David R. Henderson  

Correction on Corporate Campaign Contributions

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On his blog today, Tyler Cowen repeats a standard mistake made by many, including many in the media, about political contributions by U.S. corporations. With the tag line, "Which firms give the most to politicians?," Tyler links to a site that lists the contributions made by various groups. Put aside the fact, which one of his commenters pointed out, that only two of the top ten are firms and the rest are labor unions.

Beyond that problem, there's an even more important problem: it's illegal for U.S. corporations to donate to individual politicians and it has been so since 1907. Here's what economist Jeffrey Milyo wrote on it in The Concise Encyclopedia of Economics:

Consider that large firms spend ten times as much on lobbying as their employees spend on campaign contributions through PACs, as individuals, or in the form of unregulated contributions to political parties (i.e., soft money). I mention employee contributions because, contrary to the sloppy reporting that appears regularly in U.S. newspapers, corporations in the United States do not contribute to political campaigns: they are prohibited from doing so and have been so prohibited since 1907. When you read that Enron has given X million dollars to candidates, what that really means is that people who identify themselves as Enron employees have given X million dollars of their own money.

When I gave $1600 to Ron Paul's campaign in the last election cycle, I identified myself, because I was required to do so by law, as an employee of the U.S. Navy. By the same methodology that attributes individual contributions to employers, that means that the U.S. Navy gave $1600 (plus, I would guess, hundreds of thousands of dollars contributed by other U.S. Navy employees) to Ron Paul. That's absurd.

It is true that corporations often have Political Action Committees that bundle individual employee contributions and send them to candidates and it's probably true that many of these employees feel pressured to give. So it's not as if the fingerprints of these corporations are not on some of the contributions. But I know a number of people who gave close to the maximum contribution ($2300) to individual candidates and who did it out of conviction rather than out of any perceived felt pressure.


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COMMENTS (8 to date)
PRJ writes:

It would be more accurate to say that corporations cannot give to FEDERAL candidates. Here in Illinois, they can give to State candidates (or they at least could until recently--the laws were recently changed, and I'm not in the fundraising game anymore).

As an aside, PACs are limited as to who in a corporation they can solicit for contributions. You cannot ask somebody at the level of a clerk to donate to the company PAC. I don't recall what the rules are, but you have to be fairly high up in the company to even be asked.

Arnie writes:

This is a very useful clarification. Now, why is it not illegal to spend $10,000 a plate on a dinner for such-and-such politician? That has never made sense to me.

Fazal Majid writes:

Political contributions are the vote that really matter, and interestingly enough they are open to non-citizens such as permanent residents.

The fact they are public makes donors vulnerable to political retortion, however. An employer may check who donated from their rolls, and adjust their evaluations of the employee's commitment to the company accordingly. One of the great virtues of hidden ballot voting is they make vote-buying impossible to enforce, and making donations public undermines that.

Similarly, a political party in power can make donations a litmus test for party loyalty and use it to determine who will benefit from government jobs and patronage.

Conversely people making contributions to unpopular causes such as California Proposition 8 in the Bay Area can be targeted for retribution. This probably has a chilling effect for unpopular political views and stengthens the status quo.

In conclusion, any system of rules can and will be gamed, but short of adopting 100% public financing of campaigns (proportional to the share of the vote), there does not seem to be a better alternative, and even public financing has its own entirely different set of problems, not least that it enshrines a parasitical political class in the system.

Joseph Kranak writes:

A question. You say it's illegal for a corporation to make donations. Does this apply to all organizations, or just specifically to corporations? Does it apply to say an LLC or a partnership, or co-op? Opensecrets.org lists a whole bunch of unions as contributors. Can unions donate to federal candidates?

BT writes:

The assumption is that corporations corrupt the politicians. As a former registered lobbyist in Washington DC and Maryland (12 years ago), it often works the other way too. Politicians often call up industry reps and ask for "donations" or else introduce dubious legislation. It called fund-raising by the politicians.

BT,

The Cupboard Is Bare writes:

I believe that individuals should make their own contributions as opposed to groups who supposedly make contributions in the name of the members of said groups.

Not every union member, employee or member of organizations such as AARP are all of one political persuasion or another; and therefore I do not feel it is right use membership dues to make contributions on their "behalf".

I heard on television that after Obama erroneously said that AARP was on board with National Healthcare, 60,000 AARP members cancelled their membership. AARP's response to to Obama's statement may not have denounced Obamacare, but they did say that they had not endorsed it.

That's a start.

John Samples writes:

To Joseph Kranak: For profit corporations may not make contributions directly to candidates or parties from their general funds. Some organizations that take the corporate form but are purely ideological may not be prohibited from contributing. As mentioned, PACs are available to both corporations and unions. Friends who fundraise for corporate PACs tell me it is not easy to get people to contribute. Unions automatically deduct contributions as part of the union dues. In theory, union members may ask for the contribution part of the union dues back, but it rarely happens that they do so. The feds prohibit both contributions and corporate funding of ads that mention a federal candidate even if done independent of candidates or parties. Some states have the same prohibition. Later this year, the Supreme Court may well invalidate the prohibition on independent spending on ads by corporations.

Jaime L. Manzano writes:

Why not just limit campaign contributions to resident voters? The objective would be to build a firewall between voter and non-voter campaign financing. "Local" organizations and corporations could serve as advocates to issues but separate from the campaigns of candidates.

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