Examining High Court’s Consideration of Campaign Finance Regulation

September 8, 2009
Guest Post

By Brenda Wright, Director of Democracy Program, Demos

The Supreme Court's unusual September 9 re-argument session for Citizens United v. FEC is about as dramatic a kick-off to the Supreme Court's term as Court-watchers have ever seen. Doug Kendall has ably explained key reasons why it's a blockbuster case.

Here is a little more background highlighting what's at stake.

The narrow question originally presented by the case was whether an on-demand video showing of an anti-Hillary Clinton documentary during the 2008 election could be regulated as a political advertisement under the Bipartisan Campaign Reform Act (BCRA) because the sponsor -- a conservative non-profit group called Citizens United -- wanted to use for-profit corporate funds to help pay for the airing. That narrow question has been virtually obliterated by the Court's order at the end of last Term inviting briefing on whether Austin v. Michigan Chamber of Commerce and McConnell v. FEC should be overruled.

Austin and McConnell both upheld restrictions on political spending by for-profit corporations using corporate general treasury funds. So now the case is not about a feisty ideological non-profit and its political speech. It's about whether Countrywide Financial Services, Wal-Mart and Exxon must have the same right as individual citizens to make unlimited political expenditures in support of or in opposition to candidates for office. 

Austin, decided in 1990, upheld a Michigan law that prohibited corporations from using general treasury funds for independent political expenditures supporting or opposing candidates for elective office, but permitted corporations to set up and administer special segregated funds for political expenditures to which shareholders or officers could contribute voluntarily. McConnell, decided in 2003, relied on Austin to uphold BCRA's limits on corporate or union-funded broadcast ads in candidate elections. Overruling those cases would mean that corporate political spending no longer needs to be funded by voluntary, intentional donations from shareholders or officers who actually support the corporation's political activity, but instead could come directly from the corporate general treasury.

If the Court takes that step, perhaps it should do so by making an announcement in the style of Justice Antonin Scalia's dissent in Austin: "Attention all corporate executives in America: as partial thanks for the economic meltdown the country has just experienced, please roll up your sleeve, put your hand in the corporate treasury and pull out as much as you like for political spending on behalf of your favorite candidates." After all, what could possibly go wrong from putting corporations in charge of politics?

Some who would like to see Austin and McConnell overruled seem to recognize that the timing is a bit awkward for Lochner-style arguments urging the judiciary to overturn democratic regulation of the boundary between the political marketplace and the economic marketplace. So they argue that removing all restrictions on corporate independent expenditures might not have much of an impact. Richard Epstein, for example, suggests in Forbes that "corporate realities and market constraints" will prevent any adverse outcomes if corporate general treasury funds are unleashed for political spending. Corporations, in other words, will police themselves and exercise restraint.

The history of campaign finance (not to mention American history in general) provides little support for such rosy thinking. The FEC's soft-money exemption allowing unlimited donations to political parties by corporations and unions as well as individuals saw exponential growth once political actors figured out the potential. As the opinion by Justices John Paul Stevens and Sandra O'Connor in McConnell notes, in 1984, soft-money donations accounted for only 5% ($21.6 million) of the two major parties' total expenditures, but in 2000 -- just four presidential election cycles later -- they accounted for 42% of the parties' spending ($498 million).

The general treasury funds of large corporations entirely dwarf the existing resources available for political expenditures, and thus will provide a virtually irresistible target for political actors clawing for advantage in federal elections. The Solicitor General's supplemental brief in Citizens United explains:

During the 2007-2008 election cycle . . . FEC-registered political parties spent $1.5 billion, and federal PACs spent $1.2 billion, while the Fortune 100 companies had combined revenues of $13.1 trillion and profits of $605 billion. If those 100 companies alone had devoted just one percent of their profits (or one-twentieth of one percent of their revenues) to electoral advocacy, such spending would have more than doubled the federally-reported disbursements of all American political parties and PACs combined.

These realities underscore the wisdom of federal laws that have prohibited corporate independent political expenditures in federal elections since 1947 and direct corporate contributions to candidates since 1907.

They also help explain why American businesses themselves are less than uniformly in favor of overruling Austin and McConnell. As explained in the amicus brief of the American Independent Business Alliance (AMIBA), which Dēmos co-authored, a decision overruling Austin and McConnell would not be pro-business, but pro-large corporation -- two very different things:

AMIBA's affiliates represent approximately 15,000 independent businesses covering virtually every sector of business, many of which face direct competition from chains and other large corporations. Many large corporations have converted
their economic power into political favors that extract subsidies from taxpayers, stifle enforcement of antitrust laws, create legal tax evasion opportunities, and
other rules that disadvantage small business. . . .
Our market system depends on competition and innovation. Those goals are threatened if the successful businesses of the last generation are allowed (by this Court) and required (by state fiduciary law and market pressures) to use their accumulated wealth to elect politicians who can be counted on to enact laws to protect the incumbent corporations from upstart innovators. . . . If we are to remain a democracy and if our economy is to succeed, it is essential that the law structure the market and not the other way around.

These observations are hardly radical. Just six years ago, in their opinion upholding BCRA's restraints on corporate participation in the political marketplace, two Republican Justices (Justices Stevens and O'Connor, appointed by Presidents Ford and Reagan, respectively) quoted another prominent Republican, Elihu Root, to similar effect:

More than a century ago the "sober-minded Elihu Root" advocated legislation that would prohibit political contributions by corporations in order to prevent " ‘the great aggregations of wealth, from using their corporate funds, directly or indirectly,' " to elect legislators who would " ‘vote for their protection and the advancement of their interests as against those of the public.' " United States v.
Automobile Workers, 352 U. S. 567, 571 (1957) (quoting E. Root, Addresses on Government and Citizenship 143 (R. Bacon & J. Scott eds. 1916)).

Let us hope that sober minds on the Court turn away from the distinctly activist step of overturning Austin and McConnell, and leave the Lochner era in the past where it belongs.