After a decade of increasing regulations on industry, Lewis Powell, a corporate lawyer who represented cigarette companies and served on the board of tobacco-giant Philip Morris, penned a memo titled “Attack on American Free Enterprise System,” which rallied the business community to fight back through organized political activism. “No thoughtful person can question that the American economic system is under broad attack,” Powell’s memo began. “Business must learn the lesson, long ago learned by labor and other self-interest groups. This is the lesson that political power is necessary; that such power must be assiduously (sic) cultivated; and that when necessary, it must be used aggressively and with determination...”. Powell went on to become a Supreme Court justice; his memo is widely credited with ushering in an era of growing corporate influence in government.
Galvanized to action, top corporate CEOs came together to form the Business Roundtable, an organization that would lobby on behalf of the shared interests of the most powerful companies. By 1977, CEOs from 113 of the top Fortune 200 companies had joined, representing nearly half the nation’s economy.
Jimmy Carter had campaigned on promises of a simpler and more progressive tax code. But after the administration presented a (surprisingly modest) tax bill to Congress in January 1978, business coalitions lobbied sympathetic members of both parties and were able to add an amendment to the House bill that cut the capital gains tax almost in half. The final bill — which passed a Democratic House and Senate and was signed by a Democratic president — included a reduction of the top capital gains rate from 48 to 28 percent.
1978: Labor Fights Back — And LosesEmboldened by newly-won Democratic control of both houses of Congress and the presidency, labor unions fought for a major reform bill that would have increased penalties for companies violating labor laws — had it passed. But Business Roundtable, the Chamber of Commerce and other business organizations joined forces in opposition, outspending labor 3-1 in their lobbying efforts. After five weeks of filibuster in the Senate, the bill was sent back to committee, never to return — an unexpected defeat for labor and a major victory for big business.
July 1978: Class WarfareA few weeks after the death of the labor reform bill, Douglas Fraser, the longtime head of United Auto Workers, resigned from President Carter’s Labor-Management Group, an organization meant to cultivate good relations between labor and business. In his resignation letter, he wrote: “I believe leaders of the business community, with few exceptions, have chosen to wage a one-sided class war... against working people... and even many in the middle class of our society.”
PATCO Strikers Fired: On Aug. 3, the Professional Air Traffic Controllers Organization declared a strike. Calling the strike illegal and a “peril to national safety,” President Ronald Reagan threatened to fire the nearly 13,000 air traffic controllers unless they returned to work within 48 hours. Then, in a move that was previously considered unimaginable, he did.
Supply-Side Economics: On Aug. 13, President Ronald Reagan aimed to put his theory of supply-side economics to the test with the 1981 tax bill. Supported by Republicans and conservative Democrats alike, the bill included sharp reductions for businesses and across-the-board individual rate cuts, with the top tax rate falling from 70 to 50 percent. Most tax rates were indexed to inflation, leading to “bracket creep" — meaning that taxpayers would now move into higher tax brackets as their incomes rose to keep up with inflation, despite their real purchasing power staying the same.
The Tax Reform Act of 1986 cleaned up the tax code, consolidating the bracket structure and reducing tax breaks for big corporations. Dubbed “the showdown at Gucci Gulch” after the corridor in the federal office building where lobbyists clad in expensive suits await decisions on legislation, the law’s passage was seen as an unlikely triumph of bipartisanship, with voters winning out over the monied lobbyists. But the voters and the press, feeling victorious, turned their attention elsewhere, while the lobbyists in Gucci Gulch went right back to work.
During the dot-com bubble, stock options became a popular way to beef up compensation packages for executives; by 1991, stock options accounted for roughly half the earnings of the average CEO. But the cost of these options was hidden — they weren’t subtracted from profits because no money exchanged hands (though, curiously, companies were allowed to deduct the cost of stock options from their income taxes). In 1993, the FASB (Financial Accounting Standards Board), an independent watchdog sanctioned by the FEC, proposed a new rule that would force companies to reveal the cost of stock options. But CEOs took their opposition to the regulation to Congress, and, led by Senators Joe Leiberman and Barbara Boxer (both Democrats), the Senate passed a resolution expressing its disapproval. The regulation never went into effect.
By the late '90s, concern was growing over the use of increasingly complex derivatives such as credit default swaps. Foreseeing the financial catastrophe that eventually came to pass, Brooksley Born, chair of the somewhat obscure Commodity Futures Trading Commission (CFTC) struggled to introduce regulation into this market, but was fought at every turn. Rebuffed by the likes of Alan Greenspan, Robert Rubin and Larry Summers, Born’s warning went unheeded, and in 2000, Congress, led by Senator Phil Gramm, passed the Commodity Futures Modernization Act, which ensured that derivatives would not be regulated.
The Glass-Steagall Act (formally the Banking Act of 1933), was a depression-era law that separated commercial and investment banking in order to protect people’s bank accounts from risky investments. In 1999, culminating a decade of deregulation of the financial industry, this wall was essentially torn down by the Financial Services Modernization Act of 1999, also known as the Gramm–Leach–Bliley Act. One of the lone objectors to the legislation, Sen. Byron Dorgan, D-North Dakota, famously remarked, “I think we will look back in 10 years time and say ‘we should not have done this.’” A decade later, the repeal of Glass-Steagall was widely cited as a major cause of the financial crisis of 2008.
Feeling betrayed by tax hikes under President George H.W. Bush (despite his promise: “Read my lips, no new taxes”), anti-tax Republicans emerged from the Clinton years insisting that tax reductions, particularly for the rich, were a top priority. In 2001, the new Bush administration passed sweeping tax cuts, more than a third of which went to the richest one percent of Americans, who saved an average of $38,500 per household. The bottom 80 percent saved an average of $600. Follow-up tax cuts in 2003 had an estimated cost of $1 trillion over 10 years.
In September 2008, the financial system built up over the previous three decades fell like a house of cards as some of Wall Street’s biggest players collapsed — Lehman Brothers (at the time the fourth largest investment bank in the world) went bankrupt, while Bear Stearns, on the brink of bankruptcy, was rescued by a deal orchestrated by the Federal Reserve; the Fed also took control of Fannie Mae and Freddie Mac, the world’s largest mortgage lenders, and took an 80 percent ownership stake in insurance giant AIG in exchange for an $85 billion loan. With the economy in freefall, Congress authorized the Treasury to spend up to $700 billion to bail out failing banks through the Troubled Asset Relief Program, or TARP.
In the wake of the financial crisis, Congress passed the Dodd Frank Wall Street Reform and Consumer Protection Act, which expanded the federal government's role in financial markets. The legislation was intended as a major overhaul of the laws governing the nation’s financial industry, an attempt to prevent another financial meltdown. But industry vowed to overturn the legislation, and with the help of Republicans in Congress, has managed to water down key sections and hold up enforcement of others.
2010: Citizens UnitedIn 2008, a conservative non-profit organization called Citizens United produced an activist video,“Hillary: The Movie,” — which was scheduled to air on cable TV during the democratic primaries — was banned on account of the McCain-Feingold Act, which barred political advertising paid for by either unions or and corporations in the final 30 days of election campaigns. The case made it all the way to the Supreme Court. In a landmark 5-4 decision, the court ruled that the First Amendment prohibits government from limiting corporate political spending, overturning parts of the McCain-Feingold Act and paving the way for unrestricted corporate spending on elections.