A Brief History of Campaign Finance (and Why It Matters)

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On Friday, the National Commission on Fiscal Responsibility and Reform will vote on the chairs' contentious plan to reduce the federal budget deficit.

On January 21, 2010, the Supreme Court decided in Citizens United v. Federal Election Commission that limiting corporate spending on political campaigns was a violation of free speech rights. In the elections last month, we saw our first example of just what that ruling brings to the process -- but many questions about the long-term ramifications on democracy still remain.  

Wait — how did that decision even happen?

In the run-up to the 2008 Presidential primary elections, a small conservative non-profit called Citizens United created a film called "Hillary: The Movie" which negatively portrayed then-Democratic primary candidate Hillary Clinton. The Federal Election Commission (FEC) found that the movie served no purpose other than to discredit Clinton as a candidate, and therefore judged the movie to be what it refers to as "electioneering communications." Campaign finance laws prevent electioneering communications in the 30 days before a primary election. 

Citizens United challenged the FEC's decision in court, but the District Court in Washington D.C. ruled in favor of the FEC. Citizens United then appealed, and in January 2010 the Supreme Court ruled in favor of Citizens United. The ruling was hotly contested even within the court, and passed by just a five-to-four majority, with some blistering dissent from the four progressive justices.

What exactly was the decision?

The court could have ruled much more narrowly, finding that Citizens United was outside the jurisdiction of existing campaign finance law, or that the format of the movie made the existing law not applicable. 

Instead, they overturned a portion of the 2002 McCain-Feingold Act ruling that prohibited corporations and unions from funding, through their general fund, any "electioneering communications" for 30 days before a primary or 60 days before a general election. They also overruled a 1990 decison that limited corporate spending in support or opposition of a candidate.

The Supreme Court upheld a ban on direct corporate contributions to candidates, though there was dissent within the chambers on whether allowing unlimited outside expenditures really amounted to the same thing.

Money = free speech.

The main bone of contention is the First Amendment:

Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.

Justice Scalia argued that corporations pouring money into political campaigns are protected by free speech laws:

The Amendment is written in terms of "speech," not speakers. Its text offers no foothold for excluding any category of speaker, from single individuals to partnerships of individuals, to unincorporated associations of individuals, to incorporated associations of individuals.

Justice Stevens disagreed:

In a democratic society, the longstanding consensus on the need to limit corporate campaign spending should outweigh the wooden application of judge-made rules... the Court’s opinion is thus a rejection of the common sense of the American people, who have recognized a need to prevent corporations from undermining self-government since the founding.. While American democracy is imperfect, few outside the majority of this Court would have thought its flaws included a dearth of corporate money in politics.

Are corporations protected by the First Amendment? While the language mentions "speech" and not the "speakers", the larger question seems to be whose rights the Bill of Rights was written to protect. Is it a bill of corporate rights, individual ones, or is there a difference?

Regardless, the ruling is now that corporations can spend unlimited amounts on political expenditures, so long as those efforts are independent and not coordinated with the campaigns. 

So, now what?

This is where the pedal meets the metal, or where abstract judicial decisions turn into real outcomes that affect real life. And during the 2010 elections, we saw the first influx of corporate spending.

Over $290 million was spent on independent expenditures from outside (non-campaign) groups. Corporations moved right ahead with making unlimited contributions, funneling them through different organizations such as 527 groups, PACs (political action committees), social welfare organizations called 501(c)4's and business leagues (like trade associations) designated 501(c)6, which allowed those corporations to remain anonymous. 

These different types of organizations have very different disclosure requirements, which is why we still don't know who paid for more than a third of the ads funded by outside organizations.

That's right -- you think it's unacceptable for a tobacco company, for example, to fund a candidate? You might never have to know. Think it is inappropriate for foreign companies (say, large European polluters) to influence American elections by pouring money into the campaigns of candidates who deny the existence of climate change? Once again, you probably won't know. Those companies can fund some inconspicuous sounding 501(c)6, like, say the Chamber of Commerce, and then the Chamber of Commerce can fund the candidate.

It is still illegal for foreign corporations to spend directly on U.S. elections. But the lack of transparency makes it impossible to know whether it could still be happening through other channels. Is it? That's unclear. Certainly it is true that the U.S. Chamber of Commerce receives large amounts of dues money from foreign corporations. And it is true that the Chamber of Commerce donated to candidates during the campaign -- in fact they were the single largest non-party committee outside donor of the 2010 election, giving over $32 million to conservative candidates. According to FactCheck.org, while the Chamber says it has internal controls to prevent any foreign money from  being used in illegal ways, the spokesperson could not say how the money is kept differentiated.

It's not just Chamber of Commerce contributions that have raised red flags. The money funneled through the Service Employees International Union, for example, raises similar concerns. 

Back up – Who gave what to whom?

There are a number of different and confusing types of groups at play here: PACs, SuperPACs, 527 groups, and all these 501(c)s. Dave Levinthal, Communications Director for the Center for Responsive Politics untangles them thusly:

PACs are political action committees, the political arm of corporations and unions. While federal election law still prohibits corporations from giving money to a candidate or campaign directly, PACs are allowed to donate directly to a politician, party, or to other PACs. PACs are limited in the money they can take in, however, as they can only accept money from individuals or other PACs, and only in $5,000 increments. The PAC can spend that money on independent expenditures on behalf of a candidate, but also on overhead, travel, etc. 

SuperPACs came out of another court ruling from around the same time as Citizen’s United, Speechnow.org v. FEC. SuperPACs can raise unlimited sums of money – they are not limited in who, or how much, but they are limited in how they can spend the money. Money from SuperPACs can only be spent on independent expenditures. 

527 groups are groups which fall within the IRS criteria for a political group, but fall outside of the FEC’s criteria. They do not face constraints in their fundraising or spending, however they are required to disclose funders. 527s cannot issue a direct order to vote for Candidate X, only advocacy making it clear why you should vote for X. 

501 groups are non-profits organizations that are not required to disclose their funders. The IRS says they may not engage in political action as their primary activity, though, so they must move carefully so as to stay in line with the law. 

There are multiple types of 501 groups, but for campaign finance, here are the big ones:

  • 501(c)3s, which are tax-exempt charitable organizations that can only do issue advocacy but cannot support particular candidates;
  • 501(c)4s, designated as social welfare organizations who are  allowed to spend on political campaigns, within limits; 
  • 501(c)5s, labor unions; 
  • 501(c)6s, which are business leagues (like the Chamber of Commerce).  

Got all that?  Okay.

You’re bringing me down.

Groups funded by anonymous donors in 2010 didn’t just spend big, they also spent mean. 

New York’s Public Advocate Bill de Blasio did an analysis of FEC independent expenditure notices in the 2010 election. For outside groups that had to disclose their donors, they spent about half on negative ads and the other half on positive ads. If donors weren’t disclosed, the ads were negative by a 3 to 1 margin. 

A mixed bag for corporations

This might seem like an enormous boon to corporations -- in some ways it certainly is. But it's also a mixed bag.

Corporations that fund campaigns risk diversion of the corporate leaderhip's attention, money wasted on losing campaigns, and risks to the business’ reputation. Target, for example, faced a blowback when it contributed to a pro-business outside group that supported a candidate who opposed same-sex marriage, leading to a nationwide boycott and some seriously creative direct action. In his dissent, Justice Stevens pointed to the fear some corporations have of a coerced arms race, in which corporations are forced to fund candidates from fear of negative retributions.

Several state lawmakers have introduced bills to call for shareholder approval of any corporate spending on candidates, and at least thirteen states have passed their own campaign finance legislation, creating a constantly shifting legal framework in which corporations must operate. The Conference Board, an independent business group that develops best practices for companies, issued a handbook cautioning its members to exercise prudence as they move into campaign financing.  

What about those corporate shareholders, whose voices as part of a corporation this decision was created to protect? Mostly, they don’t know which candidates the corporation is funding. Corporations are not required to disclose to their shareholders which candidates they intend to support, or whether they intend to finance campaigns at all. The corporation can simply give anonymously to a 501 group.

And there you have it.

“Basically,” says Levinthal, “what the ruling did is widen the avenue for outside money to come flowing in to the political process. It took the neatly manicured little two-lane highway that already existed and turned it into a four lane highway. There was a four-fold increase in outside spending in the 2010 elections compared to the 2006 elections. That is not,” he says, “an accident.”

There are still lots of questions to be answered. The FEC has yet to rule on how best to enforce the new laws, and efforts are already underway to counter it. In April the Senate introduced legislation called the DISCLOSE (Democracy Is Strengthened by Casting Light On Spending in Elections) Act, and the House has introduced a similar bill, both of which would require much more strigent disclosure. The bill would require groups to name top donors in advertisements and also have either the organization's largest donor or the leadership give a disclaimer that they approve the message. The bill would also prohibit companies who received bank bailout money from spending on independent expenditures, as well as large government contractors and companies under foriegn control. President Obama supports the legislation, but Senate Republicans have steadfastly blocked any attempt to pass the bill, and the chances of it passing under the incoming Republican Congress are considered slim-to-none.  

Efforts are underway to encourage voluntary disclosure by candidates and corporations, but Dave Levinthal at the Center for Responsive Politics is skeptical that they will succeed. “No." he laughs, "Quite simply, most organizations just don’t disclose any more than they have to.”