Voters will hit the polls tomorrow ushering in the dawn of a new presidential term.  The beginning of a term brings decreased pressures and a concomitant increase in executive flexibility.  This political landscape, colored by the recent deluge of campaign advertisements, presents a ripe time to renew the discussion and proposals promoting campaign-finance reform.

Since the moment the Supreme Court decided Citizens United v. Federal Election Commission on January 21, 2010, critics decried the damage it would cause to both the integrity of the election process and to corporate accountability to shareholders.  See, e.g., here and here.  Citizens United declared unconstitutional § 441(b) of the Bipartisan Campaign Reform Act of 2002 (BCRA), a provision that prohibited corporations and unions from using general treasury funds to make independent expenditures in support of either “electioneering communications” or speech expressly advocating the election or defeat of a candidate for federal office.

Prior to the decision, corporations and unions contributed only by first establishing a political action committee (PAC), which it could use to solicit donations only from stockholders and employees of the corporation or from members of a union.  The Court in Citizens United found that § 441(b)’s restrictions violated the First Amendment right to free speech, and that PACs are “burdensome alternatives.”  But a harmful consequence of this decision is that corporations can now freely contribute substantial sums of money to tax-exempt organizations with minimal disclosure to the electorate and to shareholders.  By filtering contributions through “shadow” PACs, 527, and 501(c) organizations, corporations can conceal or at least obscure their political contributions.  Thus, the electorate has limited information about the source of the organization’s funding, and shareholders have no information about management’s political-contribution decisions.  The Court tried to assuage these concerns by pointing to current disclosure laws; however, it is now apparent that the Court’s reliance on disclosure laws was unfounded.

As the Court noted in the landmark 1976 case Buckley v. Valeo, disclosure is a crucial aspect of campaign finance.  It “provides the electorate with information as to where political campaign money comes from and how it is spent,” “deter[s] actual corruption and avoid[s] the appearance of corruption by exposing large contributions and expenditures to the light of publicity,” and acts as “an essential means of gathering the data necessary to detect violations” of other regulations.  The Court in Citizens United noted that disclosure requirements “‘provide the electorate with information’ about the sources of election related spending,” and helps citizens “make informed choices in the political market place.”  The Court also cited the ability of current technology to disseminate information to the electorate: “because modern technology makes disclosures rapid and informative,” and because of “the advent of the Internet,” individuals responsible for making independent expenditures will be held accountable.  But the Court failed to foresee the ability of corporations to flood campaigns with money while circumventing meaningful disclosure.

It is now clear that the electorate is missing crucial information about the source of political contributions and therefore the Court’s reliance on current disclosure laws to inform the electorate and alleviate anti-distortion concerns is unfounded.  Corporations can make donations to an intermediary PAC that will disclose only the PAC’s identity when advertising, but which is not required to reveal the corporate source of the PAC’s funding, except to the FEC or state election regulatory agency.  The source of the PAC’s funding is therefore not readily apparent to the electorate except through researching FEC or state records.  Moreover, while a “super-PAC” is required to at least disclose the source of its funds to the FEC, other tax-exempt organizations that have essentially engaged in electioneering have evaded the FEC’s purview.  See here.  These organizations, known as 501(c) organizations because of their registration as nonprofit corporations under 501(c) of the Internal Revenue Code, deny any intention of influencing elections and do not even register with the FEC, thereby avoiding campaign-finance laws altogether.  And while these organizations are not allowed to formally coordinate with candidates and parties, nor expressly advocate or oppose a candidate, it is fairly easy for such an organization to design its electioneering to promote a particular party or candidate.

Whoever occupies the Oval Office in 2013, whether it is the incumbent President Obama or Mitt Romney, should propose campaign-finance reform.  A few ideas popularized in the wake of Citizens United were the DISCLOSE Act, the Shareholder Protection Act, SEC rulemaking, executive order, or even a constitutional amendment.  While this blog post does not endorse any particular proposal, it calls for renewed discussion and, ultimately, legal reform that increases transparency in the election process.

–Mike Dearington

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2 Responses to A Renewed Call for Campaign-Finance Reform

  1. Jeffrey W. Sheehan says:

    I think it’s interesting in the days after the election to hear serious questions about where all the money went, particularly from some of the people signing the checks. I don’t think that it will solve the questions about accountability to shareholders, but it seems likely that some of the powerful interests that saw SuperPACs and other Citizens United/Buckley outlets as ways to influence the elections may look at the results of this election and consider other alternatives.
    I also wonder how this election’s results will be interpreted by future courts in addressing concerns about the integrity of the election. I always thought that previous SCOTUS opinions that dismissed the effects of big-money on political campaigns were either naive or disingenuous. Now I wonder if they were right.

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