You could be black and living in the South and your life would be horrible." And that got me to seeing around me—things about how people are treated. And then when I became a reporter, I began to realize that you can have a nice life and just report on what the city council said but that there were really interesting things going on if you paid less attention to what the politicians said and more attention to what the government actually did. And it got me to start thinking about how government finance and taxes and government spending are related to the quality of our lives.
BILL MOYERS: But some of your critics have said you've gone beyond investigative reporting in this book to become a crusader against the rich. Do you object to people getting rich?
DAVID CAY JOHNSTON: Oh, no. I—good grief. I have no objection to that whatsoever. But get rich by working hard, working smarter, coming up with a better mousetrap. Don't get rich by getting the government to pass a law that sticks the government's hand into my pocket, takes money out of it, and gives it to you. That's not right. That's not a fair playing field. And Adam Smith, you know, warned again and again that it is the nature and tendency of business people to want to put their thumb on the scale, and even better, to get the government to put the thumb on the scale for their benefit. And that's what we've seen going on now in our society for some time.
BILL MOYERS: Yeah, the theme of the book as I read it is that not that the rich are getting richer but that they've got the government rigging the rules to help them do it.
DAVID CAY JOHNSTON: That's exactly right. And they're doing it in a way that I think is very crucial for people to understand. They're doing it by taking from those with less to give to those with more. So the other moral authority I cite in the book is the Bible, both the Old Testament and the new. And all the way through those two books you can read condemnation after condemnation of taking from the poor to benefit the rich. You will come to ruin, it says in the Old Testament, if you give to the rich and yet that's what we're doing. We gave $100 million dollars to Warren Buffett's company last year, a gift from the taxpayers. We make gifts all over the place to rich people. And yet the way the news media write about it, people are often very unaware of this because we use complicated terms and meaningless language to the average reader so they don't understand what's happened.
BILL MOYERS: You mentioned Warren Buffet. I was impressed in the book that you do name names. And so let me mention some of the names that you talk about in the book. Warren Buffet. Everyone respects him as the world's greatest investor. Yet he's in your book on free lunches.
DAVID CAY JOHNSTON: In several places.
BILL MOYERS: Several places.
DAVID CAY JOHNSTON: He got a $665 million interest-free loan for the utility he has in the Midwest. Now—
BILL MOYERS: From? He got the loan from?
DAVID CAY JOHNSTON: From the taxpayers. Now, imagine for a moment that the house you live in today, you bought it 24 years ago and you agreed to pay the price then. And now you've got to pay back with no interest half the price in the dollars you agreed to in 1924. You could be rich just from that alone.
BILL MOYERS: But those are the rules. Buffet was doing something legal.
DAVID CAY JOHNSTON: That's right. And that's always the biggest scandal is what is legal. Steve Jobs. Well, Steve Jobs got $70 million of stock options at a meeting of the board of Apple company directors that never took place.
BILL MOYERS: In fact, you say Steve Jobs arranged to have his fraudulently-issued options exchanged for restricted stock worth hundreds of millions. And the government has yet to take any action.
DAVID CAY JOHNSTON: Well, not against him.
BILL MOYERS: But not against him.
DAVID CAY JOHNSTON: They prosecuted two people under him, one of whom said, "I warned Mr. Jobs about this." Mr. Jobs says, "You know I really didn't understand the rules."
BILL MOYERS: Donald Trump.
DAVID CAY JOHNSTON: Donald Trump benefits from a tax specifically levied by the State of New Jersey for the poor. Part of the casino winnings tax in New Jersey is dedicated to help the poor. But $89 million of it is being diverted to subsidize Donald Trump's casino's building retail space.
BILL MOYERS: How does that happen?
DAVID CAY JOHNSTON: Political connection, the news media not paying enough attention—
BILL MOYERS: The New York Yankees.
DAVID CAY JOHNSTON: George Steinbrenner, like almost every owner of a major sports franchise, gets enormous public subsidies. And Steinbrenner is getting more than $600 million for the new Yankee Stadium on—
BILL MOYERS: From the public?
DAVID CAY JOHNSTON: From the public. But, you know, the major sports franchises which are, first of all, exempted from the laws of economic competition. So—
BILL MOYERS: Yeah, a monopoly.
DAVID CAY JOHNSTON: That's right. Irony is not dead. They derive, I show in Free Lunch, 100 percent of their profits from subsidies. In fact, if it weren't for these subsidies, the baseball, football, hockey, and basketball enterprises as a whole would be losing hundreds of millions of dollars a year.
BILL MOYERS: And the irony, as you say, is that at least 27 billionaires own major sports teams, all of which benefit from public subsidies.
DAVID CAY JOHNSTON: In one way or another. Some much more than others. But they all benefit.
BILL MOYERS: You remember what Art Modell said back in 1996 when he was manipulating Baltimore and Cleveland into a bidding war for his football team? He was asked how he felt about taking money for his out of—for his own pocket at the very same time library funds were being cut. Remember what he said?
DAVID CAY JOHNSTON: Oh, yes. The pride of having a professional baseball team is worth more than 30 libraries.
BILL MOYERS: George W. Bush.
DAVID CAY JOHNSTON: Well, this is one—this is a great irony. George Bush owes almost his entire fortune to a tax increase that was funneled into his pocket and into the use of eminent domain laws to essentially legally cheat other people out of their land for less than it was worth to enrich him and his fellow investors.
BILL MOYERS: By building this stadium in Arlington, Texas
DAVID CAY JOHNSTON: For the Texas Rangers.
BILL MOYERS: —baseball team—Texas Rangers.
DAVID CAY JOHNSTON: Right.
BILL MOYERS: That's right.
DAVID CAY JOHNSTON: One of the key sources I quote is a prominent Republican lawyer married to a United States senator who is the expert in Texas on municipal finance. The subsidy, he says, is $202.5 million. And Bush and his partners captured about 168 million of it.
BILL MOYERS: Bush, you say, used eminent domain to claim the land on which the stadium was built, right?
DAVID CAY JOHNSTON: Right.
BILL MOYERS: And Bush advised his investors, his co-investors this is a sweet deal—
DAVID CAY JOHNSTON: Oh, yeah. He said that, I mean, here's this money-losing team. It's got this little stadium. It can't make money. But if we can get a stadium built, it'll be worth a lot of money. And that's going on all over the country. All you have to do is get the stadium built and we'll—you'll be rich.
BILL MOYERS: One of your most revealing stories in here for me is about the small merchant of a fishing and outdoor gear who's put out of business by a big competitor who gets $32 million in subsidies from the local government.
DAVID CAY JOHNSTON: Well, you know, if you walk into many of the big box retailers today, you have to pay sales tax at the cash register on whatever you buy. Well, in many of those stores, the government never gets the money. The owners of the stores get to keep it. And who are the big beneficiaries of that? The Walton family that owns Wal-Mart and the Cabela family who own Cabela's, which is a fin, feather, and fur outfitting club for fishermen and hunters. And in this little town—in the Poconos, 4,100 people—they came and said, "We want to build the world's largest outdoor store. $32 million dollars. And the local town fathers went for it because they said all these jobs it'll create and all this economic benefit. And Jim Weaknecht who runs this little tiny store that makes enough money that his wife can stay home and raise their children, he's outraged. He goes, "Nobody gave me a subsidy. If I had gone to City Hall and said, 'Give me a million dollars,' they would have laughed at me." And, you know, he charged lower prices than Cabela's. They still ran him out of business. This little town gave the Cabela family the equivalent of about 11 years of the entire city budget for police and fixing the streets and everything else. And this is going on all across America.
BILL MOYERS: Cabela promised jobs and more money flowing through the economy but that hasn't happened—
DAVID CAY JOHNSTON: No, it hasn't happened. And, in fact, that's the argument made everywhere. What you're really doing is using this government subsidy to draw business away from the existing local merchants who are effectively being taxed to subsidize the newcomer.
BILL MOYERS: You have a chapter in here about an economics professor who embraced the idea of getting government out of the way of business. And yet then he turned around and made cultivating government his business, quote, leaving behind a trail of death and costs that were shifted onto the taxpayers. And he went on to become our government's Treasury secretary.
DAVID CAY JOHNSTON: John Snow was a brilliant young economics professor and lawyer who wrote about how the government system of regulating transportation was inefficient and causing difficult costs. And in the Ford administration, had a prominent role in promoting deregulation of trucking. Then he got a job with what's now the CSX Railroad.
BILL MOYERS: And what is CSX?
DAVID CAY JOHNSTON: It's one of the largest railroad companies in America. And that railroad, the—his mentor, Hays Watkins, won an award from Industry Week magazine. And the whole reason for the reward was their success at milking the government for favors. And Snow, throughout his career, spent an enormous amount of time going and meeting not with presidents of the United States but with the congressmen and senators and the staff members and the bureaucrats you're never going to hear about in the Transportation Department and the Appropriation Department to get all the rules and favors that he wanted.
And one of the worst rules is this. If you're on an Amtrak train and there is an accident and something happens to you, the damages that occur are always paid by the taxpayer, even if, as in the case I tell about in the book, there was a known unsafe condition that CSX caused in its zeal to cut costs and to increase Mr. Snow's salary.
Even though Snow was warned and warned this is dangerous, we're not doing enough for safety. There were official investigations. They stuck to their policy. They saved $2.4 billion dollars. Well, people died because of it. One widow pressed her case, got all the way to the Supreme Court with it. Got $50 million in damages awarded by a jury. Couldn't today 'cause Governor Jeb Bush in Florida signed a law to prevent this from happening again. But got $50 million in damages. Didn't cost CSX a penny. They just handed the bill to the taxpayers and said, "You get to pay."
BILL MOYERS: Because this is a law.
DAVID CAY JOHNSTON: That's the law.
BILL MOYERS: Passed by Congress.
DAVID CAY JOHNSTON: That's right. And this is a moral hazard. It's another thing that Adam Smith warned us about. You shouldn't be able to say, "I get the rewards and you the taxpayer are going to take up all the risks."
BILL MOYERS: Are you agreeing with Ronald Reagan that government is not the solution; government is the problem?
DAVID CAY JOHNSTON: Well, there are lots of problems with the government. I've spent my life exposing all sorts of problems with government. But government is fundamentally essential. Government is what creates for us civilization.We created this country so that we could be free, so that we could pursue our lives the way that we want to pursue them. And wealth is a byproduct of that. But the government is being turned into a vehicle not to ensure our liberties and create a level playing field but instead into a vehicle to take from the many to enrich the few.
BILL MOYERS: There was a stunning section in your book where you say these new rules that have come about in the last few years help Goldman Sachs and Lehman Brothers, MBNA, that's the big bank holding company, and Citibank exploit the poor, the unsophisticated, and the foolish because these lenders can now charge rates and impose penalties that were illegal, even criminal, a generation ago.
DAVID CAY JOHNSTON: You know, we used to put people to death 500 years ago for loaning money for interest. And for a long time the government regulated the kind of interest that you could charge. And then we had a Supreme Court decision in 1978. And the Supreme Court in that said, you know, 'cause the way the law's written we're basically undoing the usury laws in this country. And Congress, pay attention, you need to do something to address this. Well, Congress did. Discovered it was a fabulous way to milk banks and related companies for campaign contributions. And they did for years and years and years and years. Now you turn on your television and there's Gary Coleman, the former child star—
BILL MOYERS: Right.
DAVID CAY JOHNSTON: —promoting a loan where they'll put the money right into your bank account over the telephone, calling in on the telephone, at 99.25 percent interest. Almost two points a week. When I wrote that I was thinking about a mob guy who was a loan shark and what he would have thought because he spent some time in prison for loan sharking if he were still alive about these ads where now big corporations are doing what he used to do. Except they don't break your legs, they just take your house.
BILL MOYERS: But we've been through 30 years of deregulation now. And as you yourself point out in Free Lunch, America today is more than twice as wealthy as it was in 1980. And the economy is putting out two thirds more per person. I mean, you even remind us that more than half of the wealth created in this country since the United States began has been created in the past quarter century. What's to complain about that?
DAVID CAY JOHNSTON: Well, that's tremendous economic growth. The problem is where it's going. The increases in income and wealth are all taking place at the very top. In fact, in 2005 the richest one percent increased their income by far more than the total income of the bottom 20 percent. My contention is that it is government policy that is causing this to happen, that in all sorts of different ways there was a time when government policy was to create and nurture and build a middle class. We have a GI bill. We built an interstate highway system. We invested in education and hospitals. Now we have a government whose policy is to enrich the already rich and make them richer. That's its focus. And I believe that if we continue down that road you create instability and you don't create as much wealth.
BILL MOYERS: You point out, by the way, that Bill Clinton as president gave the super-rich a larger tax break than George Bush's tax cuts, right?
DAVID CAY JOHNSTON: Yeah, I love to trot this one out when somebody goes, "Oh, you're from the New York Times. You must be, you know, pro-Democrat or liberal or whatever." I'm the guy who broke the story and reported on the fact that Bill Clinton gave the super-rich, the 400 highest income people in America a big tax cut. They were paying 30 cents out of each dollar of their income to the federal government when he came into the office. When he left, it was down to 22. Bush has lowered it to 17. Now, first of all, notice you're probably paying more than 17 cents. May well be paying more than 22. But Bush gave them an eight cent tax cut—I'm sorry. Clinton gave an eight cent tax cut and Bush only gave them five cents.
BILL MOYERS: Let me read you this quote from one of your critics, Larry Kudlow of National Review Online and CNBC. He wrote this a couple of years ago after—in response to something you had reported in the New York Times about how Bush's tax cuts on dividends and capital gains had helped people with the highest incomes. Quote: "These entrepreneurs use their God-given talents within the Reagan-esque free market framework that deregulated, slashed tax rates, and provided the first strong dose of economic incentives since the 1920s. A rising economic tide over the last 20 years has lifted living standards, productivity, and employment throughout America. Everyone got richer with a full $39 trillion in new wealth created during this period. Fair?
DAVID CAY JOHNSTON: No. Not accurate either. First of all a rising tide lifts all boats unless you're in the dinghy tied to the dock. And then you get swamped. The poor America, and it's not like being poor in the third world, but the poor America are worse off. Most Americans have seen their incomes stagnate or decline slightly. People have fewer fringe benefits. They have less in retirement. They have an enormous amount of debt. For every additional dollar since 1980 the people have gotten in equity in their homes, they've taken on $2 of debt. That's not a prescription for getting well off.
Entrepreneurs? Entrepreneurs are people who are going to perform no matter what. And we had our greatest economic growth when we had much higher tax rates. You want entrepreneurs. You need entrepreneurs to have a good society. I don't have any problem with entrepreneurs. But we need to have a system that also fairly distributes—and government rules affect the distribution of this; it is not in a vacuum—the burdens of society and the benefits of society. And so when we have people who make billion dollar a year income and pay 15 percent taxes and janitors who pay the same tax rate and school teachers who pay a 25 percent tax rate, something's amiss.
BILL MOYERS: But did you notice what happened when the Democrats briefly toyed with the idea of removing that tax break from the hedge fund and private equity managers Congress thought very briefly about removing it. And then the industry held a big party for—Harry Reid, Senate Democratic majority leader down in Las Vegas, and he came back from that big party and said, "I don't think we'll be taking that up anytime soon."
DAVID CAY JOHNSTON: The problem of the political donor class's outsized influence and its grip on Congress is bipartisan. There's one party in Washington. It's the party of money. It has different wings and factions. But Washington is the party of money. And the wealthiest people in America, the large corporations in America, are busy milking the government for everything they can get. And you are paying the price of their free lunch.
BILL MOYERS: The book is Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense (And Stick You With the Bill). David Cay Johnston, thank you for joining me on the Journal.
DAVID CAY JOHNSTON: Thank you.