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How to Address Corporate Political Spending

Recent Supreme Court Ruling Calls For Response

SOURCE: AP/Lauren Victoria Burke

Citizens United President David Bossie talks on his cell phone outside the Supreme Court after the Supreme Court ruled on a campaign finance reform case.

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In Citizens United v. FEC, the Supreme Court late last month ruled that corporations are permitted to spend unlimited amounts of money on independent political advertising in U.S. elections. While conservatives and libertarians are cheering the ruling as a victory for free speech, many progressives are warning of a coming flood of corporate money buying elections, and pushing for a legislative response.

The Court’s ruling is simple: Laws that prohibit corporations from buying political advertising, simply because they are corporations, violate the First Amendment. Hence, the 63-year-old law prohibiting corporations from making “independent expenditures” expressly advocating the election or defeat of a federal candidate, as well as the prohibition of corporate “electioneering communications,” enacted by the Bipartisan Campaign Reform Act of 2002, were struck down.

Corporations are now permitted to spend as much as they want to say whatever they want about candidates, at any time and in any medium, provided they do not coordinate their efforts with a candidate. The Court’s holding applies with equal force to the mirror-image laws that had limited the electoral spending of labor unions.

Because the Supreme Court has the final word on whether a law violates the Constitution, Congress cannot simply undo Citizens United. Only a future Supreme Court, or a new constitutional amendment, can take political speech rights back from corporations. It is difficult to predict how much of an effect Citizens United will truly have on campaigns, but Congress does have a variety of options for proactively responding to the case. Specifically, Congress could:

  • Strengthen disclosure
  • Require new disclaimers
  • Address coordinated spending
  • Guard against foreign influence
  • Enact shareholder protections
  • Loosen political party campaign spending laws
  • Provide public financing for elections

Let’s examine each of these options in turn.

Strengthen disclosure

Though it can no longer prohibit corporate political spending, the federal government is allowed to require corporations to publicly disclose their political spending. The Court upheld laws mandating the reporting of independent expenditures and electioneering communications to the Federal Election Commission.

These disclosure laws, however, were not originally designed to deal with corporate spending, and they may not be up to the task of providing real transparency. Under current law, many types of entities will be able to run political ads without disclosing the identity of any donors, unless a donor gave money specifically for the purpose of funding independent expenditures or electioneering communications. Even where disclosure of contributors is required, it may be difficult to discern the identity of corporations whose money has passed through one or more intermediaries.

Finally, existing disclosure requirements are a patchwork of provisions that vary in application depending on the content, timing, and medium of the ad, and the identity of its sponsor. This will make following the money, and compliance with the law, a complicated affair.

Congress now has the opportunity to enact a unitary reporting system for independent spending on elections. The ideal system would be simple to understand and comply with, and would take advantage of the Internet to get accurate and relevant information to the public on a real-time basis. For reporting to be effective, Congress would have to take steps to prevent corporations from circumventing reporting requirements and hiding their identities as ad funders. But Congress should also make sure that true, low-dollar grassroots efforts are not swept up in unnecessary and burdensome regulation.

Require informative disclaimers

As with disclosure requirements, the Supreme Court left the laws requiring political advertising disclaimers intact. Under current law, corporate ads will bear a disclaimer like “Paid for by Acme Inc., and not authorized by any candidate or candidate’s committee.”

But a “paid for by” disclaimer only works if the named organization is one familiar to the public, such as the National Rifle Association, the Sierra Club, or Bank of America. If the ad is run by a corporate-funded and ambiguously named organization such as “Americans for Good Things,” the public gains no useful information.

Several states address this issue by requiring ad disclaimers to also include the top few donors to the organization running the ad. Under this model, the disclaimer would look something like “Paid for by Americans for Good Things, with support from Mining Inc., Drilling Inc., and Power Inc.” This kind of disclaimer provides the public with a context in which to evaluate the ad.

Disclaimer requirements like this might also deter some corporations from funding political ads in the first place, either because the disclaimer undermines the ad’s effectiveness, or because it tarnishes the corporation’s brand. This Supreme Court, however, would likely view corporate deterrence as an impermissible justification for such a law. For this reason, Congress should focus on the public information benefits of new disclosure and disclaimer requirements, rather than their likely deterrent effect.

Independent vs. coordinated spending

The Court made clear that its ruling applies only to independent political spending by corporations. Corporations are still prohibited from buying political ads in coordination with a candidate. The distinction has its origin in the Supreme Court’s long-held view that independent spending, unlike direct campaign contributions or spending coordinated with a candidate, presents no danger of candidate corruption.

The issue of what exactly qualifies as prohibited coordination, however, is unresolved. In fact, the Federal Election Commission and the courts have been fighting over the definition of coordination for years. The fact that corporations are now able to engage in independent spending, but not coordinated spending, lends even greater significance to the final details of this definition. The FEC recently announced its third attempt since the enactment of the Bipartisan Campaign Reform Act at writing coordination regulations. But partisan entrenchments at the FEC make it unlikely that the agency will be able to issue effective regulations any time soon.

This area is ripe for congressional action. Congress should legislate, with specificity, what types of coordination between candidates and ad buyers are permissible, and what types are not. Such legislation could ensure that independent ads are truly independent, and could even target potential abuses, such as lobbyists attempting to leverage lawmakers with threats of corporate campaign spending.

Foreign money prohibition

The issue of whether Citizens United will allow foreign money into U.S. elections was brought to the fore by the President Obama’s State of the Union address. While Citizens United did not open a direct path for foreign spending, it has certainly widened some loopholes.

The Supreme Court explicitly declined to invalidate the law that prohibits “foreign nationals,” which by statute includes corporations organized in other countries, as well as foreign and political parties, from making contributions or expenditures in connection with U.S. elections. So this prohibition remains on the books. But it is too simplistic to say that only “American” corporations are allowed to spend politically. This ignores the complex structure of large multinational corporations, which are often significantly owned, controlled, or influenced by non-American individuals and entities.

Additionally, as Justice John Paul Stevens points out in his dissent, it is not immediately clear why the majority’s reasoning, which brought a new literalism to the phrase “marketplace of ideas,” would not extend to any person or entity spending independently of a candidate.

The foreign money issue obviously has the president’s attention, and some members of Congress are already introducing legislation targeting foreign influence. Drawing a line between corporations that are sufficiently domestic to spend freely and those that are not could be a very complicated task. But it is also one that could, potentially, bring many corporations back within the ambit of campaign finance regulation.

Shareholder protection

Some campaign finance watchers are discussing the need to give shareholders a say in corporate political spending decisions. One justification for such a move is the general proposition that shareholders, as owners of the company, should have a say in how their money is spent.

Another potential justification would be a shareholder’s right not to subsidize political speech with which he or she disagrees. Notably, the Supreme Court endorsed just such a right for nonunion-member duespayers who have an ideological opposition to supporting union political spending in Communications Works v. Beck. Under Beck, these individuals are allowed to ask for a refund of the portion of their dues that goes to fund union political spending.

Corporations could arguably be required to offer stockholders the same option, in the form of a dividend tied to the corporation’s political spending. This kind of protection is especially important for shareholders who are unable to divest themselves of particular companies because they hold their shares through retirement plans or mutual funds.

Loosen party coordinated spending limits

Political parties are currently limited in the amount of money they may spend in coordination with their own candidates. A political party may spend only about $44,000 in coordination with a House candidate, or between $87,000 and $2.4 million in coordination with a Senate candidate, depending on the size of the state. If a political party wants to spend any more than that on a given race, the spending must be undertaken without consulting the candidate.

This oddity, that parties are sometimes prohibited from discussing campaign ads with their own candidates, once led to the bizarre spectacle of a national party chairman disclaiming the authority to discontinue an ad being run by his own committee. Apart from being counterintuitive, the limits on party coordinated spending will make it very difficult for political parties to respond effectively when their candidates are targeted by corporate spending campaigns. Removing or raising the coordinated party expenditure limits would give candidates and parties greater flexibility to respond to influxes of corporate money into a given race.

Public financing

Many progressive groups are calling for Congress to respond to Citizens United by passing the Fair Elections Now Act, which would provide Congressional candidates with the option to forgo large private campaign donations, and instead fund their campaigns using a combination of public money and small private donations. While the Court’s First Amendment analysis will prevent the Fair Elections Now Act from prohibiting corporate spending, it could give candidates the option to run a different kind of campaign—one that perhaps has a better chance of breaking through the noise of independent spending.

Candidates that opt to take public financing and matching funds under the proposed new law could spend less time soliciting campaign contributions and more time soliciting votes. The Fair Elections Now Act might also give participating candidates a way to stand apart from the rest of the money-driven campaign system.

None of these seven responses can entirely blunt the impact Citizens United will have on federal campaigns. But each has the potential to play a role in limiting harm from the decision.

Alex DeMots is Legal Counsel at American Progress. Prior to joining American Progress, he served as counsel to Chairman Robert D. Lenhard at the Federal Election Commission.

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