I. Introduction
For over a century legislatures have struggled with the issue of how to curtail the efforts of corporations seeking to substantially influence political campaigns. [1] Although campaign finance regulation has taken numerous forms throughout the years, loopholes and exceptions inevitably surface despite the intentions of Congress. [2] Corporations have also wrestled with the conflict of advancing their own political interests at the expense of alienating potential consumers. [3] Congress and the courts have sent ambiguous and, at times, contradictory messages regarding the proper role of industry in the political arena–at times conspicuously leaving a route open for corporations to fund candidates and sometimes expressly speaking out against those very same methods. [4] The enactment of the Federal Election Campaign Act ("FECA") in 1971 [5] (and subsequent amendments in 1974, 1976, and 1979) [6] along with the Supreme Court's landmark 1976 decision in Buckley v. Valeo [7] drastically changed the permissibility of corporate involvement in political campaigns. [8] The controversial decision by the Buckley court to allow certain soft money "issue advocacy" while disallowing "express advocacy" [9] along with the Internal Revenue Service's ("IRS") lack of campaign contribution disclosure requirements for certain tax exempt organizations [10] created a safe haven for corporations to anonymously donate to political campaigns. [11] In 2002, Congress attempted to close the corporate campaign finance loophole left open by issue advocacy with the Bipartisan Campaign Reform Act ("BCRA" or "McCain-Feingold"). [12] The BCRA withstood initial judicial review, [13] but the appointments of Chief Justice John Roberts and Justice Samuel Alito to the Supreme Court in 2005 and 2006 [14] created a shift in the Court, which has re-opened the loopholes created by the Internal Revenue Code ("IRC"). [15] The Roberts Court should defer to Congress and disallow issue advocacy by tax exempt trade organizations, creating greater campaign transparency and closing this loophole which facilitates corporate political financing.
II. Historical Perspective
Controversy surrounding corporate political donations is certainly not a recent phenomenon. In the late 1800s and continuing in the early 1900s, there were no regulations limiting the amount of funding a candidate could receive from corporate sources. [16] During the 1888 presidential election, Benjamin Harrison caused an uproar when he accepted $50,000 in corporate money during his narrowly successful run for the White House. [17] Eight years later, William McKinley financed his 1896 presidential campaign with an unprecedented $3 million in corporate donations and repeated the fundraising feat in winning his second term in 1900. [18] President McKinley's outraged opponents accused the administration of corrupt practices, claiming that corporations were receiving political favors in exchange for their heft campaign contributions. [19] The response to the criticism was underwhelming, with Congress resisting progressives' urges to act and only four state legislatures banning corporate donations. [20] It was not until Theodore Roosevelt's second term in office that a sitting president spoke out against the developing campaign finance trend. [21] Roosevelt used his State of the Union Address in 1905 and again in 1906 to call for a ban on corporate financing in political campaigns: [22]
I again recommend a law prohibiting all corporations from contributing to the campaign expenses of any party. Such a bill has already past one House of Congress. Let individuals contribute as they desire; but let us prohibit in effective fashion all corporations from making contributions for any political purpose, directly or indirectly. [23]
The president's bold call for sweeping campaign finance reform was controversial and began a movement toward the first federal legislation regulating campaign finance. [24] Ironically, his speech calling for an overhaul of the federal election regulations came just two years after Roosevelt won reelection with 73% of the campaign's funds coming from corporate donors. [25]
Outrage following Roosevelt's corporate donations and claims of political scandals led to Congress passing the Tillman Act in 1907. [26] The Tillman Act banned corporate donations to political campaigns on the federal level, but it left such enormous loopholes that the statute was virtually meaningless. [27] In the twenty years that followed the Act, Congress made repeated efforts to tweak election regulations in an attempt to quell cries of corruption from the electorate. [28] Multiple versions of the Federal Corrupt Practices Act were signed into law in 1910 and again in 1925. [29] While these acts may have forced corporations to become slightly more clever in their strategies, they did very little to increase disclosure or put a halt to companies bankrolling elections. [30] It would be quite some time before Congress would get serious about campaign finance regulation.
III. The Federal Election Campaign Act and Buckley v. Valeo
In 1971, Congress drastically changed the face of American campaign finance when it passed the Federal Election Campaign Act ("FECA"). [31] The FECA addressed many of the weaknesses of the Federal Corrupt Practices Act by limiting the amount that candidates could personally donate to their campaigns and requiring disclosure of the source of most donations over $100. [32] The 1972 election and the Watergate scandal quickly made it clear that the legislation did not go far enough. [33] This prompted amendments to the FECA in 1974, requiring increased disclosures and limiting media expenditures as well as the total amount a campaign was permitted to spend on an election. [34] The amendment also created the Federal Election Commission ("FEC") which was charged with enforcement of federal election laws and regulations. [35] Before the FECA amendments were fully implemented, the constitutionality of the provisions were challenged in Buckley v. Valeo; a case which has had a dramatic impact on modern campaign finance.
The constitutional challenge to the FECA was primarily premised on the assertion that it violated the first amendment by restricting the political "speech" of contributors. [36] The Court held that Congress has the authority to restrict speech rights when there is a compelling governmental interest in (1) providing information to voters to help them compare candidates, or (2) discouraging corruption or the appearance of corruption, or (3) using disclosure to ensure records were properly maintained. [37] The Buckley court also distinguished "express advocacy" from "issue advocacy." [38] Under the Court's ruling, a trade organization running a political advertisement may advocate for a candidate's positions (or conversely, against their opponent's position) but may not expressly advocate that a voter support or oppose a particular candidate. [39] The Court also struck down many of the caps on spending and limitations on personal candidate campaign financing as unconstitutional. [40]
In 1979, Congress amended the FECA once again to reform disclosure requirements and better define the types of donations subject to FEC regulation. [41] Following the enactment of this amendment, the FEC created regulations which opened a loophole for funds not subject to federal limitation, also known as "soft money." [42] While the FECA retained tight regulations on corporate campaign donation disclosures, it also led to the soft money loophole which allows covert political financing by corporations acting through trade organizations using issue advocacy. [43]
IV. Soft Money and Issue Advocacy
The Buckley court's allowance of so-called issue advocacy has led to a bizarre and seemingly inutile distinction in political advertising. A single word or phrase can change an advertisement from permissible issue advocacy into disallowed expressed advocacy. [44] A tax exempt organization funding issue ads is free to ridicule, encourage calling or writing, or even simply tease a candidate, but they may not say "don't vote for this candidate." [45] Issue advocacy using soft money is alive and well in politics today. The following advertisement, funded by the organization Americans for Job Security ("AJS") during the 2004 presidential campaign between incumbent George W. Bush and challenger John Kerry, falls squarely within "issue advocacy," and thus avoids full disclosure regulation by the FEC:
John Kerry voted against comprehensive prescription drug benefits making prescription drugs more affordable and accessible to seniors. But it gets worse. Kerry wants to repeal the prescription drug benefits seniors now receive. Kerry's prescription for failure: fewer choices, more government, more paperwork, higher costs. Call Senator Kerry and let him know that American seniors deserve better. [46]
The advertisement, asking voters to call the senator, is permissible as it was run, but replacing the last line with the phrase, "do not vote for Senator Kerry," or "vote for President Bush," would have rendered this same advertisement a violation of federal election law. [47]
Issue advocacy can take many different forms. AJS, which is a tax exempt trade organization, funded a several issue advocacy advertisements supporting Republican challenger Norm Coleman and opposing the Democratic incumbent Paul Wellstone in the 2002 Minnesota senate election. [48] Perhaps the most unique ad was an airplane banner reading simply, "Wellstone . . . quit taxing the dead." [49] Clearly, "issue advocacy" can have the identical impact of "express advocacy." It is rarely necessary to explicitly state opposition to a candidate after hurling attacks at their policies. This election law absurdity would be little more than a puzzling distinction if it were not for the important regulation of who may fund such advertisements. It is clear that certain tax exempt organizations may fund issue advocacy, [50] but who is funding those tax exempt organizations?
V. IRC § 501(c)(6): Tax Exempt Trade Organizations
The Internal Revenue Code ("IRC") allows three categories of tax exempt organizations to engage in "political activities." [51] Social welfare organizations (IRC 501(c)(4)) such as MoveOn.org [52] and the National Rifle Association ("NRA") [53] and labor, agricultural, or horticultural organizations (IRC 501(c)(5)), for example the American Federation of Labor and Congress of Industrial Organizations ("AFL-CIO") [54] are all tax exempt organizations that may participate in political activities. [55] The category of greatest consequence as it relates to corporate financing of campaigns is tax exempt trade organizations (IRC 501(c)(6)) such as AJS, [56] discussed supra. [57] Tax exempt organizations may only participate in political activities that are on par with the main function of the organization and the political nature of the organization must be a minority (less than 50%) of the organization's main purpose. [58] Although these exempt organizations must report their net contributions and expenses, neither the FEC nor the IRS require itemization of the donors that fund these organizations to be made public. [59]
Organizations that fall under IRC 501(c)(6) include business leagues, chambers of commerce, real-estate boards, boards of trade, and even professional football leagues. [60] The exempt organization itself must not be organized for profit and no parts of the net earning of the organization may inure to the benefit of any private shareholder or individual. [61] There is, however, no requirement that the exempt organization's donors meet such a standard. [62] Because corporations are free to donate funds anonymously to tax exempt trade organizations which, in turn, may run political advertisements so long as the ads qualify as issue advocacy and such activity does not constitute a majority of the exempt organization's activities, corporations have the ability, and frequently do, fund political campaign advertisements. [63] The Supreme Court's decision in Buckley, combined with the FEC's and IRC's failure to regulate the disclosure of such donations, created a gigantic loophole allowing trade associations comprised chiefly of for-profit corporations to fund issue advocacy without disclosing their donors. [64] Such advertisements were quite prevalent in the late 1990s and were used in full force during the 2000 presidential election. [65] This loophole allowed the following ad, which closely mirrored a hard money advertisement being run by then Governor George W. Bush, to be funded by the IRC 501(c)(6) organization AJS [66]:
Are you taxed enough already? Not according to Al Gore. Gore plans to squeeze more money out of middle class families at the gasoline pump. Gore cast the tie-breaking vote to raise gas taxes 4.3 cents a gallon. He admits he'll add more taxes on gasoline with what he calls a CO2 tax. Gore supported a call to raise taxes so much that gas would cost $3 a gallon. And Gore's ideas are so extreme, if they ever came to pass, Americans would truly be 'Gored' at the pump. [67]
Issue advocacy, such as the above advertisement, was commonplace in the 2000 election on both sides of political campaigns. Two years later, Congress acted in an attempt to close loopholes left open by the FECA. [68]
VI. McCain-Feingold/The Bipartisan Campaign Reform Act of 2002
Beginning in the mid-1980s, campaign finance reform was heavily debated in Congress nearly every year but never culminated in legislation due to fierce political battles. [69] Following the 1996 presidential election, outrage began to grow with the revelation that foreign nationals had made contributions to party committees and allegations that the Clinton administration exchanged White House coffee meetings and overnight stays in the Lincoln bedroom for soft money donations. [70] When rampant issue advocacy and questionable campaign finance tactics again dominated in the highly contested 2000 presidential election, Congress finally began to gain support for campaign finance reform. [71] Senators John McCain and Russell Feingold initially introduced a bill to close financing loopholes in 1996, but made little headway due to political opposition. [72] The Senators reintroduced the bill in 2002, and it passed both houses and was signed into law as the Bipartisan Campaign Reform Act of 2002 ("BCRA" or "McCain-Feingold"). [73]
The BCRA accomplished two primary objectives: first, it created limits on the sources and amounts of political party contributions and, second, the act increased scrutiny and regulation of corporate campaign financing. [74] McCain-Feingold specifically addressed soft money issue advocacy by broadening the definition of electioneering communications to include more media outlets and restricting the use of corporate and labor union funds to finance political campaign advertisements. [75] In an attempt to stop the influence of issue-specific soft money advertisements, the BCRA banned express issue advocacy within sixty days of a general election or thirty days of a primary election, unless funded by hard money. [76] Shortly after its passage, the constitutionality of the BCRA was challenged in an claim reminiscent of the Buckley controversy. [77] In a case reaching the Supreme Court in 2003, the constitutionality of the BCRA was substantially upheld and it appeared as though McCain-Feingold would withstand judicial scrutiny. [78] In the following several years, however, President Bush's Supreme Court nominees changed the face of the Court and the question of permissible campaign finance was reconsidered. [79]
VII. The Roberts Court
Justices Thomas and Scalia opposed legislative deference in their partial concurring opinions in the Court's 2003 McConnell decision. [80] The appointment of Chief Justice Roberts in 2005 and subsequent addition of Justice Alito in 2006 began a trend away from congressional deference and toward Thomas' and Scalia's strict scrutiny standard that they purported should be practiced when interpreting corporate campaign finance restrictions. [81] In the first campaign finance decision under the Roberts Court, it was clear that a philosophical shift had occurred. [82] In 2006, Randall v. Sorrell reached the Supreme Court the plurality held that campaign finance reforms that restrict corporate free speech should be held to a "strict scrutiny" standard of review. [83] The following year, 2007, presented an even stronger rejection of the concept of congressional deference and saw the court substantially weaken McCain-Feingold. [84]
FEC v. Wisconsin Right to Life, Inc. was presented to the Court to determine whether the respondent violated the BCRA and, concurrently, whether the Act's regulations on corporate speech were constitutional. [85] At issue in the case was an advertisement financed by Wisconsin Right to Life ("WRTL") which criticized Senator Russell Feingold, one of the sponsors of the senate bill which ultimately became the BCRA. [86] The ad attacked Senator Feingold and his colleague Senator Herb Kohl for opposing President George W. Bush's judicial nominees to the Supreme Court–the very Justices who ultimately decided this matter. [87] The FEC claimed that these advertisements were funded by soft money for issue advocacy in violation of McCain-Feingold. [88] The court ruled that, regardless of the alleged violations, the portion of McCain-Feingold restricting issue advocacy "impermissibly burdened the First Amendment right to free speech and could not survive strict scrutiny." [89] As a result of the Court's decision in WRTL, nearly all of McCain-Feingold's issue advocacy restrictions have been struck down and corporate and union donations to tax exempt trade organizations are once again an option for businesses that desire to bankroll political advertising anonymously. [90]
VIII. Conclusion
The decision of the Roberts Court to protect corporate freedom of speech over the interests of the electorate to have transparent elections is disconcerting. Although it is crucially important to protect freedom of expression, this freedom is not absolute. [91] The interests of reassuring voters that campaigns are not being clandestinely financed by corporate funds outweighs the merit of protecting the first amendment rights of for-profit corporations. The Court should, at a minimum, reconsider the measures protecting donation disclosure set forth by Senator McCain and Senator Feingold in the BCRA. Ideally, the Court and the legislature should adopt the position of President Roosevelt and prohibit corporate donations to political campaigns. Covertly financing public campaigns is not a first amendment right–it is a dangerous hindrance to public policy and promoting an informed electorate.
[1] Steve Padilla, In Politics, Money Talks–and Keeps Talking, Despite Reforms, Los Angeles Times (Hoover Institution), July, 16, 2000, http://www.campaignfinancesite.org/history/reform3.html .
[2] Shayla Kasel, Show us your Money: Halting the use of Trade Organizations as Covert Conduits for Corporate Campaign Contributions, 33 J. Corp. L. 297, 299 (2007).
[3] Id. at 316.
[4] Steve Weissman, Will Soft Money Play an Even Bigger Role at the Party Conventions?, The Campaign Finance Institute, February 22, 2006, http://www.cfinst.org/pr/prRelease.aspx?ReleaseID=54.
[5] Federal Election Campaign Act of 1971, Pub. L. No. 92-225, 86 Stat. 3 (1972) (codified as amended in numerous locations of 2 U.S.C.).
[6] Brandi Cherie Sablatura, Reformation of 527 Organizations: Closing the Soft Money Loophole Created by the Bipartisan Campaign Reform Act of 2002, 66 La. L. Rev. 809, 817-18 (2006).
[7] Buckley v. Valeo, 424 U.S. 1 (1976).
[8] Kasel, supra note 2, at 304.
[9] Buckley, supra note 7 at 65-66.
[10] Kasel, supra note 2, at 312.
[11] Id. at 316.
[12] Bipartisan Campaign Reform Act of 2002, Pub. L. No. 107-55, 116 Stat. 81 (2002) (codified as amended in numerous locations of 2 U.S.C. and 47 U.S.C.).
[13] McConnell v. FEC, 540 U.S. 93, 105 (2003).
[14] The Justices of the Supreme Court, Supreme Court of the United States, http://www.supremecourtus.gov/about/biographiescurrent.pdf, (last visited Mar. 9, 2008).
[15] Kasel, supra note 2, at 308.
[16] Id. at 301.
[17] Id.
[18] Id.
[19] Id.
[20] Id.
[21] Id.
[22] Id.
[23] President Theodore Roosevelt, Sixth Annual Message to the Senate and House of Representatives, (Dec. 3, 1906) (transcript available at http://www.presidency.ucsb.edu/ws/index.php?pid=29547).
[24] Kasel, supra note 2, at 301.
[25] Id.
[26] Sheldon Richman, Did Business Want Campaign-Finance "Reform?," The Future of Freedom Foundation, Sept. 20, 2004, http://www.fff.org/freedom/fd0406b.asp.
[27] Id.
[28] Kasel, supra note 2, at 301.
[29] Id.
[30] Id. at 302.
[31] Federal Election Campaign Act of 1971, supra note 5.
[32] The Campaign Legal Center, The Federal Election Campaign Act: A New Era Of Reform, http://www.campaignfinanceguide.org/guide-34.html, (last visited March 10, 2008) [hereinafter
The Federal Election Campaign Act: A New Era Of Reform].
[33] Id.
[34] Id.
[35] Id.
[36] Kasel, supra note 2, at 304-05.
[37] Id.; Buckley, supra note 7, at 66-67.
[38] Kasel, supra note 2, at 305.
[39] Id.
[40] The Federal Election Campaign Act: A New Era Of Reform, supra note 32.
[41] Id.
[42] Kasel, supra note 2, at 306.
[43] Id.
[44] Id.
[45] Id.
[46] Americans for Job Security, Election Activities, Public Citizen: The New Stealth PACs, Oct. 23, 2004, http://www.stealthpacs.org/electioneering.cfm?org_id=41&state_id=&issue=&YearOfRace=2004&display=full.
[47] Kasel, supra note 2, at 306.
[48] Americans for Job Security, Election Activities, Public Citizen: The New Stealth PACs, Aug. 29, 2002, http://www.stealthpacs.org/electioneering.cfm?org_id=41&state_id=&issue=&YearOfRace=2002&display=full#11.
[49] Id.
[50] Kasel, supra note 2, at 310.
[51] Id. at 312.
[52] MoveOn.org Overview, Public Citizen: The New Stealth PACs, http://www.stealthpacs.org/profile.cfm?Org_ID=218 (last visited Mar. 10, 2008).
[53] National Rifle Association (NRA) Overview, Public Citizen: The New Stealth PACs, http://www.stealthpacs.org/profile.cfm?Org_ID=6 (last visited Mar. 10, 2008).
[54] AFL-CIO Overview, Public Citizen: The New Stealth PACs, http://www.stealthpacs.org/profile.cfm?Org_ID=140 (last visited Mar. 10, 2008).
[55] Kasel, supra note 2, at 312.
[56] Americans for Job Security (AJS) Overview, Public Citizen: The New Stealth PACs, http://www.stealthpacs.org/profile.cfm?Org_ID=41 (last visited Mar. 10, 2008).
[57] Kasel, supra note 2, at 312.
[58] Id.
[59] Id.
[60] IRC 501(c)(6) (2000).
[61] Id.
[62] Id.
[63] Kasel, supra note 2, at 314.
[64] Id.
[65] Id.
[66] Americans for Job Security, Political Activities, Public Citizen: The New Stealth PACs, Nov. 6, 2000, http://www.stealthpacs.org/electioneering.cfm?org_id=41&state_id=&issue=&YearOfRace=2000&display=full.
[67] Id.
[68] The Campaign Legal Center, The Bipartisan Campaign Reform Act: Restoring the Reforms, http://www.campaignfinanceguide.org/guide-35.html (last visited Mar. 10, 2008) [hereinafter The Bipartisan Campaign Reform Act: Restoring the Reforms.]
[69] Id.
[70] Id.
[71] Id.
[72] Id.
[73] Id.
[74] Id.
[75] Id.
[76] Kasel, supra note 2, at 308.
[77] Id.; McConnell, supra note 13.
[78] Kasel, supra note 2, at 308.
[79] Id.
[80] McConnel, supra note 13, at 105.
[81] Kasel, supra note 2, at 308.
[82] Randall v. Sorrell, 548 U.S. 230, 242 (2006).
[83] Id. at 244.
[84] Fed. Election Comm'n v. Wis. Right to Life, Inc., 551 U.S. 449 (2007).
[85] A Test for the Roberts Court, The New York Times, Apr. 25, 2007, http://www.nytimes.com/2007/04/25/opinion/25weds1.html.
[86] Id.
[87] Id.
[88] Id.
[89] Fed. Election Comm'n, supra note 84, at 2664; Kasel, supra note 2, at 308.
[90] Kasel, supra note 2, at 308.
[91] Buckley, supra note 7, at 75.