Neenah, Wis.- Part Three

Part three of this article about a small manufacturing town in Wisconsin concludes by comparing the political thinking of a long-time employee in one of its industries to that of his boss, who owns the factory.

Beginning an evening shift at Neenah Foundry with a mandatory stretching session.

By NELSON D. SCHWARTZ  Photographs by DAMON WINTER  Nov 25, 2017 for The New York Times

‘Go to Where the Fish Are At’

Watching those changes heightens the anxiety at an old-school manufacturer like Neenah Foundry, but these companies and their workers are adapting. Mr. Lamia, the 57-year-old veteran employee who backed Mr. Trump after decades of always voting a straight Democratic ticket, is a case in point.

Although he complains that “it’s so hard to compete against Mexico,” he has reinvented himself more than once during his career at Neenah Foundry.

After his first job as a laborer was eliminated, he got a commercial driving license and drove trucks there. Looking to rise and avoid another layoff from the foundry, Mr. Lamia then spent one day a week for five years at Fox Valley Technical College and eventually became certified as an electrician. With overtime, he earns roughly $70,000 a year, a solidly middle-class wage here.

Indeed, for workers with two-year degrees in fields like automation, metal fabrication and advanced manufacturing, employers are offering $50,000 to $60,000 to start. “We call them gold-collar workers in the state,” said Susan May, the president of Fox Valley Technical College.

But even as salaries for skilled workers like Mr. Lamia have risen, the number of low-paid entry-level laborers at Neenah Foundry is shrinking.

His boss, Tom Riordan, is about to invest $15 million in robots, automating part of the process in which cast metal parts are removed from sand molds by unskilled chippers and grinders.

“American manufacturers need to take a tough-love approach,” he said, sitting in Neenah Foundry’s nondescript board room, not far from the noisy factory floor. “Sometimes you just have to suck it up, adapt, and serve your customers.”

Mr. Lamia favors another sort of tough love: tariffs aimed at the countries he feels are “feeding off the U.S. and don’t play by the same rules.”

To comply with new government regulations, for example, Neenah Foundry will spend more than $1 million over the next six months to reduce silica particles by half, to 25 parts per billion. In China and India, workers simply make do with masks, and Mr. Lamia doesn’t believe he and his colleagues should be at a disadvantage when environmental standards overseas lag behind those in the United States.

“If Neenah Foundry has to pay millions for emissions controls and China doesn’t have to, then they should have to pay more to export to the U.S.,” he said. “It’s got to be a level playing field, and this should have been done a long time ago.”

Mexico is a more complicated case, Mr. Lamia added, especially given the country’s role as a major importer of American grain and other products. “Trump’s got a lot on his plate, but he should impose tariffs on China for sure,” he said.

Tom Riordan, chief executive of Neenah Enterprises, the foundry’s owner, is frustrated by the influx of cheap products from overseas rivals but worries about the damage a trade war could inflict.

Appealing as the tough talk on trade might be at times, it wasn’t enough to persuade Mr. Riordan, a self-described moderate Republican, to vote for Mr. Trump. Instead, he cast a write-in ballot for a fellow Wisconsinite, Representative Paul D. Ryan, the House speaker.

Mr. Riordan doesn’t discount the appeal of Mexico to manufacturing executives like himself. But he’s not considering a wholesale move south of the border for Neenah Foundry — instead, he wants to find ways to supply American manufacturers who have relocated there. “A lot of our customers are heading south, and you go where the fish are at,” he said.

As for the Nafta trade deal now being renegotiated, Mr. Riordan favors keeping changes to a minimum, rather than ripping up the 24-year old agreement, as President Trump has threatened to do.

“There isn’t an easy answer, but my personal bias would be against that,” he said. “Let’s put some lipstick on this pig, and not make a whole lot of substantial changes.”

He knows that axles made here will go into vehicles exported to Mexico and other countries that are trade targets of the White House. What’s more, Mexico is a major importer of corn and soybeans from American farmers, who in turn buy tractors and combines from John Deere, a major customer.

“Do we really understand what we’re doing?” Mr. Riordan asked. “We have a big trade surplus with Mexico in terms of grain. If U.S. farmers are suddenly at a disadvantage, who is going to pay the price for that? American agricultural equipment manufacturers, which impacts us.”

As the steward of a manufacturer that has survived world wars, the Great Depression, the Great Recession and a couple of trips to bankruptcy court, Mr. Riordan is much more optimistic about his company’s ability to compete globally than many of his workers.

With the North American Free Trade Agreement being renegotiated, White House decisions on trade will reverberate in places like Neenah.

The same goes for the country’s ability to win in trade with the likes of Mexico or China.

“If rational minds prevail in Washington, over time the country will get it right,” Mr. Riordan said. “But Congress and the president need to get it right in the meantime.”

This concludes this three-part article

Neenah, Wis.- Part Two

Part two of this article on a small midwestern factory town recounts some of the experiences of workers suffering from the effects of globalization on their livelihood.

By NELSON D. SCHWARTZ  Photographs by DAMON WINTER  Nov 25, 2017 for The New York Times

‘Change Is Hard for People’

                       John Bergstrom, whose ancestors arrived in Neenah from Norway 150 years ago, has helped build seven new office buildings.

Families are always rising and falling in America, Nathaniel Hawthorne observed around the time John Bergstrom’s ancestors arrived in Neenah from Norway 150 years ago, and Mr. Bergstrom can vouch for that.

The first Bergstroms made cast-iron stoves and carriages. When new technologies made those businesses obsolete, they turned to what would become the region’s dominant industry by the mid-20th century: paper.

They prospered, and the Bergstroms joined the other paper barons who built mansions along Lake Winnebago. That house is now a museum, and the Bergstroms’ paper business faded as mills closed.

John Bergstrom, now 71, had the foresight to diversify, moving into automobile sales and then real estate. From a single General Motors dealership that opened in 1982, the Bergstrom family now dominates auto sales throughout the region, selling everything from Chevys and Cadillacs to Hondas, Toyotas and BMWs.

“Change is hard for people,” Mr. Bergstrom said. “So many of the communities in the middle part of America were based on a particular business or industry, and when that changed, the community didn’t. They lost the ability to continue to be what they once were.”

Indeed, as a developer, he helped Neenah avoid the fate of other Midwestern towns that depended on a single smokestack industry.

In 1993, Mr. Bergstrom and 11 other local businessmen each put in $100,000 to develop a decrepit site downtown with a new office building. It quickly filled up — and since then Mr. Bergstrom has helped build seven new office buildings, lifting the work force in downtown Neenah from 500 to more than 3,700.

A revitalization of the area has attracted businesses like Plexus, a maker of electronic equipment, whose new building is in the background.

One of those sites was the former Bergstrom paper mill, which the town tore down about a decade ago. It is now home to the headquarters of Plexus, a rapidly growing maker of complex electronic equipment that also has two manufacturing facilities nearby, employing nearly 2,000 people in all.

“When you fly on a 747, there are likely Plexus parts in that plane that were made here,” said Dean Kaufert, the mayor of Neenah.

There is still a paper mill downtown as well — Neenah Paper, which traces its roots to the 1870s and was spun off from Kimberly-Clark in 2004. The company has thrived by making high-end stationery, labels and other products requiring production and service know-how not easily replicated overseas.

But the closing of so many other mills has a way of obscuring success stories.

Football fans watching a Green Bay Packers game at The Dome, a restaurant and sports bar owned by Mayor Kaufert.

Nearly a decade after the mill closed in Kimberly, Wis., putting 570 employees out of work, the town is still struggling with how to redevelop the 91-acre brownfield site.

Last month, the paper maker Appvion filed for bankruptcy, putting at least 1,000 jobs in the Appleton area in jeopardy. Nearby, at Appleton Coated, 500 workers have been laid off since the summer, with a skeleton crew staying on as the company’s new owner seeks a buyer for the plant.

Passing the ruins of the abandoned plant in downtown Kimberly as he drove to work at Appleton Coated every day, Chris Bogan would have the same thought: his mill could be next.

So when that came to pass this fall, after five years of winding massive paper rolls, Mr. Bogan was scared, but not shocked. “Three days after I was hired at Appleton Coated, we were warned about layoffs, so I worried about it all the time,” he said.

Two other local manufacturers did step up and make offers to Mr. Bogan and other laid-off workers, but the $14 to $17 an hour they offered didn’t come close to the $28.66 he was earning at the paper plant.

And with his wife at home taking care of two toddlers, including a 2-year-old son with cerebral palsy, there was no way to bridge that gap. “If my wife was working, that would be acceptable, but in my situation that won’t work,” he said.

A Marine veteran, Mr. Bogan has enrolled at Fox Valley Technical College, and hopes to receive his commercial trucking certification in a few months.

That could lift his salary back above $20 an hour, but in the meantime he and his family are without health insurance. His son’s therapy is covered by Medicaid.

Students with two-year degrees in fields like automation can command starting salaries of $50,000 to $60,000 a year

“It’s been a little over a month, and people are coming to terms with the fact that we won’t be making the same wages that we were,” he said. Mr. Bogan said his main concern now was making sure his wife would still be able to bring their son to his occupational, speech and physical-therapy sessions each week.

Downtown Neenah is only a 15-minute drive from his home, but the craft beers on tap there and the farm-to-table restaurants that have opened up might as well be in Madison or Brooklyn.

“The area is changing,” he said. “I grew up on the outskirts of town, and as a local guy, it’s not for me. I’d rather cook a steak at home than go out and pay $120 for a meal.”

To be continued

Neenah, Wis.- Part One

This is the story of small midwestern town that prospered as a factory town in the years following the Second World War, rich in paper production and iron foundries. Since then, foreign competition, from which the town’s industry was not protected, has led to wage stagnation and factory closings. Thus the townspeople, traditionally Democratic (“the workers’ party?”), voted in the last election for the presidential candidate who promised to bring back their jobs from abroad and protect them with tariffs from unfair competition. Will he deliver? Does anyone in Washington care?

The story of Neenah, the town in question, can be multiplied a hundred times throughout Wisconsin, Michigan and Pennsylvania, the three traditionally Democratic-voting states that went Republican in the last election. Someone had better start listening to these Americans and making good on promises before they become irretrievably lost and embittered.

Because of the length of the original article that appeared in The New York Times, we have broken it down into three consecutive postings, of which this is the first. 


Feeding paper into a giant cutter inside the Neenah Paper mill, a survivor in the region’s declining paper industry.

By NELSON D.  SCHWARTZ  Photographs by DAMON WINTER  Nov. 25, 2017 for The New York Times

NEENAH, Wis. — In Winnebago County, they’ve seen the paper mills close, one by one.

While Kimberly-Clark, founded here in 1872, still employs several thousand people locally, abandoned mills dot smaller towns in the region. Paper production has moved to cheaper locales overseas with less stringent pollution rules. That has left a pall — and a sense of fear and insecurity — hanging over places like Neenah, even as factories in other industries are still humming.

For many, the villain is trade.

Take Neenah Foundry, a 145-year-old operation that employs nearly 1,000 workers here. Its employees have watched in frustration as cheap manhole covers and sewer grates flood into the country from India and elsewhere, where competitors are eligible for government subsidies and face fewer environmental regulations.

“For a long time, trade hasn’t been fair,” said Jeff Lamia, who started work at the foundry earning $5.35 an hour, fresh out of high school nearly 40 years ago, and now makes $27 an hour.

“They can build stuff for pennies in China with no environmental rules,” he added. “Our foundry has an ungodly amount of emissions controls and that costs big money. Overseas, they throw it out into the air and we have to compete. That’s not a level playing field.”

Employees have watched in frustration an influx of cheap manhole covers and sewer grates from foreign competitors.

More than a year after Donald Trump’s victory, it’s easy to forget that the seemingly tectonic electoral shift came largely from 80,000 voters in Wisconsin, Michigan and Pennsylvania who moved those reliably Democratic industrial states into the Republican column.

Few places embody the underlying economic and political dynamics of that switch more than Winnebago County. Almost a third of Wisconsin’s 72 counties flipped from blue to red, and like most of them, Winnebago is heavily dependent on manufacturing, whether in gritty blue-collar towns like Oshkosh and Menasha or in Neenah, which is home to both factories and corporate offices downtown.

Indeed, with one-fifth of its jobs in the factory sector, Winnebago is more dependent on manufacturing than over 90 percent of the nation’s counties. As a result, residents worry about foreign competition for locally made products like Oshkosh trucks or the fire engines built by Pierce in Appleton and exported around the world.

And with the North American Free Trade Agreement hanging in the balance, and the possibility of a trade war rising, White House decisions on trade in the months ahead will reverberate here and in other Midwestern states — and may determine whether last year’s political shift becomes more enduring.

Mr. Trump’s attacks on free trade and promises to bring back good-paying jobs from overseas resonated deeply here — even with lifelong Democrats like Mr. Lamia. Those issues, along with a growing disdain for politicians in general and Hillary Clinton in particular, prompted Mr. Lamia to choose Mr. Trump after voting for Barack Obama in 2008 and 2012.

Other foundry workers like Jeff Olejnik, a Democrat who couldn’t bring himself to vote for Mr. Trump in November and reluctantly supported Mrs. Clinton, admits that his message on trade was compelling.


An employee in a filtration suit uses a heavy grinding wheel to smooth down rough edges on molded parts

“People in the Midwest don’t ask for much,” he added. “They want to take a vacation once a year, have decent health care and enough money to pay their bills and save for retirement. That’s our life, but pretty soon there won’t be no middle class.”

For many who have made a life in Neenah, it has been a place where a worker without a college degree can secure the middle-class security and comfort that have slipped out of reach elsewhere.

Mr. Lamia and his wife own a home 10 minutes from the foundry, have three cars between them, and a decade ago they purchased a summer place in Michigan’s Upper Peninsula.

In many respects, economic data for the area still paints a sanguine picture. At 2.8 percent, the county’s unemployment rate is more than a full percentage point below the national average. Help-wanted signs hang from local factories, and Neenah Foundry recently raised hourly wages for chippers and grinders, an entry-level job, to about $12.25 an hour from $11.25.

But there is a creeping sense of having to work harder just to stay in place, as salaries and lifestyles erode amid pressure from globalization and the unceasing demand for ever-rising profits in corporate America.

“People are working similar jobs to what their parents did but are not able to maintain the same lifestyle,” said Mark Harris, a former mayor of Oshkosh who is now the Winnebago County executive. “That’s causing anxiety.”

And while unemployment may be low now, older residents have seen factories and mills close in town after town, with Wisconsin losing 120,000 factory jobs over all since 2000, including 20,000 in the paper industry alone. Not only has that kept wages in check, but it has also prompted doubts among blue-collar workers about whether they — or their children — have much of an economic future here.

“We had eight kids in our family, and my mother didn’t have to work,” Mr. Olejnik said. “Grocery stores weren’t open on Sunday and you spent time with your family. Now, the mall is open on Christmas Eve. We’ve lost a lot.”

To be continued

Amazon at the Top of “The Management Top 250” List

In spite of Amazon’s insensitivity to social responsibility, it is No. 1 in management—due to its exceptionally high score in innovation. Tech companies stay light and profitable in management by contracting out most of their front-line work. Amazon retains its agility by working in small teams and putting its emphasis on  customer satisfaction. This is what we learn from this article in The Wall Street Journal.
Jeff Bezos, chief executive of Amazon, which ranked No. 1 in the Management Top 250. Amazon, Apple and Alphabet are innovation and customer-satisfaction standouts because so many of their products are reshaping industries and social behavior. Photo: Drew Angerer/Getty Images

. . .  The ranking—compiled by the Drucker Institute, founded in 2007 to advance the ideals of the management sage—differs from other “best of” lists in that it doesn’t measure any single aspect of a company’s prowess, such as profits or productivity. Rather it takes a holistic approach, examining how well a business does in five areas that reflect Mr. Drucker’s core principles: customer satisfaction, employee engagement and development, innovation, social responsibility and financial strength.

Tech success

Why do so many of the biggest names in tech—some of which didn’t even exist three decades ago—make the Management Top 250 list?

For the most part, the tech companies at the top get high grades across all five categories, landing in all but a few instances in the upper 15% to 20% of the more than 600 companies analyzed by the Drucker Institute.

Amazon, Apple and Alphabet are innovation and customer-satisfaction standouts because so many of their products—from cloud-computing platforms to smartphones to the burgeoning field of drones and driverless vehicles—are reshaping entire industries as well as social behavior.

Tech firms such as Alphabet and Microsoft also contract out much of their front-line work. The official staff that remain tend to be highly paid and enjoy generous perks, a likely factor in those companies’ high employee scores, says Rick Wartzman, director of the Drucker Institute’s KH Moon Center for a Functioning Society. “Their workforces are the winners of the knowledge economy,” he says.

An innovation powerhouse

There is more than one way to the top. No. 1 Amazon is actually one of the Management Top 250’s most uneven performers. Within the larger universe of analyzed companies, it scored in the bottom 20% on social responsibility. The lackluster grade comes after years of critical news reports about the working conditions of its warehouse workers and poor marks from activists for not being more transparent about its environmental record. Yet, its mighty innovation score—so high that it lies off the charts compared with other companies’ scores—catapulted it to first place.

Amazon, which has assembled a high-profile corporate-responsibility team over the past few years, declined to comment for this article.

The company’s $20.85 billion research-and-development spending in the 12 months through September outstripped all other U.S. companies, according to S&P Global Market Intelligence data. It has kept ahead despite its swelling size by moving quickly and sticking to its founding principle of starting with the customer, says Reid Greenberg, executive vice president of digital and e-commerce at research and consulting firm Kantar Retail.

Its agility, he says, comes from grouping workers in small teams. Chief Executive Jeff Bezos instituted the “two-pizza team” concept, where the ideal team size is one that can be fed on two pizzas. When it was instituted in the early 2000s, it was “really jarring,” says Eric Heller, CEO of Marketplace Ignition, a consulting firm for brands and retailers, and a former senior manager at Amazon. But by getting rid of bureaucratic layers, it fueled innovation. Each team owned projects as small as a single button on the website and was responsible for improvements.

131201231606-vo-amazon-drone-delivery-system-00003211-story-top                      A drone picking up a package in an Amazon warehouse.

At Amazon, potential product ideas get written up into dummy news releases that get marked up. Creators must answer questions such as the cost of the project, how much the product or service would sell for and the launch date.

It’s always day one for Amazon—”today we’re starting day one of the next five years or the next 10 years and we’re not dwelling in the past”—says Mr. Greenberg. “That’s really how the company thinks and breathes, and…that helps them maintain a competitive advantage.”

The company’s early emphasis on frugality led to creative ideas, the most impressive of which were rewarded with a highly coveted “door desk award,” a trophy that looked like a typical worker’s desk. Ideas ranged from how to better affix shipping labels to packages to how to save money on conference-room equipment. . . .

This Tax Plan Puts Another Knife Into American Democracy

Even The Wall Street Journal is warning how catastrophic the about-to-be-voted- on Republican tax bill will be, not only for the middle-class and the unfortunates at the bottom of our social chain but also for our economy as a whole.
Senate Majority Leader Mitch McConnell speaks on Capitol Hill about the importance of passing tax reform, Nov. 30. Photo: Tom Williams/Zuma Press

After more than three decades as an investor, I fully appreciate that folks on Wall Street don’t have time to follow every detail of Capitol Hill’s policy debates. What matters to the financial industry is the bottom line. So how does the current Republican tax proposal look with that in mind?

On the surface, the GOP plan might seem to offer the kinds of short-term rewards that really resonate. But let’s face it: Republicans’ supposedly pro-business ideas have seemed that way before. While business owners and investors may have made extra returns in the near-term, however, America’s economy ultimately suffered.

Less than a decade ago, after years of dramatic deregulation coupled with revenue-draining tax cuts, the entire U.S. financial system effectively collapsed. It took down with it millions of American consumers, workers, small businesses, retirees and middle-class homeowners.

The country can’t afford this kind of outcome again. That’s why I want to be as straight as possible: Despite what you may believe, the Republican tax plan taking shape is a sham. It will lead to more pain and less prosperity for the vast majority of Americans. Investment professionals have a moral obligation and a personal interest in opposing the bill.

Stopping it will be good for investors’ bank accounts, because when Main Street and the rest of the nation does well, so does the financial sector. Trickle-down economics doesn’t work, but trickle-up does. Trying to re-enact Reaganomics under completely different circumstances may well lead the economy back into a recession—one that the country will be ill-equipped to weather after the GOP proposal adds $1 trillion to the national debt.

The plan’s massive tax cuts won’t reinvigorate the economy. For years corporations have enjoyed historically high profits, but investment hasn’t increased alongside them. Last month at a meeting of The Wall Street Journal’s CEO Council, an editor asked attendees whether they would boost investment if the tax bill passed. Few hands went up.

 Neither will it juice consumer spending. Sixty-two percent of the benefits from the Senate bill’s tax cuts flow to the top 1% of earners, according to an analysis by the Tax Policy Center. The true source of consumer power rests with the middle class, yet this report shows that nearly half of American families would ultimately see their taxes rise under this plan. They would be left with less money to spend, not more.

Honest analyses indicate that the Republican proposal overwhelmingly helps the wealthy and is probably a net negative for almost everyone else. That’s largely because it will be paid for with money taken out of the pockets of working Americans and their children: The tax cuts will be used as an excuse to further gut investments in education, health care and training. Slashing these services for working Americans will stunt the country’s future prosperity and weaken the overall economy.

Congress should realize that the American people will not be fooled by the noise. If they see a bill passed that hands out filet mignon to the wealthy while leaving them struggling over scraps, they will be furious. Once again, they’ll realize that the system serves the needs of those at the top and ignores working families. They’ll consider this more evidence of corruption. And it will be harder than ever to argue otherwise.

For too long, those at the top of the economic ladder have refused to concede that opportunity in America is nothing like it used to be for working people. The pain caused in small towns when companies shipped their operations overseas has been ignored. The people who experienced globalization and automation as a huge threat have been forgotten. Too many families and communities have been treated as costs, or as commodities to be ruthlessly exploited.

It’s time to remember that America does not start and end on Wall Street. The country prospers when all Americans succeed together. That’s why we must address the growing inequality that is tugging at the seams of our society and destabilizing our politics. Passing this tax plan, which adds to workers’ pain, would put another knife into American democracy. It would be a true disaster.

You have to ask yourself, how can this make sense? When 1 in 3 Americans say they are still struggling to recover from the Great Recession, is it worth saving the Trump family $1 billion by repealing the estate tax? Worth increasing insurance premiums for middle-class families in the individual market by $2,000, as the Center for American Progress estimates the Senate bill would? Worth taxing tuition waivers, making it prohibitively expensive for young people to get advanced degrees and thus sacrificing America’s economic competitiveness down the road? Worth cutting Medicare by $25 billion? Worth ending tax credits for clean energy, sabotaging one of the most promising industries for the 21st century, while protecting much larger tax breaks for oil and gas?

The rest of the country thinks Wall Street’s greed clouds its judgment. But I know that doesn’t have to be true. No matter where investors fall on the political spectrum, deep down, they know that when patriots put country ahead of self, everyone benefits. There’s still time to acknowledge the significant harm that this destructive tax plan will do to American society and then to oppose it. Let’s take the broad view.

Mr. Steyer is the founder and president of NextGen America and Need to Impeach.

The Expense-Account Racket

Another shocking exposé, this one from The Wall Street Journal, of Wall Street culture. They think of themselves as a “meritocracy” but behave more like an 18th century French aristocracy of the “let them eat cake” variety.


By ANDY KESSLER  Dec. 3, 2017 for The Wall Street Journal

It was almost a rite of passage. Soon after I started on Wall Street in the 1980s, sales folks from the trading floor invited me to dinner. We met at one of those fancy New York steakhouses where French wines flow like tap water. I felt part of a new fun group.

Until, that is, the bill came. Everyone looked at me and another new guy. “You know about the tradition, right?” I recall the senior salesman asking. “Last one in, pays.” At 26, I wasn’t sure my credit-card limit would be high enough. I sheepishly asked how to expense the enormous bill. Simple, I was told: Mark it down as a couple of cab rides a week. Oh, and welcome to Wall Street.

This story came to mind last month after Navnoor Kang, a manager at New York’s state pension fund, pleaded guilty to fraud. He had been bribed to direct bond business to the trading firms Sterne Agee and FTN Financial. This included vacations, drugs and prostitutes. I kept thinking: How the heck did the salespeople at these firms write off all this stuff on their expense accounts?

Wall Street was supposed to have been cleaned up by now. In 2006 the investment-banking firm Jefferies paid nearly $10 million in fines after lavishing gifts on Fidelity traders. These included “a booze-fueled bachelor party replete with strippers and dwarves,” according to the New York Post.

Two years later the Securities and Exchange Commission charged Fidelity for “improperly accepting more than $1.6 million in travel, entertainment, and other gifts paid for by outside brokers courting [its] massive trading business.” The perks included “premium sports tickets to events including Wimbledon, the Super Bowl, and the Ryder Cup golf tournament.” Fidelity cleaned house.

Who hasn’t fudged expenses? At one point companies could lower their taxes by deducting 100% of entertainment expenditures as legitimate business costs. Partly to cut back on those infamous three-martini lunches, Congress changed the law starting in 1987 to allow only an 80% deduction. In 1994 the government lowered it to 50%, where it stands today. I can’t think of any good reason why it isn’t zero.

Think about it: If you have to ply your clients with gifts or meals to get them to do business with your firm, then your product probably isn’t worth its price. Why should taxpayers subsidize your company for producing lame products or you for being a lousy salesman?

When the new Yankee Stadium opened in 2009, the 1,800 premium seats in the sections around home plate—as much as $2,500 a game at first—were nicknamed the Goldman Sachs seats. This was during the financial crisis, and the optics of opulent bankers sipping champagne near the on-deck circle became too much. One Goldman partner told me at the time that if any of the firm’s employees were seen in those seats, with or without clients, they would be fired on the spot.

Houston Mayor Sylvester Turner told the Houston Chronicle that this year’s Super Bowl LI brought $350 million into the city’s economy—in one weekend, and you know virtually all of it was expensed. Thank you, taxpayers. Vic Macchio, who runs a corporate dining network called Dinova, has estimated the “business dining spend in the U.S. to be $60+ billion annually.” I’ll bet that’s low.


All this presents an opportunity. Why not zero out the tax deduction for business entertainment? Same for “sponsorships” and other client giveaways. That’s, by my calculations, tens of billions lost every year in exchange for unproductive schmoozing and bribes to buy bad products. Restaurants and bars will complain. So what? It would remove another distortion from the tax code.

And some personal advice: A lot of people cheat on their expense accounts, but don’t do it. I can go on about moral responsibility but will instead note that software can make audits easy. Modern code could have quickly found my months of illusionary taxi rides.

I’ll also remind you of Mark Hurd, Hewlett-Packard’s ex-CEO. In 2010 he was accused of sexual harassment by an outside contractor, an actress named Jodie Fisher. HP ’s board found that Mr. Hurd didn’t violate the company’s sexual-harassment policy, but he got axed anyway—for $20,000 of irregularities with his expense accounts.