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Citizens United We Stand

The ruling that restored free speech to politics has the left in an uproar. But it will also test corporate mettle.

By From the May 2010 issue

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March 24, 2009, was a turning point in the long-running battle to restrict political speech, aka "campaign finance reform." On that day, the Supreme Court heard oral argument in Citizens United v. Federal Election Commission, in which the conservative activist group Citizens United challenged the provisions of the McCain-Feingold law that had prohibited it from airing a documentary film, Hillary: The Movie, through video on demand within 30 days of any 2008 Democratic presidential primary.

In the course of the argument, Deputy Solicitor General Malcolm Stewart, an experienced Supreme Court litigator, argued that a 1990 precedent, Austin v. Michigan Chamber of Commerce, gave the government the power to limit any political communication funded by a corporation, even a nonprofit such as Citizens United. Justice Samuel Alito asked Stewart if that power would extend to censoring political books published by corporations. Stewart responded -- consistent with the government's position at all stages of the case -- that yes, it would. There was an audible hush -- if such a thing is possible -- in the court. Then Justice Alito, appearing to speak for the room, merely said, "I find that pretty incredible."

Incredible or not, that was, and had been for many years, the position of the U.S. government. But until that moment, it seemed to have never quite sunken in with the justices. Americans are willing to accept far more abridgements of free speech than we sometimes like to believe, but the idea of banning books strikes an emotional chord that something described simply as "prohibitions and limits on campaign spending" does not. Americans may not always live up to the Bill of Rights, but Americans do not ban books. A stunned Court eventually asked the parties to reargue the case, to consider whether Austin should be overruled.

On reargument last September, Solicitor General Elena Kagan tried to control the damage, arguing that the government never actually had tried to censor books, even as she reaffirmed its claimed authority to do just that. She also stated that "pamphlets," unlike books, were clearly fair game for government censorship. (Former Federal Election Commissioner Hans von Spakovsky has noted that in fact the FEC has conducted lengthy investigations into whether certain books violated campaign finance laws, though it has not yet held that a book publisher violated the law through publication. And the FEC has attempted to penalize publishers of magazines and financial newsletters, only to be frustrated by the courts.) With the endgame of "campaign finance reform" finally laid out plainly, the Supreme Court's decision seemed a foregone conclusion. Sure enough, in January, the Court ruled that corporations, as associations of natural persons, have a right to spend funds from their general treasuries to support or oppose political candidates and causes -- including through the publication or distribution of books and movies.

Though this ruling is obviously a correct interpretation of the First Amendment, reaction to the Court's decision in Citizens United has been loud, often disingenuous, and in some cases nearly hysterical. President Obama used his State of the Union address to publicly scold the Court, in the process so mischaracterizing the Court's decision that he prompted Justice Alito's now famous, spontaneous rejoinder, "Not true."

Meanwhile, Democrats in Congress and the states have been working overtime to come up with "fixes," ranging from the absurd (a Vermont legislator proposed forcing corporate sponsors to be identified every five seconds during any broadcast ad), to the merely pernicious (such as proposals that seek toimmobilize corporate speech by forcing corporations to hold a majority vote of shareholders before each and every expenditure). The fact that virtually all of these proposed "fixes" have been sponsored by Democrats, with the aim of silencing what they perceive to be the pro-Republican voices of the business community, merely illustrates once again the basic problem with campaign finance reform that Citizens United sought to alleviate: the desire to manipulate the law for partisan purposes.

CITIZENS UNITED IS AT ONCE both a potential game-changer and a decision whose "radicalism" has been wildly overstated. Why overstated? Well, to start, one would never guess from the left's hysteria that even prior to Citizens United, 28 states, representing roughly 60 percent of the U.S. population, already allowed corporations and unions to make expenditures promoting or opposing candidates for office in state elections; in 26 states, such corporate and union expenditures were unlimited. Moreover, while the first bans on corporate spending were enacted more than a century ago, prior to the 1990 Austin decision, the Supreme Court had never upheld a ban, or even a limitation, on independent expenditures supporting or opposing a political candidate. It was the misleading contention that the decision overturned "100 years of law and precedent," that appears to have evoked Justice Alito's "not true" response to the president's State of the Union comments.

The president also stated, again misleadingly, that the decision would open the door for foreign corporations to spend unlimited sums in American elections. In fact, another provision of federal law, not at issue in the case, already prohibits any foreign national, including foreign corporations, from spending money in any federal campaign. FEC regulations, which have the force of law, further prohibit any foreign national from playing any role in the political spending decisions of any U.S. corporation, political action committee, or association. And the Court specifically stated that Citizens United was not addressing these laws at all. So while some states may tweak their state rules in the wake of Citizens United to limit the ability of U.S. incorporated and head-quartered subsidiaries of foreign corporations to spend money in campaigns, the "foreign corporation" bogeyman is little more than leftist demagoguery.

What is much more alarming than the prospect of U.S. corporations with some foreign ownership participating in campaigns is the fact that the four most liberal justices on the Supreme Court would have upheld the Austin precedent, and with it the authority of the federal government to censor books and movies published, produced, or distributed by U.S. corporations. But by affirming the rights of citizens to speak out on political issues, even when organized through the corporate form, the Supreme Court quite rightly put political speech back at the core of the First Amendment.

After four decades in which the Court had given greater First Amendment protection to such activities as topless dancing, simulated child pornography, Internet porn, flag burning, and the transfer of stolen information than to political speech, Citizens United is a wonderful reaffirmation of the primacy of political speech in First Amendment jurisprudence. In that respect, the case has already been a constitutional game-changer. Future litigation is sure to follow, building on the success of Citizens United to free up the political system and strike down the still extensive web of regulation that envelops political speech.

Some of these challenges are already well under way. For example, under current federal law, an individual such as George Soros is free to spend $20 million to promote his favored candidates, but if two or more individuals get together to do the same thing, neither can contribute more than $5,000 to the effort. It is hard to see what anti-corruption purpose such a dichotomy serves, and in SpeechNow.org v. FEC, argued before the U.S. Court of Appeals for the District of Columbia Circuit in January, plaintiffs argue that if it is not corrupting for one person to spend unlimited sums on independent expenditures, it is not corrupting if two or more people combine their resources to promote the candidates of their choice. A decision is expected soon. Expect, too, legal challenges to the federal prohibition on contributions by corporations directly to candidates -- if a $2,300 contribution from a corporate CEO or PAC is not corrupting, it is hard to see how a $2,300 contribution directly from a corporate treasury is corrupting.

MUCH LESS CLEAR is whether Citizens United will be a game-changer in electoral politics. The general consensus is that Citizens United favors Republicans, based on the widely held perception that corporations are more likely to support Republicans than Democrats. But this perception may not be true. Even before Citizens United, the federal government and most states also allowed corporations to operate political action committees (PACs), which could then solicit the corporation's managers and shareholders for voluntary contributions to the PAC, which in turn could contribute limited amounts to candidates or make independent expenditures to support candidates. But whereas corporate PACs typically gave about two-thirds of their contributions to Republicans during the 1990s and the first part of the last decade, peaking in the 2004 cycle at nearly 10 to 1 for the GOP, over the past three years corporate PACs have devoted a slim majority of their contributions to Democrats.

More importantly, there is good reason to doubt that Fortune 500 companies are going to start making large expenditures in political campaigns. As noted, even before Citizens United, 28 states allowed corporate and union spending on state and local political races, yet large-scale corporate spending was very rare in those states. Another sign that corporations are not eager to jump headfirst into political spending comes from the relatively low level of activity by corporate PACs. Among the Fortune 500 -- huge corporations that are all heavily regulated by the government -- only about 60 percent actually maintained PACs.

These PACs are subject to extensive regulation, which runs up operating costs to the point that the operating costs of PACs often total more than half of their total revenue. Corporations can, however, pay these operating costs directly from their corporate treasuries. Yet roughly half of these PACs' operating expenses were paid not by the corporations that established them, but out of funds donated to the PACs. In other words, even before Citizens United, corporate America could have roughly doubled the amount of money available in their PACs to use for political expenditures simply by paying the administrative and legal costs of operating the PAC from their general treasuries. Yet they did not. And only about 10 percent of PACs contributed the maximum legal amount in any election. All this suggests a lack of interest in political participation.

The truth is, the Fortune 500 prefer lobbying to campaigning. Even prior to McCain-Feingold, when corporations could support parties with "soft money," the Fortune 500 spent roughly 10 times as much money on lobbying as on political expenditures. As Edward Kangas, former chairman of Deloitte Touche Tohmatsu and of the Committee for Economic Development, said in the New York Times, explaining his support for McCain-Feingold, "We have lobbyists."

But if large corporations may be reluctant to spend on political races, Big Labor is not. Labor unions also benefit from the Citizens United decision, and have historically been much more partisan in their political activity than has big business. The relatively small number of unions makes it easier for them to coordinate their activity. Add in the lack of any need to avoid offending a portion of their customer base, and unions are well positioned to take advantage of Citizens United. Indeed, within weeks of the Citizens United decision, three unions pledged to spend $1 million each to try to defeat U.S. senator Blanche Lincoln in the Democratic primary in Arkansas, finding her insufficiently dedicated to Big Labor's agenda.

THUS, IF CITIZENS UNITED ultimately works to favor conservatives, it may be less due to the Fortune 500 than to the small business community. These small and mid-sized companies usually cannot afford the high administrative costs of maintaining a PAC, and often don't have enough employees eligible for solicitation to make forming a PAC worthwhile in any case. Moreover, unlike Fortune 500 companies, small businesses typically do not maintain permanent large lobbying operations in Washington, and because they are less likely to be heavily regulated or engaged in government contracting, their contact with Washington is likely to be more sporadic. For these companies, the ability to speak directly to the public is potentially a great benefit.

This small business community is generally much more conservative in its politics than is the Fortune 500, and in particular much more hostile to government regulation. But these small companies are unlikely to undertake major campaigns on their own. Thus it may be up to trade associations and business groups, such as chambers of commerce, to organize business efforts.

Meanwhile, managers and executives, particularly of large, publicly traded companies, will need to do some serious rethinking about their obligations to shareholders. Do they have an obligation to their shareholders to try to maximize long-term value by opposing tax and spend, pro-regulatory politicians, and working to elect officials who appreciate pro-growth policies? Or do they play it safe, avoid political activity, and hope that the regulators will eat them last? The decisions they make may ultimately determine the real importance of Citizens United.

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About the Author

Bradley A. Smith, a former chairman of the Federal Election Commission, is chairman of the Center for Competitive Politics and professor of law at Capital University Law School in Columbus, Ohio.