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  1. Citizens United: The Death of Representative Government? Howard Bunsis: PhD, CPA, J.D. Professor of Accounting

  2. Roadmap • History of Campaign Finance Laws • The Citizens United Decision • Consequences of the ruling • The effects of Citizens United in the 2010 election campaign • Potential legislative changes moving forward

  3. History of Campaign Finance Laws (1867-1904) • The first law was passed in 1867, which prohibited government employees from soliciting contributions from Navy yard workers • The Pendleton Act of 1883 ended the assessment of government employees’ paychecks for contributions. This put pressure on candidates to get corporate money • In the 1896 campaign for William McKinley, banks and corporations were assessed a percentage of their profits – they wanted to beat the populist William Jennings Bryant. The corporations were happy to contribute (they had a rematch in the 1900 campaign) • Teddy Roosevelt became president after McKinley was shot, and fearing a loss in the 1904 election, turned to corporations for support. After he won in 1904, he called for a ban on corporation campaign contributions.

  4. More Ancient History (1907-1911) • Tillman Act of 1907: Prohibited corporations and big banks from making direct financial contributions to federal candidates. It was not strongly enforced • Publicity Act of 1910 required full disclosure of all monies spent and contributed during federal campaigns. • In 1911, amendments to the above two acts made them apply to primaries (in the South, the democratic primary was in effect the election)

  5. First Supreme Court Case (1921) • U.S. vs. Newberry (1921). Henry Ford (yes, that Ford) lost a primary campaign and blamed the loss on corporate money against him. He asked the AG to prosecute based on the Tillman Act and amendments. The court held that the amendments were invalid because neither parties nor primaries were mentioned in the Constitution, which weakened the existing laws.

  6. Teapot Dome Scandal (1925) • President Harding's Secretary of the Interior leased Wyoming's Teapot Dome oil reserve to Sinclair Oil without bids. The public perceived this as a payback for the enormous contributions Sinclair had given to the Republican National Committee, which in turn helped elect Harding. • The public was outraged, and there was a move to strengthen the earlier laws. It led to the The Federal Corrupt Practices Act (1925). • This totally outlawed corporate contributions • Senatorial candidates could spend 3 cents for each voter in the last election, not to exceed $25,000. House candidates could spend 3 cents for each voter in the last election, not to exceed $5,000.

  7. Still More History (1939-1947) • The Clean Politics Act of 1939, better known as the Hatch Act, prohibited Federal employees from participating in or contributing to Federal political campaigns. • The Smith Connelly Act (1943). During WWII, the steelworkers went on strike, and the public was outraged. This law punished the unions by banning union contributions until the end of the war. The Taft Hartley Act (1947) made the ban permanent.

  8. Mothers Milk of Politics (1966) • California political operative Jesse Unruh, in 1966, said that money is the “mother’s milk of politics.” • Money talks, and it is intimately connected to the expression of political views that is at the core of the what the 1st amendment is supposed to protect.

  9. First Amendment to the U.S. Constitution Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.

  10. Modern History (1968-1971) • Long Act (1968). Tom Dodd (D-CT, yes, father of Chris Dodd) used campaign money for personal use. This law provided public funding law for presidential elections by setting up a voluntary contribution check-off box on the Federal income tax form. The money raised in this manner would be allocated to all "major party" candidates in the presidential primary and general elections. • Federal Election Campaign Act, FECA (1971). The watchdog group Common Cause filed a lawsuit against both political parties for violating the Federal Corrupt Practices Act (1925). They lost the suit, but the 1971 legislation was passed: • Caps on the amount individuals could contribute to their own campaign: Presidential candidates, $50,000 each; Senatorial candidates, $35,000 each; and House candidates, $25,000 each. • The Act established caps on television advertising at 10 cents per voter in the last election or $50,000, whichever was higher. • It established disclosure guidelines for contributions of $100 or higher.

  11. Watergate (1972-1974) • Washington Post reporters Woodward and Bernstein had uncovered the Committee to Re-Elect the President's (CREEP) break-in at the Democratic headquarters in the WatergateHotel • After Nixon won a landslide, VP Agnew resigned amidst charges of past extortion and bribery as Governor of Maryland, it was discovered that Nixon knew everything. On campaign finance, the following came out: • The International Telephone and Telegraph Corporation had pledged $400,000 to the Republican National Committee and had received a favorable anti-trust ruling from the Justice Department • Illegal contributions from Gulf Oil, American Airlines and other corporations, some laundered through foreign countries, found their way, in cash, into the Nixon campaign.” • Nixon resigned in August of 1974

  12. Amendments to the FECA (1974) • The Federal Election Commission was created • Contribution Limits • $1,000 limit per individual for each primary, run-off or general election, and an aggregate contribution limit of $25,000 to all federal candidates annually. • $5,000 limit per union or corporate election committee, or political party for each election with no aggregate limit. (This is the section that legitimated PACs.) • Spending Limits • Total spending limits for Presidential candidates: $10,000,000 for primaries; $20,000,000 for the general election; and $2,000,000 for nominating conventions. • Limits for Senate and House elections were much smaller • Public Funding for Presidential Races • Disclosure and Enforcement • It required full reports of contributions and expenditures to be filed 10 days before and 30 days after each election.

  13. Buckley vs. Valeo (1976) • Senator Buckley (R, NY) and Senator Eugene McCarthy (D, MN) sued the Secretary of the U.S. Senate, Francis Valeo, claiming the spending limits in the 1974 Act violated the Constitutional protection of freedom of speech. • The court held: • Contribution limits were ok • Expenditure limits were not ok, stating it is an unconstitutional infringement on the candidate's freedom of speech. Strict scrutiny • Reasoning • Campaign spending by a candidate is close to political speech, which receives very high first amendment protection. • Contributions to a candidate involves speech by someone other than the contributor

  14. Balancing Act in Buckley (1976) • Political contributions as free speech Versus • Avoiding the quid pro quo corruption and the public losing faith in the political process when corporate contributions are made

  15. Austin vs. Michigan Chamber of Commerce (1990) • Upheld a state statute prohibiting corporations form using general treasury funds for independent expenditures for or against any candidate for state office, but allowing PAC expenditures. • Corporations have tremendous advantages (see next slide) and need limits • Scalia dissented, saying that the statute’s purpose was to restrict speech which is a contrast to democratic traditions. Kennedy and O’Connor joined Scalia in dissent

  16. Corporations in Austin (1990) • Unique legal and economic characteristics of corporations • Limited liability for owners and managers • Perpetual life • Separation of ownership and control • Favorable treatment on distributing assets • Unfair political advantages in the marketplace of ideas • Corrosive and distorting effects of the aggregation of wealth • The statute justified a compelling state interest and the PAC option existed

  17. FEC vs. Colorado Republican Federal Campaign Committee (2001) • In Buckley, the court said expenditure limits were not ok but contribution limits were ok. The majority of the court agreed with this, even in this 2001 case. • But Justice Thomas (joined by Scalia and Kennedy) wanted Buckley overturned, and said in dissent: “I remain baffled that this court has extended the most generous First Amendment safeguards to filing lawsuits, wearing profane jackets, and exhibiting drive-in movies with nudity, but has offered only tepid protection to the core speech and associational rights that our Founders sought to defend.”

  18. McCain-Feingold Act (2002) • Known as Bipartisan Campaign Reform Act • Before 2002, soft money (independent donations used for party building that are not subject to hard money donations) rose to $487 million in the 2000 election. The law was supposed to pass constitutional muster. Provisions: • Banned soft money • Prohibited corporations, unions, and trade associations from directly paying for “electioneering communications” that refer to candidates within 60 days of a general election or 30 days of a primary. PACs can still finance these ads • Hard money contributions limited to $2,000 per candidate per election (up from 1k)

  19. More on McCain-Feingold (2002) • Citizens United and McCain-Feingold: • Still bans soft money • Overturned the 60 and 30-day rules • Left the $2,000 limit in place • The big problem were the 60 and 30-day rules and the first amendment issues associated with them. Floyd Abrams: “Do you really want to limit speech at the time it matters most?”

  20. McConnell vs. FEC (2003) • This challenged the 30 and 60-day prohibitions in McCain-Feingold • The Court left the law mostly intact The system is broken, so let Congress try to fix it and find ways to restrict campaign money • Balance between the 1st amendment and the potential damage of soft money. The majority said: “Just as troubling to a functioning democracy as classic quid pro quo corruption is the danger that officeholders will decide issues not on the merits of their constituencies but according to the wishes of those who have made large financial contributions valued by the officeholders.” • The First Amendment argument was given short shrift. Usually, you can argue that laws which restrict speech are vague, overbreadth, have content issues, et.

  21. Dissent in McConnell (2003) • Rehnquist: “Today’s decision has significantly reduced the protection for political speech having little or nothing to do with corruption or the appearance of corruption.” • Thomas even objected to the disclosure provisions: “The right to anonymous speech cannot be abridged based on the interests asserted by the defendants.” • Kennedy: “The Court, upholding multiple laws that suppress both spontaneous and concerted speech, leaves us less free than before. Today’s decision breaks faith with our tradition of robust and unfettered debate.” • Scalia: “Given the premises of democracy, there is no such thing as too much speech.”

  22. FEC vs. Wisconsin Right to Life (2007) • The Court found that the McCain-Feingold law could not be constitutionally applied to WRTL’s televised political ads (electioneering communication) that criticized Wisconsin’s senators for participating in a filibuster involving several of President Bush’s judicial nominees. • Roberts: “These cases are about political speech. Discussion of issues cannot be suppressed simply because the issues may also be pertinent in an election.”

  23. Dissent in WRTL (2007) • Souter: “Devoting concentrations of money in self-interested hands to the support of political campaigning therefore threatens the capacity of this democracy to represent its constituents and the confidence of its citizens in their capacity to govern themselves.”

  24. Citizens United vs. FEC (2010) • 5-4 (Kennedy, Roberts, Alito, Scalia, Thomas) versus (Ginsberg, Breyer, Stevens, Sotomayer) • Basic ruling: The 2002 McCain-Feingold Act was in violation of corporations’ and unions’ First Amendment rights. The court ruled the electioneering communication provision unconstitutional, applying “strict scrutiny” • Austin vs. Michigan Chamber of Commerce is overturned • The facts were about an NPO’s documentary called “Hillary the Movie” which was critical of Hillary Clinton, and was shown within the 30-day limit of a primary and was therefore electioneering communication.

  25. Summary of Citizens United Decision • The ruling lifted restrictions on corporations, including nonprofit ones like labor unions, created by the 2002 McCain-Feingold campaign finance law, when it comes to the financing of “electioneering communications” — radio and television commercials that focus on voters and identify a political candidate, broadcast in the 30 days before a primary and 60 days before a general election. • The Wisconsin Right to Life decision already gave corporations wide berth to buy advertisements attacking or supporting candidates, as long as they were cloaked in the appearance of “issue advocacy” and stopped short of “express advocacy” — an explicit appeal for the election or defeat of a candidate. • What Citizens United did was to remove that remaining shackle of “issue advocacy,” enabling corporations and labor unions to sponsor advertisements explicitly calling for the election or defeat of particular candidates. The change gives heads of corporations a greater comfort level

  26. Citizens United Opinion • Political speech needs to be protected, and any restrictions must meet the strict scrutiny test • Corporations are like individuals, and their speech should not be restricted: “this Court now concludes that independent expenditures, including those made by corporations, do not give rise to corruption or the appearance of corruption.” • “The Court returns to the principle established in Buckley that the Government may not suppress political speech based on the speaker’s corporate identity. No sufficient governmental interest justifies limits on the political speech of nonprofit or for-profit corporations”

  27. More from the Citizen United Majority • Because speech is an essential mechanism of democracy—it is the means to hold officials accountable to the people—political speech must prevail against laws that would suppress it by design or inadvertence. Laws burdening such speech are subject to strict scrutiny, which requires the Government to prove that the restriction furthers a compelling interest and is narrowly tailored to achieve that interest

  28. The Majority and Corporations • Rapid changes in technology—and the creative dynamic inherent in the concept of free expression——counsel against upholding a law that restricts political speech in certain media or by certain speakers. No sufficient governmental interest justifies limits on the political speech of nonprofit or for-profit corporations. • It (the dissent) never shows why ““the freedom of speech”” that was the right of Englishmen did not include the freedom to speak in association with other individuals, including association in the corporate form

  29. Scalia and Night and Day • Instead of taking this straightforward approach to determining the Amendment’s meaning, the dissent embarks on a detailed exploration of the Framers’’ views about the ““role of corporations in society.”” The Framers didn’t like corporations, the dissent concludes (as night follow day) that corporations had no rights of free speech. • “there is not a scintilla of evidence to support the notion that anyone believed [the First Amendment] would preclude regulatory distinctions based on the corporate form” • Despite the corporation-hating quotations the dissent has dredged up, it is far from clear that by the end of the 18th century corporations were despised. If so, how came there to be so many of them?

  30. Scalia and Polar Bears • The dissent says that when the Framers constitutionalized the right to free speech in the First Amendment, it was the free speech of individual Americans that they had in mind That is no doubt true. All the provisions of the Bill of Rights set forth the rights of individual men and women—not, for example, of trees or polar bears. But the individual person’s right to speak includes the right to speak in association with other individual persons.

  31. Stevens Dissent • “I emphatically dissent” • “In the context of election to public office, the distinction between corporate and human speakers is significant. Although they make enormous contributions to our society, corporations are not actually members of it. They cannot vote or run for office.” • “It is enough to say that the Act was primarily driven by two pressing concerns: first, the enormous power corporations had come to wield in federal elections, with the accompanying threat of both actual corruption and a public perception of corruption.” • “Those aggregations can distort the ““free trade in ideas”” crucial to candidate elections, ibid., at the expense of members or shareholders who may disagree with the object of the expenditure.”

  32. Stevens: Corporations are Not People • Continuously for over 100 years, this line of ““[campaign finance reform has been a series of reactions to documented threats to electoral integrity obvious to any voter, posed by large sums of money from corporate or union treasuries” • “The fact that corporations are different from human beings might seem to need no elaboration, except that the majority opinion almost completely elides it. Unlike natural persons, corporations have ““limited liability”” for their owners and managers.” • “It might also be added that corporations have no con-sciences, no beliefs, no feelings, no thoughts, no desires. Corporations help structure and facilitate the activities of human beings, to be sure, and their ““personhood”” often serves as a useful legal fiction. But they are not them- selves members of ““We the People”” by whom and for whom our Constitution was established.

  33. More from the Dissent • "While American democracy is imperfect few outside the majority of this court would have thought its flaws included a dearth of corporate money in politics." • “The majority’s approach to corporate electioneering marks a dramatic break from our past. Congress has placed special limitations on campaign spending by corporations ever since the passage of the Tillman Act in 1907. We have unanimously concluded that this reflects a permissible assessment of the dangers posed by those entities to the electoral process.”

  34. Dissent: Can Corporations Vote? • Under the majority’s view, I suppose it may be a First Amendment problem that corporations are not permitted to vote, given that voting is, among other things, a form of speech • The majority does not explain why corporate identity demands the same treatment as individual identity. Only the most wooden approach to the First Amendment could justify the unprecedented line it seeks to draw.

  35. Dissent: Rationale for Restrictions • The Government has a legitimate interest in regulating the substantial aggregations of wealth amassed by the special advantages which go with the corporate form. Those aggregations can distort the ““free trade in ideas”” crucial to candidate elections at the expense of members or shareholders who may disagree with the object of the expenditures • Notwithstanding our colleagues’’ insinuations that Austin deprived the public of general ““ideas,”” ““facts,”” and ““knowledge,”” ante, at 38––39, the decision addressed only candidate-focused expendi- tures and gave the State no license to regulate corporate spending on other matters.

  36. Thomas: The Majority Did not go far enough • I dissent from Part IV of the Court’s opinion because the Court’s constitutional analysis does not go far enough. The disclosure, disclaimer, and reporting requirements in BCRA are also unconstitutional. • He cited evidence where donor’s identities were disclosed and they then faced threats when this was discovered

  37. Election Rules • 501c4’s are allegedly getting large, undisclosed donations from corporations and labor unions • Potential violation: 501(c)(4) organizations are supposed to be primarily engaged in social welfare, are not subject to tax on income, and may engage in a limited amount of intervention in a political campaign. • Section 527 organizations are designed for political advocacy, but those donations have to be disclosed •

  38. 501 (c)(4) Rules • The I.R.S. allows these groups to engage in political activity, so long as it is not their “primary purpose.” They are allowed to do an unlimited amount of lobbying on issues related to their core purpose. Stopping short of what would clearly be considered “express advocacy” in most of their ads enables them to better make the case to the I.R.S. they are merely doing issue advocacy. It is often hard, however, for the casual observer to tell the difference between the issue advocacy and express advocacy. • As long as most of a group’s advertisements are not explicit calls to vote for or against candidates, they will likely be left alone by the FEC

  39. Effects of Money on the 2010 Election • Center For Responsible Politics • In only about 85 percent of House races did the candidate who spent the most experience victory on Election Day, a relative low in recent years. • Candidates’ spending correlated to success in 29 out of 35 Senate races -- or 83 percent • By comparison, in 2008, the biggest spender was victorious in 93 percent of House races and in 86 percent of Senate races. • In 2006, top spenders won 94 percent of House races and 73 percent of Senate races. • In 2004, 98 percent of House seats went to candidates who spent the most, as did 88 percent of Senate seats.2010 was the most expensive campaign in history

  40. What are 527 PACs? • Political Action Committees formed for the purpose of influencing elections on a local, state or federal level. • These PACs may donate directly to a candidate’s campaign with limits on annual contributions to the PAC. Donations to 527 PACs are limited to $5,000.00 per individual and are disclosed publicly.

  41. What are Super PACs? • Officially known as "independent-expenditure only committees", Super PACs are a new breed of political committee that has proliferated in the wake of federal court rulings in 2010. • These groups may raise unlimited sums from unlimited sources - corporations, unions and other groups, as well as wealthy individuals. • With the money they raise, Super PACs may overtly advocate for the defeat or election of federal candidates in various communications • This means their money may be used towards the support of candidates or issues without contributing money directly to any candidate. Cannot coordinate with the candidate • There are no limits on individual contributions, but there is public disclosure.

  42. 501(c)(4) • Tax Exempt Social Welfare Organizations formed for the purpose of improving the social welfare of society. • These organizations may use their funds for political advertising that supports their purpose as long as that political activity is not the primary purpose of the 501(c)4. These types of organizations have no limits on the dollar amount of contributions • Some organizations are known as 501(c)(4) Super PACs, where there is no public disclosure

  43. From the Center of Responsible Politics, June 1, 2012 Citizens United now permits corporations and unions to make political expenditures from their treasuries directly and through other organizations. The decision allows such activity to take place without complete or immediate disclosure of who funds such communications

  44. Proposed Legislation: The Disclose Act • Legislation about disclosure that would force businesses, unions and others to disclose how they were spending money in political campaigns and where they were getting it. • “Sunlight is the best of disinfectants.” Former Supreme Court Justice Louis Brandeis • So far, Democrats have blown it: The bill proposed to counter the Supreme Court ruling provided an exception for the National Rifle Association, the Sierra Club and other powerful lobbying groups in Washington. The resulting uproar led Democrats to expand the exception to cover even more interest groups as they tried to secure votes for the measure, which was opposed by most Republicans.

  45. More on Proposed Legislation • The CEOs of corporations that engage in campaign advertising would have to appear at the end of the advertisements and make the now familiar statement that they approve the message. In addition, when the advertisements come from advocacy groups, the top five contributors to the cost of the ads covered under the new rules would have to be listed. • The House approved the legislation by a vote of 219 to 206, with just two Republicans joining Democrats in favor. But Republican leaders assailed the bill as an infringement on free speech, led by Mitch McConnell. The legislation then failed in the Senate in September of 2010

  46. Conclusions • Corporations are now people • The existence of corporate money in politics is not going to be reduced over time • The issue in the near term is disclosure; who, what, when, where are questions that are yet to be answered. • In general, the way to fight speech you do not agree with is with more speech. What this will mean in the realm of campaign finance is a huge financial battle between the parties