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Koch industries web of influence

Koch spends tens of millions trying to shape federal policies that affect their global business empire.  The Center for Public Integrity digs deep into the Koch's influence and finds it extends beyond  the highest levels of U.S. government to Canada and Europe.

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Another industry tax break that drew the support of Koch representatives is the venerable “LIFO” (last-in, first-out) accounting rule. It allows energy companies effectively to raise the value of their existing inventory (and thus pay lower taxes on profits from sales) when the price of oil soars.

Under LIFO, the oil in a company’s inventory, no matter what it actually cost, is valued at the cost of the last-acquired (usually highest-cost) barrel. The LIFO rule has been a target in recent years for both Democrats and Republicans in Washington, who would like to raise revenue without raising taxes.

Bush tax cuts

Koch lobbyists listed the expiring Bush tax cuts as a lobbying objective last year, and the Koch brothers were among an elite, relatively few Americans who profited when the income tax cuts for those earning more than $250,000 a year were extended in a year-end deal.

Another of the Bush tax breaks had special meaning for the Koch brothers. Charles Koch, 75, and David Koch, 70, are tied for fifth place, each with a net worth of $21.5 billion, in the latest Forbes rankings of the wealthiest Americans. Included in the deal to extend the Bush tax cuts was a proposal to reduce the federal estate tax. The Kochs have, historically, been players in an ongoing effort by wealthy families to curb or eliminate the tax on inheritances.

The final tax deal reached by the White House and Republicans in Congress in December set the estate tax at 35 percent. That makes the new rate considerably more favorable than during the Clinton (55 percent) or even the Bush (45 percent) years, and the lowest it’s been since the 1930s. If one of the patriarchs should die while the new rate is in effect, it would save the Koch family billions of dollars.

Terrorism and national security

Another major preoccupation of Koch Industries lobbyists during recent sessions of Congress was the Chemical Facility Anti-Terrorism Standards, a federal effort to identify and regulate chemical facilities that could be vulnerable to terrorist attacks.

In 2009, the House passed legislation that would toughen the standards, and require manufacturers like Koch to use safer chemicals and processes to add another level of protection and minimize the effects of toxic releases from terrorist attacks or catastrophic accidents.

Koch opposed the changes, claiming they “increase cost and regulatory burden while shifting focus away from security and toward environmental considerations.” The chemical security provisions were listed as lobbying targets by Koch representatives in 2007, 2008, 2009 and 2010.

According to EPA records, Koch has four facilities that use chlorine dioxide—in Palatka, Fla.; Zachary, La.; New Augusta, Miss.; and Camas, Wash. It has an Invista plant that uses formaldehyde in LaPorte, Texas. Its Flint Hills refinery in Corpus Christi, Texas, uses hydrofluoric acid in refining gasoline.  

Mandatory use of safer technology would “result in even more job losses and higher consumer prices as American manufacturers struggle to comply,” Koch contends in a statement on the chemical safety standards on its website. The House legislation would “restructure, and likely add additional cost to security programs currently in place for Koch companies’ facilities.”

Financial regulation

Koch pulls no punches when assigning the blame for the great financial meltdown of 2008: It was the government’s fault, not the markets.

“Almost all of these problems (and much of the current chaos) are, at their root, the result of political failure,” said Steve Feilmeier, the chief financial officer for Koch Industries, at the height of the crash.

It is not surprising, then, that Koch Industries — a major player in international trading markets — resisted increased regulation and spent heavily on lobbyists who worked to shape the 2010 Dodd-Frank Act and other vehicles for financial reform. The Koch lobbyists focused, in particular, on provisions aimed at regulating systemic risk in the financial markets, and the use of derivatives.

Koch Industries started out trading crude oil more than four decades ago, but its trading group has since branched into commodities, derivatives and other risk management products.

In that time, the market for trading derivatives and swaps in the energy industry has gone largely unregulated. And in past Congresses, Koch lobbyists labored to preserve the exemption, known as the “Enron Loophole,” that excused energy commodity contracts from regulation.

But the Dodd-Frank law gave the Commodity Futures Trading Commission and the Securities and Exchange Commission the authority to craft new rules to subject traders in the energy industry to increased regulation and transparency, capital and margin requirements, and supervision by a derivatives clearing house. Koch lobbyists worked to favorably shape the bill, and have not stopped working since it was passed.

Within a few weeks after President Obama signed the legislation, Koch lobbyist Gregory Zerzan had secured a coveted meeting with SEC Commissioner Troy Paredes, a Bush appointee, and his counsel, Gena Lai, to discuss how the government would implement the law.

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