Looking at Campaign Finance

In the last couple of years the Supreme Court of the United States has decided two cases which have essentially eviscerated the campaign finance law, and which already have caused, and will continue to cause, a veritable tsunami of money coming into the political process. These two cases are, of course, Citizens United v. the Federal Election Commission, 558 U.S. ___ (2010), and McCutcheon v. the Federal Election Commission, 572 U.S. ___ (2014). Both of these decisions were 5:4 decision in which the majority were all appointed by Republican Presidents. Along with Bush v. Gore, 531 U.S. 98 (2000), which decided the 2000 election, they seem to signal that this Supreme Court has abandoned non-partisanship where a political outcome hangs in the balance.

These two cases make fundamental mistakes, errors that are so fundamental and obvious that it’s a head-scratcher that this Supreme Court would actually go down this route. But no one will, or can, hold them to account. The damage they do is to their institution, and to our nation as a whole. The mistakes, in brief, are the following:

  • First, they equate giving political campaign contributions with the 1st amendment right of free speech.
  • Second, they treat corporations as if they were natural persons in the campaign finance environment.
  • Third, they equate corruption with bribery, and completely dismiss the distorting political impact of large corporate donations.

Campaign finance practices and the legal restrictions on them are complicated. They are not inherently scintillating; let’s just say that they are no semen-stained blue dress. But they are critically important if we ever want to have a well-functioning democracy. Something which we do not currently have.

Background to Campaign Finance.

Back in the days of the founding fathers, campaigning involved mostly personal appearances and the publication of newsletters and pamphlets. And corporations were not commonplace. In most states, in order to incorporate, one had to apply directly to the state legislature for a charter of incorporation. In order to allow corporations to contract and to own land, the “legal fiction” was created that corporations had a certain kind of “personhood.” This legal fiction was not intended to equate corporations with natural persons, which would have been silly. It was just intended to allow them to act in the commercial arena.

Campaign expenses did not really become an issue until the turn of the century, and in particular the contentious 1896 presidential election where the question was whether to put the American economic system on a “bimetallic” standard that included not just gold, but also silver. The first serious effort at campaign finance reform was the Tilman Act of 1907 which, briefly stated, directly prohibited corporations and national banks from contributing money to Federal campaigns. this was followed by the other enactments in 1925 and 1939, and then the Taft-Hartley Act of 1947, which directly barred both labor unions and corporations from making expenditures and contributions in Federal elections. However, contribution limits and disclosure requirements were routinely not enforced because there was no agency to enforce them. This finally changed with the most substantive campaign finance legislation of its time, the 1971 Federal Election Campaign Act (FECA). This act not only required full reporting of campaign contributions and expenditures, but also limited spending on media advertisements . . . which were, of course, subsequently repealed. The 1974 amendments to the Act also finally created the Federal Elections Commission as the agency that would actually enforce election laws.

In response to the prohibition on contributing directly to federal candidates, the Congress of Industrial Organizations (CIO) had created the first political action committee (or PAC). The 1971 Act also regulated these new organizations, which by then had become numerous. The 1971 act and its 1974 amendments regulated PACs significantly, including setting limits on how much individuals, unions and corporations could give to PACs and whom unions and corporations may solicit for contributions. The constitutionality of the 1974 amendments were challenged, and the Supreme Court delivered a mixed verdict in Buckley v. Valeo, 424 U.S. 1 (1976). In this complicated case, the Court held some of the act constitutional and invalidated other parts of the act. The Court essentially differentiated between (1) restrictions on contributions, which it found constitutional, and (2) restrictions on campaign expenditures, which it found objectionable.

The Court in Buckley also introduced the unfortunate concept that campaign expenditures constitute “free speech” within the meaning of the 1st Amendment. At the time, the Court recognized as “sufficiently important” the government’s interest in “the prevention of corruption and the appearance of corruption.”

The other significant case that was decided after Buckley and before Citizens United is a case known as Austin v. Michigan Chamber of Commerce, 494 U.S. 652 (1990). This case was not a challenge to federal election law, but to restrictions on corporate spending enacted by the state of Michigan. The Court held that these restrictions did not violate the 1st and 14th amendments to the U.S. Constitution, as the Court explicitly acknowledged that “corporate wealth can unfairly influence elections”; the Court also noted that corporations could still make donations to political action committees, so that in effect, corporate speech in the political arena was still robust and effective.

Over time, a new concern developed about something which was known as “soft” money: political contributions that are not regulated by the Federal Elections Commission, and were partly the consequence of an administrative ruling by the FEC that “party building activities” were not campaign contributions. As a consequence of this ruling, corporations, unions and also individuals could give donations in any amount to a political party. The party, in turn, could use the donations to “educate” voters on issues, and even candidates, so long as they did not include a direct appeal for or against a candidate or an initiative or referendum.

Enter the Bipartisan Campaign Reform Act of 2002, or what most people know as the “McCain-Feingold” Act. This act — officially recognized as bipartisan because it was authored by the Republican (and future Presidential candidate) John McCain, and Wisconsin Democrat Russ Feingold — was intended as a response to the growth of “soft” money. It did this in essentially two ways: (1) it prohibited national political party committees from raising or spending any funds not subject to federal limits, even for state and local races; (2) it introduced the new concept of an “electioneering communication,” which is an advertisement that “names” a federal candidate within 30 days of a primary or caucus, or within 60 days of a general election. Such ads may not be paid for by a corporation or by an unincorporated entity using any corporate or union “general treasury fund.” These are the provisions that were challenged by the Citizen’s United Case.

The Citizens United Case

Citizens United was, and still is, a conservative non-profit organization founded by David Bossie, a conservative journalist and activist. The group had an annual budget of about $12 million. Most of the funds it received were from individuals; it did, however, receive some corporate donations as well. In 2008, Bossie and the group had helped to fund a hatchet job documentary called “Hillary: the Movie.” Their movie, which accused then Presidential Candidate Hillary Clinton of various misdeeds, had already been released in theaters and on DVD. However, Bossie and the group wanted to release it as a “video on demand” option with Direct TV; in order to promote this release, they had prepared several 10 second and one 30 second commercial for it.

Neither the FEC, nor anyone else, ever prevented Citizens United from airing its advertisements of its film on DirecTV. Instead, because it feared that broadcasting the film and the commercial would invoke the criminal provisions of the McCain-Feingold Act, Citizens United went into Court to seek declaratory relief and an injunction against the FEC, preventing the Commission from enforcing the act as applied to its activities.

The decision in the Citizens United case is complicated. The report of the decision itself runs to 183 pages, and includes not just the principle dissent by Justice Breyer, but also a partial dissent by Justice Thomas. What the Court held, greatly oversimplified, was that the Act’s restrictions on “electioneering communications” by corporations, associations, or labor unions violated their “free speech” rights under the 1st Amendment. (The McCain-Feingold act defined an “electioneering communication” as one that is broadcast to at least 50,000 people within 30 days of the election, and that was for or against a particular candidate.) The effect of the act was that corporations could now pour money into political ads through political action committees essentially without restriction. Which is exactly what happened in the 2012 elections.

There are several problems with the Citizens United decision, that can be summarized as follows:

  • First, the decision is overbroad, deciding the Constitutionality of things that were not actually before it in the case as presented. While this may seem trivial to the non-lawyer, the Supreme Court has a long tradition of deciding cases narrowly and only on the case as presented before it.
  • Second, the Court minimized the government’s important interest in preventing corruption and dismissed the previously acknowledged concern about the unfair influence of corporate wealth.
  • Most importantly, the Court confused a corporate person with a natural person, and granted rights to corporations that the founders never envisioned.

That corporations are not like people should be beyond dispute. The distinction should not be hard to grasp. But since the conservative majority of the Supreme Court had trouble grasping it, let’s make the distinction explicit. Corporations are not like people for many reasons, but at a minimum because:

  1. Corporations have no conscience, no beliefs, no feelings, no thoughts, no desires, and do not speak with one voice.
  2. Corporations have limited liability for their owners and managers, perpetual life (at least until dissolved) and separation of ownership and control.
  3. Corporations are not citizens of one state, but frequently include branches in many states and foreign countries. Corporations domiciled in foreign countries are not prohibited from contributing to American election campaigns.
  4. Corporations cannot vote.
  5. And perhaps most importantly, corporations cannot be thrown in jail.

It should be noted that the inclusion of unions in the decision was a smoke-screen. In this century unions have almost no money and very little power. The amounts that unions can contribute is a drop in the bucket compared to what corporations can give, and their inclusion in the decision only gives the appearance of ballast where this actually none. The only thing that unions are useful for in the electioneering context is that they can be useful, on occasion, in “get out the vote” efforts in closely contested elections.

In any case, Citizens United was only half the battle. The other half of the battle is the McCutcheon case, which the Supreme Court decided on April 2, 2014.

The McCutcheon Case

Shaun McCutcheon, the founder and CEO of Coalmont Electrical Development Corporation, is an Alabama businessman and Republican activist, who wanted to contribute to more candidates than the symbolic $1776 he had already given to sixteen federal candidates (as well as other money he had already given to Republican party organizations and political action groups). He challenged the limits imposed through McCain Feingold. The Court, in another partisan 5:4 decision, again came up with a bifurcated result:

  1. It invalidated the aggregate limits on federal campaign contributions, which at the time allowed an individual to spend no more than $123,200 on all political candidates and parties.
  2. It left in place the $2,600 “base” limit on individual campaign contributions to a particular candidate in one election.

The Court was not able to articulate any meaningful distinction between the base and aggregate limits. To be fair to the Court, McCutcheon did not challenge the base limits, which had already been approved in Buckley — although that had not stopped the court in Citizens United from reaching issues that had not originally be brought before it — or from overturning other parts of Buckley. In its decision, the court seemed to focus on the fact that the aggregate limits would not necessarily prevent “quid pro quo” corruption, that is to say, that it would not prevent somebody from buying a vote. The Court also seemed to think that the base limits were already sufficient to prevent that evil.

The problem with this entire line of reasoning is that it simply substitutes the Court’s judgment for that of Congress without the benefit of any factual record. It was a miracle that Congress passed McCain-Feingold to begin with. To get a Congress, any Congress, to actually deal meaningfully with campaign finance, that’s never going to happen again. And, as the Dissent in McCutcheon rightfully points out, instead of just declaring that the aggregate limits are ineffective in combating corruption, the Court should have returned this issue to a lower court to get actual evidence one way or another.

The other problem with the Court’s insistence that corruption needs to be “quid pro quo” before it can be something that Congress can regulate — in other words, that one has to be able to draw a direct line between the contribution and a subsequent Congressional action — completely ignores reality. First of all, there already is a prohibition on that kind of activity: it’s the laws against bribery! Secondly, there are so many other ways that large contributors can influence policies that don’t require actually buying a vote. The plurality of the Court blithely ignores that problem as if it didn’t exist.

The State of Campaign Finance Today

The Citizens United decision begot the era of the “SuperPAC,” which is a new kind of political action committee that, while it may not make contributions to candidate campaigns or parties directly, it may engage in unlimited political spending independently of the campaigns. Unlike a traditional PAC, a SuperPAC can raise funds from individuals, corporations, unions, and other groups without any legal limit on donation size.

These SuperPACs are not supposed to “coordinate” with campaigns, but the whole thing is a charade. There is coordination going on, it just can’t be explicit. Jon Stewart recently skewered Mitch McConnell on the Daily Show for putting out a 2 minute video that simply showed McConnell doing things around his office and in his district, with no narration at all. It’s an open secret that SuperPACs will use this video as the basis for political ads that have not been officially “coordinated” with a campaign. The power of SuperPACs can be demonstrated in the table below, which clearly shows their outsized influence in relationship to ordinary PACs, social welfare organizations, trade associations, or the now pitifully outgunned unions.

Statistic: Reported independent or outside* spending in the 2012 U.S. elections, by source (in million U.S. dollars) | StatistaWhat Citizens United did for SuperPACs and the cost of Presidential elections, McCutcheon is likely to do for the cost of Congressional races. Already there is a fear that super donors like McCutcheon or the Koch brothers will spread their resources upon dozens of Congressional races.

Why Should We Care?

The question arises, why should we care? It’s not like there wasn’t a lot of money in politics before the Citizens United decision. Now there is simply more. Probably the easiest way to demonstrate the problem is the recent treatment of the financial industry both before and after the financial crisis of 2007. The financial services industry has been regulated to a greater or lesser extent since the introduction of the Glass-Steagall Act of 1932, which was brought to us by the Great Depression and the stock market crash of 1929. While many laws regulating various parts of the financial industry were passed in the intervening years, the core protections of the Act remained in place until the Gramm–Leach–Bliley Act, passed at the tail end of the Clinton administration, and for which President Clinton must take some of the blame. That act repealed parts of Glass–Steagall by removing barriers in the market among banking companies, securities companies and insurance companies that prohibited any one institution from acting as any combination of an investment bank, a commercial bank, and an insurance company. In other words, it substantially deregulated the financial markets. While it’s not exactly a straight line from there to the 2007 financial crash, the path is pretty close to being direct.

While it would be totally beyond the scope of this article to try explain the 2007 financial crisis here — a great explanation for the crisis, and for how the vast majority of leaders in the financial services sector were criminally negligent in the years leading up to the crisis, can be found in Michael Lewis‘ highly recommendable book, the Big Short — the legislative solution to the crisis enacted by Congress was the Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010. That legislation was barely out of the oven, it was still warm, before the financial services industry lobbyists were all over it, trying to dismantle it. The Act included a new Bureau of Consumer Financial Protection, which Elizabeth Warren was supposed to run. The Republicans refused to grant her a vote on the Senate floor, and the Bureau remained without a head and without the ability to promulgate regulations for several years, all as part of a diversionary tactic led by the financial services industry to stymie the Bureau and eviscerate other portions of Dodd-Frank. (Of course, Warren had the last laugh when she was elected to Ted Kennedy’s former Senate seat.)

More recently, in December of 2014, the House voted on a $1.014 trillion budget bill to keep most of the Federal government funded through October of 2015 and avert another government shutdown. It passed the House 219-206, and then moved on to the Senate, where it passed 56-40 in a rare Saturday vote. As part of the bill, the House included provision significantly weakens new regulations that require banks to set up separate affiliates to deal in the more exotic and riskier forms of complex financial instruments known as credit default swaps. A mere four-and-a-half years after the July 2010 enactment of Dodd-Frank, the banking industry had already managed to eviscerate one of its chief reforms. That’s money talking for you.

But this is what happens when we allow corporations to donate so much money to political campaigns. They have all the access, and we the people have none. No one in Congress gives a shit what I think, even though I’m ostensibly well informed. They don’t care what you think either. What they care about is what their large contributors think. Oh, it’s not that there aren’t members of Congress who try to do the right thing now and then. Apologists for the financial services industry will note that the administration let Bear Stearns go under. Well, we should have let them all go under. Goldman Sachs, J.P. Morgan Chase, Bank of America, all the big actors who broke our economy. But we were told that we couldn’t because they were notoriously “too big to fail,” and it would have dragged us into another great depression bigger than the first Great Depression.

So what’s happened to the executives at Goldman Sachs, J.P. Morgan Chase, Bank of America? Have any of them gone to jail? Famously none of them have. The only high level banker to go to jail since the financial crisis is Lee Farkas, the former chairman of the mortgage firm Taylor, Bean & Whitaker, who was convicted of masterminding one of the largest bank fraud schemes in history. But he’s not an executive with Goldman Sachs, J.P. Morgan Chase, Bank of America. No, those guys are still getting their six figure bonuses. And still getting in trouble. In April and May of 2012, the trader Bruno Iksil, nicknamed the “London Whale,” accumulated trading losses of over $2 billion using the exact same credit default swaps that had contributed so significantly to the financial crisis of 2007. This was two years after the enactment of Dodd-Frank. And what happened to Jamie Dimon, the CEO of J.P. Morgan Chase, who should have held himself responsible for the operations of his bank? Nothing! Nothing happened to him. (Iksil himself managed to avoid prison time as well.)

So this is the world we now live in. We no longer live in a “capitalist” democracy; we live in is a corporate welfare state. And as long as corporations get to donate unlimited amounts of money to the political process, that will never change.

So What Can We Do About It?

Well, let’s be candid here: probably not much. But still, there are some things we can do, should do, and need to do, if we ever want to reclaim our democracy from corporate power.

  • First, vote. That should go without saying. But as long as corporations cannot vote and we can, that’s the most important thing that we can do.
  • Second, inform ourselves. That’s what I’m trying to do in this article: to contribute meaningfully to the debate.
  • Third, support a Constitutional amendment to overturn Citizens United. The Constitution has not been amended since 1992, when the 27th Amendment, which prohibits any law that increases or decreases the salary of members of Congress from taking effect until the start of the next set of terms of office.

The 27th Amendment was a “populist” amendment. It’s time for another, much more important populist amendment, overturning Citizens United. I’m not wedded to any particular text, but one that is currently being proposed as House Joint Resolution 21, which reads:

Section 1. We the people who ordain and establish this Constitution intend the rights protected by this Constitution to be the rights of natural persons.

Section 2. The words people, person, or citizen as used in this Constitution do not include corporations, limited liability companies or other corporate entities established by the laws of any State, the United States, or any foreign state, and such corporate entities are subject to such regulation as the people, through their elected State and Federal representatives, deem reasonable and are otherwise consistent with the powers of Congress and the States under this Constitution.

Section 3. Nothing contained herein shall be construed to limit the people’s rights of freedom of speech, freedom of the press, free exercise of religion, freedom of association and all such other rights of the people, which rights are unalienable.

I’m not sure that Section 3 is needed, as it just restates what’s already in the 1st Amendment, but I’m not going to quibble with the details at the moment. This, or something very much like it, this is what’s needed to begin with. Let the national debate begin!

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