The Brave, New World: Life after Citzens United

Whenever there’s a major U.S. Supreme Court decision, especially one impacting the world of politics, opportunities and pitfalls present themselves.  That’s especially true with the recent Citizens United case recognizing that corporations (and unions) have a First Amendment right to expressly advocate the election and defeat of specific candidates.

While corporations and unions still cannot contribute directly to candidates, both supporters and opponents of the decision agree it will dramatically alter the status quo.  Here’s a look at who will be helped and hurt in the Brave New World of Campaign Finance.  

The 2010 Cycle

Republican Major Donors:  The most immediate impact of this decision will not come from increased corporate spending but rather from the signal it sends to major Republican donors that it’s safe to come back on the field.  Dispirited by a toxic combination of the political environment, uninspiring leaders and the hangover of Bush Administration enforcement actions against major donors to conservative 527s after the 2004 elections, these individuals were noticeably absent during the 2006 and 2008 cycles.  That absence let the Left dominate the issues debate in recent years.  

Citizens United combined with a recent D.C. Circuit ruling invalidating the Federal Election Commission regulations used to go after the 527s’ donors sends the clear signal that their 2004 giving was in fact a constitutional right rather than a federal crime.  Coming just as the political environment sweetens (thanks to Obama overreach plus electoral victories in Massachusetts, New Jersey and Virginia), this should result in a much more robust conservative voice in 2010 and beyond.

Corporations and Unions:  Big winners since their substantial treasuries can now be used in new and significant ways to make their views known to the general public.  The question is who will take advantage.  Remember that the decision applies to not only large for-profit corporations, but also to subchapter S corporations and the wide range of 501c tax exempt groups.  Also keep in mind that the lifting of the corporate speech ban applies not only to direct messaging such as TV ads but also to voter mobilization and registration programs.  

For Profit Corporations:  While Citizens United does allow corporations to do express advocacy independent expenditures at any time during an election cycle, big corporations have not historically jumped into hot-button political combat, preferring instead to make friends with PAC contributions to incumbents on both sides.  That is unlikely to change in the short run.

But look for corporations to give more money to their trade associations, who can now ramp up their direct political activity under the ruling.   Another growth area will be funding for voter mobilization programs such as registration drives, voter guides on key issues and get-out-the-vote activities.  The decision takes off many of the restraints that previously limited the scope and messaging of these programs and present corporations with a less risky but perhaps larger impact way to participate. 

501(c)(4) social welfare organizations – From the National Right to Life Committee to NAARL, from the National Rifle Association to the Brady Gun Control group, social welfare organizations will be able to do much, much more in more direct ways to advocate their causes.  Since they are almost all incorporated, these groups will now be able to engage in independent expenditures rather than just issue ads.  Since Citizens United also invalidated the ban on ads mentioning a candidates name within 60 days of a general election and 30 days of a primary, their louder voice can be heard all the way through Election Day.  Look also for more direct messaging to the general public on things such as voter guides setting out candidates’ positions on their issues and get-out-the-vote programs.

There will still be some hurdles for these groups.  The first is their tax status.  Under the Internal Revenue Code, these groups “primary activity” or “major purpose” must be for their “exempt function” (translated as their issue).  The IRS has said their exempt function activity cannot include direct political involvement such as independent expenditures or partisan get-out-the-vote programs (the IRS has never cited any legal authority for this so their interpretation is ripe for legal challenge).  For now, these groups must have sufficient “exempt function” activity to absorb the increased direct political involvement Citizens United allows.  Since these ads are not tax exempt, these groups will also have to pay a tax on the lesser of either their net investment income or the cost of the ad (since most 501(c)(4)s have minimal investment income, this should not be a major impediment).

A second potential issue is disclosure.  A very muddled area in the wake of the decision, donors for specific electioneering communications do have to be disclosed, but contributions to an organization for ongoing general activities do not.  Expect congressional Democrats to attempt legislation over this issue.

A third hurdle is the rules barring coordination between a group doing independent expenditures or issue ads and a candidate or party mentioned in the ads.  The Supreme Court opinion left the existing coordination rules in place.  Organizations with lobbying operations, PACs that talk directly to candidates and independent expenditure/electioneering communications units may establish “firewalls” under the FEC regulations to permit all three activities.  It will be important for these groups to establish correct firewalls since allegations of illegal “coordination” are likely to be a prime area of FEC enforcement activities over the next few years.

501(c)(5) Unions – While the Citizens United opinion addressed corporate activity, the same protections will apply to unions.  Look for them to be an even stronger force than they are now.  While corporations tend to favor incumbents, unions spend over 99 percent of their political money helping only Democrats.  Unions decided several cycles ago that concentrating on voter mobilization activities paid bigger dividends than broadcast ads.  

While that may change some with the flexibility provided by the decision, look more for massive union spending on voter mobilization activities.  The unions know how to organize, they spend hundreds of millions of dollars on these activities already each cycle, and now they can communicate to the general public instead of just their members.  Republicans have traditionally left these activities to the political parties, which have been seriously disadvantaged by this decision (see below).

501(c)(6) Trade Associations  -- This is an empowering decision also for trade associations, especially those that have established programs and budgets.  Look for trade associations to become more active with express advocacy ads and the voter mobilization programs described above that the parties are now competitively less able to do.

Disclosure is likely to be the biggest hot-button issue for trade associations.  The current state of the law is that ads paid for by the general funds of a trade association require disclosure only by the trade association, but that any ad paid for with funds specified by a donor for a particular election(s) would require disclosure of the donor (whether an individual or a corporation).  Especially in the 2010 election cycle, this is likely to be an area where the FEC concentrates since so many of its other enforcement initiatives have been vitiated once scrutinized in the recent court decisions.

Trade associations will also have to be aware of the tax issues and coordination-firewall issues described above.

527s – A vehicle of choice for independent activity in previous cycles, their utility has been diminished by this decision since corporations and unions can now do what the 527s have done without as much disclosure.  Having said that, 527s up and running in the current cycle may still be a short-term vehicle since they do not have to meet the primary activity/major purpose tax hurdles of the 501(c) groups. 

Candidates and Parties:  We almost forgot them.  Unfortunately you may too after this decision.  The strong reaffirmation of First Amendment rights for corporations and unions highlights the problem with the current statutory restrictions on candidates and parties.  The bottom line is that the restricted voice of candidates and parties may be all but drowned out by the cacophony of free speech that will now break out across the spectrum of special interest groups.

With candidates limited in the amount of money they can raise, scenarios where they and their campaign agendas are defined by outside forces are very easy to see.  Parties have traditionally filled the role of protecting them.  But the parties are now not only limited in the amount of federal dollars they can raise from any one source, but they are still prohibited from raising the same soft dollars that corporations and unions can use in unlimited amounts for the very same activities.

That the system is out of balance should be clear to all.  After a ringing First Amendment affirmation for free speech, our legislators should recognize that candidates and parties are severely disadvantaged since they can’t speak with as loud a megaphone.  

The next “reform” should be restoring the balance in a world where the First Amendment rightly encourages lots of speech and lots of ideas.

Benjamin L. Ginsberg is an attorney with Patton Boggs. His biography can be found here.