Apple becomes latest target of the Beltway shakedown

Reuters

Apple CEO Tim Cook testifies at a Senate homeland security and governmental affairs investigations subcommittee hearing on offshore profit shifting and the U.S. tax code, on Capitol Hill in Washington, May 21, 2013.

Article Highlights

  • Senators are angry that tech giant Apple isn't paying its fair share -- in campaign contributions and lobbying fees.

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  • The grilling of Apple is a shakedown by politicians upset with Apple for not playing the Washington game.

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  • The Beltway Shakedown is an old game. Microsoft may be its most famous victim.

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  • Will Apple try to stand up to the Beltway Shakedown? @TPCarney

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Senators are angry that tech giant Apple isn't paying its fair share.

I'm not talking about taxes. This is about campaign contributions and lobbying fees.

An investigation by Sen. Carl Levin and a grilling of Apple CEO Tim Cook on Tuesday by the Senate's Permanent Subcommittee on Investigations were ostensibly about Apple's low tax bill. But nobody accused Apple of breaking the law. The company moved money around to minimize the tax it owed and then paid the amount the law required. Apple didn't write the tax law or even lobby very hard to shape it.

And that's just the problem. The grilling of Apple is best understood as a shakedown by politicians upset with Apple for not playing the Washington game that yields contributions, power, and personal wealth for congressmen and their aides.

Apple doesn't have a political action committee to fund incumbents' re-elections. Apple doesn't hire many congressional staff or any former congressmen as lobbyists. Apple mostly minds its own business -- and how does that help the political class?

The Beltway Shakedown is an old game. Microsoft may be its most famous victim. In the 1990s, while the Federal Trade Commission investigated the software giant for supposed antitrust violations, the Senate Judiciary Committee, run by Republican Orrin Hatch of Utah, held hearings to beat up CEO Bill Gates.

Microsoft's crime? "I have given [Microsoft] advice, and they don't pay any attention to it," fumed Hatch, who described this as "knuckle-headed and hard-nosed."

"The industry had an attitude that government should do what it needs to do but 'leave us alone,' " a congressional aide complained to Businessweek at the time. "Their hands-off approach to Washington will come back to haunt them."

Microsoft got the message and ramped up its lobbying and campaign spending. From $2 million on lobbying in 1997, the company's lobby shop grew to nearly $10 million by 2004. From less than $50,000 in contributions in the 1996 cycle, Microsoft's PAC grew twentyfold in two cycles, to $1.2 million 2000 and $2.3 million in 2012.

Hatch, in 2000, made sure others learned from Microsoft's experience, telling a tech conference, "If you want to get involved in business, you should get involved in politics."

In the 2012 election, where Hatch faced a tough primary, he pocketed $10,000 of Microsoft PAC money.

Lawmakers have sent that message to many industries, sometimes more subtly.

When Democrats took control of the Senate in 2007, Democratic Sen. Chuck Schumer of New York invited top hedge fund moguls to dinner in January, where, as the New York Times put it, he "had some simple advice for the billionaires in his midst: If you want Washington to work with you, you had better work better with one another."

In the following election, hedge funds tripled their campaign contributions over the previous cycle. The industry's lobbying spending increased twelvefold that year. One way in which the industry ramped up its lobbying: hiring Schumer's banking staffer, Carmencita Whonder, as a lobbyist. Whonder then became a Schumer bundler, raising money for him.

Politicians beat up Wal-Mart until Wal-Mart hired Democrat Leslie Dach in 2006 as its top political aide. The retailer started heavily funding the liberal Center for American Progress, run by Obama transition director John Podesta -- and hiring the lobbying firm Podesta co-founded.

Apple has held out, though. Every couple of years, Politico, the trade publication of the Beltway, has run a piece warning Apple of the dangers of ignoring Washington. "Its low-wattage approach in Washington is becoming more glaring to policymakers," a 2010 article said, pointing out that the company doesn't have a PAC and its lobbying spending was a paltry $1 million.

The 2012 Politico warning to Apple included an explicit threat from a Judiciary staffer-turned-lobbyist, Jeff Miller: "There have been other tech companies who chose not to engage in Washington, and for the most part that strategy did not benefit them."

"Not engag[ing] Washington" includes spending only $1.97 million on lobbying in 2012 -- Google spent more than twice that much in last year's first quarter alone. Just as offensive, Apple still doesn't have a PAC.

A year ago, recounting the Microsoft saga, I wrote, "Wal-Mart underwent this same shakedown last decade ... Next on the menu is Apple."

That's the best way to understand Levin's investigation and the hearing. The thing to watch now: Does Apple make peace with Washington? Does it start a PAC? Does it hire the Podesta Group and employ Levin's aides?

Or will Apple try to stand up to the Beltway Shakedown.

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