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The Apocryphal Midterm Election

So what’s it like to be a campaign finance reformer during the first election after Citizens United? Here’s a typical day.

October 19, 2010

So what’s it like to be a campaign finance reformer during the first election after Citizens United?  Here’s a typical day:

10:00 am.  The phone rings.  It’s a reporter who wants to know about the spending in the midterm election.  I point the reporter to for federal elections and for state elections.

“No, no.  That’s not what I mean.” Complains the reporter.  “I want to know about the secret  money in the election.”

“Well that makes two of us.”  I say and I settle in for a longer conversation.  By 10:30 am, here’s what I try to explain:

Citizens United is the Supreme Court case which unleashed unlimited corporate expenditures in all future American elections.  Citizens United didn’t make this spending secret. To the contrary, the Supreme Court voted 8–1 in favor of applying strong federal campaign finance disclosure and disclaimer rules to the plaintiff in the case, a 501(c)(4).

The secrecy came from a combination of Citizens United’s trashing of the previous federal corporate PAC requirement and decades old disclosure loopholes.  In 2004 and 2008, nonprofits accounted for hundreds of millions of dollars of political spending –usually in the form of sham issue ads which pre-Citizens United were the primary legal way for corporate treasury money to come into a federal race.  This year is different.  Now straight up “vote for bob” election ads can be funded by corporations—both for-profit and non-profit. 

If a for-profit wants to spend secretively, then they can send their dollars through a non-profit who will do the political spending for them.  Because of the way our elections and tax code interact, such spending is undetectable.  When it comes to federal political ads, the FEC only requires reporting of earmarked donations.  This enables Alice in Wonderland filings at the FEC where a $1 million ad buy is magically supplied by no listed donors.  The IRS doesn’t require 501(c)(4)s or (c)(6)s to report their donors publicly.  Only 527s are subject to public reporting of their donor bases over a certain threshold.  This makes 501(c)(4)s or (c)(6)s the perfect way to hide a for-profit corporate role in this election.

Do I know that for-profits are spending in this election?  Only if they are spending through transparent PACs.  Otherwise I’m as much in the dark about this apocryphal election as any other voter.  I’m waiting for a whistle blower to fess up, but I fear they will have the discipline to keep us all in the dark.  Now that the President is calling out the potential for foreign money to flow through these nonprofits, I fear that the wagons are circled and we never know who funded this election.

More than any election since Watergate, this midterm is looking like a win for obfuscation and a loss for transparency.  It did not have to be this way.  What’s standing between the American voter and transparency are changes in the U.S. Code.  We can change (1) the election code, (2) the securities code and/or (3) the tax code. 

Option 1. The cleanest way to get at this transparency problem is by amending the Federal Election Campaign Act (FECA).  Reforms like those embodied in the DISCLOSE Act would get at this issue by reforming the type of information that the FEC requires from political spenders.  The reform that might have the most impact would be a requirement to name top funders in the ad itself.  So we wouldn’t have any more “Citizens for Better Medicare” bought to us secretly by the pharmaceutical industry or “Americans Working for Real Change” brought to us covertly by business interests.  These two examples are real groups.  The DISCLOSE Act can still be adopted by Congress in the lame duck session.

Option 2.  Because some of the money flowing through the trade association is likely from publicly traded companies, this raises a host of corporate law issues as well.  The first tier agency problem is shareholders do not know that corporate money is being sent a political trade association.  Then, once the money is in the trade association’s hands, the donor company loses control over how it is spent.  In other words, shareholder investments may be leaking into the political system in ways that offer the shareholder zero say.  And the problem is compounded because of the lack of transparency.  Not only do shareholders have no vote, in most cases, they will be utterly clueless that the spending has happened.  All this spending could damage shareholder value. This could be addressed by the Shareholder Protection Act which would require shareholder approval before publicly-traded corporation can spend money on politics.  Furthermore, corporations are required by the Act to report where they have spent the money.  Again, the Congress can still adopt this bill in the lame duck session.

Option 3.  We could change the tax code to require public disclosure of entities who fund partisan, political campaign ads through 501(c)(4)s or 501(c)(6)s.  This has not been explored by Congress post-Citizens United.  This fix was briefly on the table in 2000 when public disclosure was mandated for 527s.  Chairman Max Baucus already has asked the IRS to investigate whether certain nonprofits are abusing their tax status.  But the question is bigger that the actions of a handful of bad apples.  He also has the authority to hold hearings on the deeper issue of what electioneering disclosure should be adopted across the board to nonprofits after this dark election. 

It is not too late to act.  We still have time to fix this problem before the 2012 election.  Because the only thing that could be worse than all of this secret political spending in a midterm congressional elections is for the same thing to happen on an even grander scale in a presidential election.

I hang up the phone. At 11:00 am it rings again.  It’s another inquiry about the secret spending in the midterm.  I take a sip of coffee.  I repeat the facts that I know and the facts I don’t know.  I pray that the story gets to enough staffers on the Hill so that we change our law in time.

Ciara Torres-Spelliscy is Counsel at the Brennan Center for Justice at NYU School of Law and Adjunct Professor at Rutgers University.