Friday, April 27, 2007

Corporate Political Giving--Why Not?

At several points in the discussion between the Justices and advocates in the Wisoncsin Right to Life case, a concern about corproate political activity was either explicitly or implicitly mentioned. The general thought, even among campaign finance thinkers, is that corporate and union political activity should not be funded out of the entities general treasury. The justification that is given for such a prohibition is that the unique characterisitics of a corporation, that of state conferred existence, perpetual life (or nearly perpetual) and the corporations ability to amass capital and money means that corporations would have a funding advantage not available to individuals.

Having said that, in most other areas of the law, corporations are generally treated like "persons," meaning they can sue or be sued, be held liable for criminal conduct and other such things. Even in teh worl of campaign finance, corporation are permitted under the Belotti case to make contributions to ballot question campaigns, but not to campaigns for candidates or political parties. Of course, the rules in the states vary widely since some states allow corporate activity, often subject to the same limits as individuals.

What is the functional difference between Bill Gates spending $50 million of his own money on an independent expenditure and Microsoft doing it?

This is not to say that those opposing corporate contributions may not have a good case for the prohibition, but the standard justification is simply not accurate nor sufficient. Corporate entities (including unions) should be treated just like individuals in the federal campaign finance system.

If a corporation is treated in much the same way as an individual in most legal proceedings, why not treat corporations the same as individuals in campaign finance limits. That is treat a corporation as a person, subject to the biennial limits and individual limits. Under the FEC rules, there is a ceiling on the amount a person may contribute in any two year period, currently $108,200, of which no more than $42,700 may be given to candidates and $65,500 to other committees, of which no more than $42,700 may be given to PACs other than party committees. Furthermore, individuals cannot give more than $2,300 per election to canddiates, $28,500 per year to party committees, $10,000 total limit to state and local party committees and $5,000 to a PAC.

Based on thes limits, deemed appropriate so that no one individual may have too much of a "corrupting" influence on a canddaite, why then is a corporation, subject to the same limits, going to be more corrupting than an individual? If subject to the same financial limits, a corporation can have no more influence than any other wealthy individual. I fail to see the corrupting influence.

For those steeped in corporate activity, the quick answewr would be, corporations can spin off other corporations and multiply their money that way. True, but the FEC has rules in place to account for this kind of activity, the Affiliation rules. Under the affiliation rules, if two or more PACs share the same parent company that controls their goverance, those PACs share the limits. So let us say that Corporation A has a PAC and that Corporation A has a controlling interest in Corporation B, which also has a PAC. Under FEC rules, PAC A and PAC B share the same limits to candidates and parties. Thus PAC A and PAC B cannot both give $5,000 to say, Congressman Rangel for his Primary election. They would share one $5,000 limit, split any way.

Corporations with multiple entities can be subject to the same rules of affiliation. Under SEC rules, I am pretty certain, publicly traded corporations have to disclose subsidiary corporations (if not, that is a pretty easy regulatory change to make). While it is true that most corporations are not publicly traded, every state in the union has an online database of corproate registrations and it does not take a great deal of effort to find out ownership issues. Add to the fact that these smaller, privately held corporations generally are not spending large sums of money on political activity. So if subsidiary and partner corporatiosn, in this case, are treated like affiliated PACs, we can avoid the giving through multiple entities problem that worries some people.

Then there is the issue of corporate partnerships common in some industries. For example, if Corporation X and Corporation Y form a limited partnership for some purpose. The FEC has rules regarding partnerships as well. If a partnership, say a partnership between three doctors, makes a contribution to a canddite, unless otherwise specicified, that contribution is allocated amoung the three doctors in equal shares. That allocation would count against each doctor's limit to that candidate. Thus if Doctor M had made a $1,000 contributtion to Candidate Smith and then the parnership makes a $2,000 contribution to candidate Smith, Doctor M is treated by the law as having made $2,666 in contributions to Smith. (his original $1,000 plus his 1/3 share of the partnership contribution, assuming all partners have an equal share in teh parnership.)

So if a corporate limited partnership were to contribute to a canddiates, that contribution would also count against its biennial limit.

For the most part, the FEC has rules in place for the handling of contribution limits for the manner in which most corporations could act, either limiting the individual contributions by a corporation through the individual limits, using affiliation rules to prevent evasion of limits or through partnership rules to prevent excess contributions.

Which leaves us with only independent expenditures,a nd I return to my original question, what is the functional difference between Bill Gates spending $60 million and Mircosoft doing it? The functional difference is that there is no outside check on Bill Gates spending his money, but there is a real check on Microsoft doing so--Microsoft's shareholders.

Let us assume that Microsoft felt it necessary to spend $60 million on an independent expenditure. Of course it could do so, but it would have to justify its actions to the shareholders, many of whom may vociferously object. True, Microsoft may have legitimate political goals in mind when making the expenditure, but if the justification does not satisfy the stockholders, it may be the last time Microsoft or Wal-Mart or any other entity makes such a decision. Of course to some major corproations, $60 million is peanuts, but still, the stockholders may have invested for reasons other than political and may feel that such political expenditures does not actually improve its business and therefore is unnecessary.

Furthermore, as a practical matter, traditional corporations, teh boogey men of the reform community, are unlikely to get involved in indedpendent expenditures. Even the largest corporation PACs in America rarely make independent expenditures. For example, one of the largest corporate PACs in America is Federal Express PAC. Fed Ex raised $2.1 million in 2006 alone yet spent none on independent expenditures. Independent expenditures requires a great deal of work and the cost benefit analysis is not in the favor of the contributor, so why would a corporation do such a thing on a regular basis or on a large scale.

In summary, if the law treats corporations like individuals in other areas of the law, treating them as individuals in campaign finance is no different. If the purpose of the campaign finance law is to limit the corrupting influence of money in politics, treating corporations like individuals, using currently existing rules would allow corporations to make contributions without experiencing any more danger of a corrupting influence than anyother weathly donor.

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