Tag: campaign finance regulation

Attorneys General Aim at New Targets, Who Respond as Expected

The New York Times launches a series of investigative reports on corporate lobbying of state attorneys general. But you have to read fairly far down in the story to find the “nut graf” on why this is happening now. Radley Balko summed it up in a tweet: “As prosecutors get increasingly powerful, lobbyists will increasingly spend money to try to influence them.” And the article does note that: 

A robust industry of lobbyists and lawyers has blossomed as attorneys general have joined to conduct multistate investigations and pushed into areas as diverse as securities fraud and Internet crimes….

The increased focus on state attorneys general by corporate interests has a simple explanation: to guard against legal exposure, potentially in the billions of dollars, for corporations that become targets of the state investigations.

It can be traced back two decades, when more than 40 state attorneys general joined to challenge the tobacco industry, an inquiry that resulted in a historic $206 billion settlement.

Microsoft became the target of a similar multistate attack, accused of engaging in an anticompetitive scheme by bundling its Internet Explorer with the Windows operating system. Then came the pharmaceutical industry, accused of improperly marketing drugs, and, more recently, the financial services industry, in a case that resulted in a $25 billion settlementin 2012 with the nation’s five largest mortgage servicing companies.

The trend accelerated as attorneys general — particularly Democrats — began hiring outside law firms to conduct investigations and sue corporations on a contingency basis.

I wrote about this 30 years ago in the Wall Street Journal, citing Hayek’s assessment from 40 years before that:

Nobel laureate F.A. Hayek explained the process 40 years ago in his prophetic book The Road to Serfdom: “As the coercive power of the state will alone decide who is to have what, the only power worth having will be a share in the exercise of this directing power.”

As the size and power of government increase, we can expect more of society’s resources to be directed toward influencing government.

Those who work to increase the size, scope, and power of government need to recognize: This is the business you have chosen. If you want the federal government to tax (and borrow) and transfer – and reallocate through prosecution – $3.8 trillion a year, if you want it to supply Americans with housing and health care and school lunches and retirement security and local bike paths, then you have to accept that such programs come with incentive problems, politicization, corruption, and waste. And that special interests will find ways to influence such momentous decisions, no matter what lobbying restrictions and campaign finance regulations are passed.

Free Speech Trumps First Amendment

If you watch HBO’s “Newsroom,” you may have seen Cato, IJ and others get a quick namedrop in relation to the Citizens United Supreme Court case. Actor Jeff Daniels misstates the holding of the case, claiming that Citizens United “allowed corporations to donate unlimited amounts of money to any political candidate without anyone knowing where the money was coming from.”

But, you see, this just shows Aaron Sorkin’s unwavering commitment to realism in his shows. Reporters regularly get the holding of Citizens United wrong. After all, if reporters were crystal clear that Citizens United cleared the way for all manner of groups to use “corporate treasury funds” to fund broad and overtly political statements about candidates, they would inevitably conclude that their own right to make those kinds of statements would be jeopardized by much of the campaign finance regulation on the books prior to Citizens United. And it’s hard to demonize libertarians when they’re fighting for the rights of everyone, including reporters and entertainers who work for subsidiaries of Time Warner (CNN, HBO), Viacom (CBS), Disney (ABC), Comcast (NBC, MSNBC), General Electric (NBC, MSNBC), News Corp. (FOX, Fox News), etc.

If you’d like to know more about the facts of Citizens United, watch this:

As to the claims about secrecy in political speech, Cato Institute senior fellow Nat Hentoff has a few thoughts on disclosure and the jurisprudence of Clarence Thomas.

Adler on How the IRS Is Rewriting ObamaCare to Tax Employers

Jonathan H. Adler is the Johan Verheij Memorial Professor of Law and director of the Center for Business Law and Regulation at Case Western Reserve University.  In this new Cato Institute video, Adler explains how a recently finalized IRS rule implementing ObamaCare taxes employers without any statutory authority.

For more, see this previous Cato video, “States Should Flatly Reject ObamaCare Exchanges”:

See also our November 2011 op-ed on this IRS rule that appeared in the Wall Street Journal.

New Evidence on the Costs of Mandating Disclosure

Over the next few years, most arguments about campaign finance regulation will be about extending mandated disclosure to some of the independent spending freed up by the Citizens United decision.

Writing in the Wall Street Journal, James L. Huffman offers a unique perspective on mandated disclosure: he was a candidate for the U.S. Senate last year. He argues that mandated disclosure means incumbents know who funded the campaigns of their challengers.  Incumbents do not have to actually threaten anyone; disclosure plus circumstances means a cautious businessperson will stay clear of electoral participation. Huffman also claims that some people who might have contributed to his campaign heard from associates of his opponent who said contributing to Huffman might be a bad idea.

We have heard such testimony before about the malign effects of disclosure. George Soros said some potential contributors to his efforts to unseat former President George W. Bush stayed on the sidelines because of concerns about publicity (see James V. Grimaldi and Thomas B. Edsall, “Super Rich Step Into Political Vacuum; McCain-Feingold Paved Way for 527s” The Washington Post, October 17, 2004).  Now we have a Senate candidate citing “dozens” of examples of a similar chilling of political speech.

Some might think incumbent protection is no longer a problem since 69 House seats changed hands in 2010 (and a similar number in the two previous House elections). If you think that, please recall that the House has 435 seats, all of which could potentially change hands. Yes, the advantages of incumbency have become somewhat smaller in recent years. But those advantages remain significant, and disclosure does increase the risk of contributing to a challenger, especially when the odds are overwhelming that those now in office will win re-election.

What should be done? Huffman notes that many Americans consider mandated disclosure to be all benefits and no costs. We might begin by gaining a more realistic view of the disclosure calculus. That more realistic view should include the costs of disclosure including lower participation and the ways mandated disclosure make public debates more irrational. At a minimum, existing disclosure thresholds should be dramatically raised. Forcing disclosure of the names of those who contribute less than $1,000 serves no public purpose.

We also should not mandate disclosure of the names of those who support speech independently of candidates and the parties. The only justification for such a mandate would be educating the voters. In other words, voters are thought to look for cues about who to vote for by considering who spends money on speech favoring a candidate. Does that seem plausible? If not, forced disclosure of independent spenders would not be constitutional. If Congress nonetheless enacts disclosure for independent spending, the U.S. Supreme Court should rigorously consider both the end served by such laws and the relationship between the means of disclosure to that end. Does disclosure of independent spending really educate any voters? If so, what about the costs to free speech identified by Professor Huffman? Once we set aside conventional pieties, does forcing people to tell government officials about their political activities really offer much to nation? Or does such coercion do little more than indulge those who equate politics with the pleasures of preaching hatred of those they despise?

Last year I wrote a Cato policy analysis of the justifications for disclosure after Citizens United.

Campaign Finance: Don’t Confuse Me with the Evidence

Today POLITICO Arena asks:

Is it worrisome that Americans spend on political advocacy – determining who should make and administer the laws – much less than they spend on potato chips, $7.1 billion a year?

My response:

For decades among modern liberals it has been an article of faith – devoid of evidence – that money corrupts politics and that there is too much money in politics – “unconscionable” amounts, we’ve been told, repeatedly. Thus the crusade to restrict and regulate in exquisite detail every aspect of campaign finance, beginning in earnest with the Federal Election Campaign Act of 1971 and culminating with the Bipartisan Campaign Reform Act of 2002 (McCain-Feingold). Yet after every new restriction along that tortuous course, ever more money has flowed into our political campaigns. But for all that, they’re no more corrupt than they’ve ever been. In fact, the best evidence of the fool’s errand that campaign finance “reform” has been all along is found in comparisons between states with little and states with extensive campaign finance regulations: When it comes to corruption, there’s not a dime’s worth of difference between the regulated and the unregulated states.

But all those regulations have accomplished two things that should give liberals pause. First, by virtue of their sheer complexity and cost, they pose a serious impediment to those who would challenge incumbents, who already have a major leg up on reelection. And second, because we cannot limit private campaign contributions and expenditures altogether, thanks to the First Amendment, the regulations have led to money being diverted away from candidates and parties and into other, often unknown, hands, over which the candidates and parties have no control – by design. As a result, we see candidates today having to disavow messages underwritten by people who would otherwise, but for the regulations, have given directly to the candidate or the party. But that outcome was absolutely predictable – and was predicted. Two good reasons to end this campaign finance regulation folly and let individuals and organizations contribute and spend as they wish. What are we afraid of, freedom?

The Primary Purpose of McCain-Feingold Revealed

Kenneth Vogel offers an unexpected insight into the nature of campaign finance regulation:

“[Wisconsin Senator Russell] Feingold faces an uphill battle against a novice opponent, who, perhaps ironically, has been the beneficiary of hundreds of thousands of dollars in ads attacking Feingold that would have been prohibited had McCain-Feingold remained intact.”

In other words, if Feingold’s campaign finance law had not proven to be contrary to the U.S. Constitution, he might well not be facing “an uphill battle” to serve a fourth term in Washington. The political speech that is causing Feingold problems would have been prohibited in that situation. But the First Amendment favors speech and not the re-election needs of senators.

Oddly, Vogel writes as if the freed political speech (“ads attacking Feingold”) is a bug rather than a feature of current law.

The Principle behind Campaign Finance Regulation

Democratic House leaders apparently have reached a compromise that may bring the DISCLOSE Act to a vote. The National Rifle Association, a group that enjoys some support from House Democrats, objected to the bill’s disclosure provisions. DISCLOSE’s authors have now agreed to exempt “organizations that have more than 1 million members, have been in existence for more than 10 years, have members in all 50 states, and raise 15 percent or less of their funds from corporations.” The National Rifle Association qualifies for the exemption. But you knew that.

I wonder what principle of campaign finance regulation justifies this exemption? Earlier the authors of DISCLOSE said the American people deserve to know who is trying to influence elections. Now it would seem that voters only need information about relatively small, young, geographically-confined organizations that receive more than 15 percent of their money from corporations.

There is no principle at stake here. The NRA had enough support to stop the DISCLOSE Act. House leaders had to compromise by cutting the NRA a deal, a special exemption from the proposed law. The deal does show, if nothing else, that House Democrats are really worried about new money entering the fall campaign. They are willing to go a long way – even as far as helping the NRA – to make sure other speech funded by businesses and groups is not heard.

Finally, imagine you are a member of a group not exempted from DISCLOSE. You have been treated unequally by Congress.  The courts have said Congress can treat you unequally if they show that this exemption  for the NRA has a rational relationship to an important government purpose.  How does exempting older, bigger, more widespread groups with less than fifteen percent corporate funding help Americans cast an informed vote?  Put another way, if the NRA deserves an exemption, doesn’t everyone?