The 1974 Sex Scandal that Drives Today’s Inequality

Did a little sex – and a healthy dose of transparency – set off the 50-year rise in inequality?

Let’s take a look at the events.

In 1974, with income and wealth inequality in the United States near all-time lows, one of the most secretive members of Congress, Democrat Wilbur Mills, was caught up in a sex scandal with stripper Fanne Fox.

Mill’s extramarital affair with the “Argentine firecracker” proved quite a sensation — and for good reason. At the time, Mills was considered a short-list selection for the Supreme Court and a presidential hopeful, a status he achieved by successfully chairing the most powerful committee in Congress, Ways and Means.

But when police pulled over a bloody-faced Mills for drunk driving, things changed fast. As the cops approached, Fanne jumped out of his car and flopped straight into the dirty Tidal Basin waters by the Jefferson Memorial, splashing frantically in the dark. The police handcuffed Fox and booked them both. The headlines wrote themselves.

In the wake of the scandal, Mills was forced to step down. And one could almost hear cheers from Capitol Hill. Mills had ruled Ways and Means with an iron fist for years. During that time, both special interests and reformers looked to pressure or tame him, but failed.

Mills primary weapon was secrecy.

Unlike the chairmen of other recently “modernized” committees, Mills kept his committee hearings and markup sessions closed, making sure that House-Senate conference committees on tax-related legislation remained closed as well. He shut out the House Speaker, the President, the press, other members of Congress and most importantly the lobbyists who frantically sought entry.

With Mills’ departure, the doors burst open. Energized by the sex scandal and the calamity of Watergate, disgrunted legislators applied “open government” reforms to Ways and Means. And so, with the hit single “Let the Sunshine In” squawking from radios everywhere, the last of the holdout committees opened its doors.

The transformation was jarring. In 1971, when the reforms began, Congress was one of the most secretive institutions in America. By 1975 it was one of the most open. But, those who walked into the open committees were not the constituents reformers expected – they were the lobbyists. This disturbing dynamic has not gone unnoticed.

In 1971, an obscure Congressional Quarterly article noted that open committees attract more lobbyists. In 1973, representative Harley Staggers exclaimed that with open committees, “every lobbyist in America is going to be there.” And political scientist Richard Fenno wrote about the how sunshine benefit outside forces. The more the data appeared, the more scholars hopped on board, to the point where hundreds of academics have now spoken out about the benefits that sunshine confers to the wealthy and their lobbyists. For this reason President Joe Biden declared that secret ballot votes in Congress benefit the general public - in the State of the Union.

Apprehensions about open government date back to the writing of the Constitution. The Framers conducted their work under rigid rules of secrecy - behind closed doors, sparse journals, secret votes and sealed windows. In defense of these actions, Alexander Hamilton claimed “had the deliberations been open while going on, the clamors of faction [special interests] would have prevented any satisfactory result.” James Madison agreed. And as a result, they inserted a constitutional right to secrecy – which only applies to Congress – in Article 1.

Today, Hamilton’s comments read like a chilly prediction. Mills’ 1975 departure, and the opening of the Ways and Means, coincides precisely with a massive surge in lobbying and the start of the steepest five-year drop in the tax burden on the wealthy in American history.

This drop is the central focus of the ground-breaking work of Thomas Piketty and Emmanuel Saez. Unlike scholars before them, the two economists explore the dynamics of inequality through something known as the ‘effective tax rate.’ Prior scholars built their calculations on the ‘statutory rate’ – the amount the rich are supposed to pay. But, by looking at what the rich actually paid – the ‘effective tax rate’ – we get far greater accuracy.

As Piketty and Saez show, the “statutory” rate can be deceiving. At 14,000 pages long (a number that has exploded in the past decades), the tax code is innordinately complex and near impossible for economists to decipher. This is hardly a mistake. Hordes of lobbyists craft this complexity by pushing for obscure loopholes. As a result, the wealthy – by hiring crack accountants and lobbyists – routinely pay far less than what one might expect. In one chilling study, journalists Barlett and Steele won a Pulitzer Prize for uncovering intricate loopholes written exclusively for single, specific wealthy individuals.

It turns out lobbyists don’t just seek to lower the rate their clients pay, they also push to defund the IRS’ team of enforcement. As the New York Times writes “The government employs fewer people to chase deadbeats than at any time since the 1950s.” By defanging the tax police, wealthy interests pocket trillions more.

So, Piketty and Saez sidestepped the pitfalls of statutory rates by tallying the amounts the rich actually paid. This gives us a more precise picture on who contributes what to the government and who keeps what in their pockets.

Their conclusions are alarming. They show that in 1976, the wealthiest Americans paid an effective rate of about 70 percent. But five years later, that number had plummeted to 45 percent – the biggest such drop in history. Worse, this occurred at a time of sharp increases in government spending, resulting in a surge in the debt and taxation on the middle class.

Even before Piketty and Saez presented their data, scholars Hacker and Pierson claimed that over 30% of inequality can be explained by the changes in taxation. Florida scholar Shi-Ling Hsu, goes further claiming that “fifteen percent of national income – a little more than $2 trillion per year – has shifted from the bottom ninety percent to the top ten percent.” In other words, the changes in the tax laws amount to a loss of more than 10 thousand dollars per middle-class American per year. Extending this analysis back to the time of Mills’ departure, the loss is nearly half a million dollars per person.

The first book to observe the destructive effects of transparency on taxation came in 1990 from Princeton’s Douglas Arnold. His work, The Logic of Congressional Action, focuses primarily on the beneficial secrecy of the 1986 Tax reforms, but in this particular passage he looks back to the time of Mills. He writes:

The switch from the quiet back-room deals of the Ways and Means Committee to the more open procedures shows how tax preferences thrive in the sunshine. It is relatively easy for legislators to turn down proposals for expanding tax preferences, or even to approve contractions, if their actions are hidden from public view. It is considerably more difficult to do so if legislators must vote publicly.

These dynamics cannot be overstated. Democracies are built on taxation. And all federal taxation is decided in the Ways and Means committee. The members control how much cash people keep in their pockets, who pays for new roads, and how much funding goes to the military and Medicare. Most importantly, they control how progressive or regressive our taxes will be. More than any supply or demand curve in economics, the Ways and Means controls inequality.

And in his secret commmittee, Mills was best able to contain inequality. In 1965 he bit into the inchoate Medicare proposals that were floating about the House and, like a crocodile, pulled them down into the dark waters of his committee. By the time special interests realized what was going on, the nation’s first major health care legislation had passed. The benefits for the poor would be seismic.

Princeton scholar Julian Zelizer has written about Mills’ ferocity and technique. He shows that by using secrecy, Mills was able to parry the more open and porous Senate and ignore the frantic pleas and threats of lobbyists. In the lead up to the Tax Reform Act of 1969, the closed-door work of Mills stopped over 75 generous tax breaks for the affluent that had been previoiusly approved by the Senate.

“By the end of the closed sessions, free from the gaze of interest groups, Mills had eliminated many of the costly amendments that the Senate had adopted,” Zelizer relates.

Before the reforms, lobbyists literally had to wait – as their name suggests – in the lobby. They could only peek through the keyholes while Mills and others crafted legislation in the shelter of darkness. But with the sunshine, the lobbyists rolled in. Reforms designed to benefit the public backfired.

Similarly, in a bicentennial review of the Ways and Means Committee, authors Kennon and Rodgers conclude:

In 1973, some 30 percent of committee meetings were closed to the public, but in 1975 only 2 percent were closed. Lobbyists and special interest representatives took advantage of open meetings to press their cases. As one member of the committee observed, “Open meetings put special interests into the process and gave them an active input.” Another member commented disapprovingly that at one markup session, several members of the committee “went down and sat in the audience and talked with a specific interest and wrote an amendment, came back up and offered it.”

The most forceful declaration yet on these issues occured earlier this year. Princeton scholar Francis Lee presented these ideas to Congress, becoming the first scholar in history to do so. And it was emphatic. She declared that lobbyists are the primary beneficiaries of all increases in transparency and accountability.

These are changes that can be seen in the committee rooms themselves. With sunshine, once tiny committee rooms have grown in size to incorporate the flood of lobbyists. And the most influential committee, Ways and Means, floods so often that author Jeffry Birnbaum has famously referred to the hallways and committee rooms as “Gucci Gulch," a reference to the hoardes of suddenly flourishing lobbyists dressed up in silk suits and Gucci shoes.

Evidence from nearly fifty years of government transparency is clear. Citizens do not take advantage of congressional transparency but special interests do. This leads us to the obvious and time-tested conclusion: The best way to drain the swamp and reverse the rise in inequality is to simply ask the lobbyists to step back into the lobby and then gently close the doors.

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James D’Angelo is Founder of Congressional Research Institute where he researches the weaponization of transparency and related issues.

David King is Senior Lecturer of Public Policy at the Harvard Kennedy School.