New proposed corporate disclosure rules, 501(c)(4) limits

Right on the heels of my analysis of how attorneys at major law firms contributed to political candidates comes a new proposal on disclosure.

InsidePoliticalLaw notes that twenty Democrats in the House have introduced legislation to amend campaign finance laws. Two of the provisions are significant.

The first would require corporate disclosure:

A corporation which submits regular, periodic reports to its shareholders and a labor organization which submits regular, periodic reports to its members shall include in each such report, in a clear and conspicuous manner . . . the disbursements made by the corporation or labor organization for covered political activity during the period covered by the report . . . . 

Shareholders have pursued corporate disclosure of political activity with increasing frequency.  This legislation would essentially usurp those now-localized events at the individual corporate or labor union level and mandate disclosure of corporate spending.

But as Kevin Shortill notes, ambiguity in the proposed legislation (e.g., labor unions are not required to submit "regular, periodic reports") suggests that the scope of disclosure may actually be "illusory."

The second would limit 501(c)(4) spending on political activity to a 10% threshold. 501(c)(4)s are currently subject to a 50% threshold. The moves comes shortly after the IRS scandal in which the IRS began examining the legitimacy of 501(c)(4) organizations because it believed that many (particularly conservative) organizations may not actually be "social welfare" organizations for purposes of the tax code. And it comes after an increase in the number of such organizations taking advantage of exemption from disclosure after the Supreme Court's decision in Citizens United. A dramatic decrease in the percentage of 501(c)(4) spending that could be used on political activity would likely shift political resources elsewhere.

The fate of such proposals, even if relatively modest (or even "illusory"), remains uncertain in a contentious political chamber. But unlike wrong approaches, this one, at least, has the hallmarks of the type of legislation we may expect to see in the future--and, perhaps, achieve success.

The IRS scandal and anonymity

For all the discussion about the Internal Revenue Service scandal as it targeted Tea Party groups and others inappropriately, an item has struck me as one worthy of reflection: why the sudden interest in registering as a 501(c)(4) organization?

The answer: anonymity in political discourse.

One striking feature about the response to the IRS scandal is the overwhelming call for more disclosure. But the proliferation of groups suggests that for many individuals--and their money--disclosure is not a preferred route.

The Supreme Court has had a complicated relationship with disclosure in the political context. Consider this robust statement in McIntyre v. Ohio Elections Commission (1995) (citations omitted):

Writing for the Court, Justice Black noted that "[p]ersecuted groups and sects from time to time throughout history have been able to criticize oppressive practices and laws either anonymously or not at all." Justice Black recalled England's abusive press licensing laws and seditious libel prosecutions, and he reminded us that even the arguments favoring the ratification of the Constitution advanced in the Federalist Papers were published under fictitious names. On occasion, quite apart from any threat of persecution, an advocate may believe her ideas will be more persuasive if her readers are unaware of her identity. Anonymity thereby provides a way for a writer who may be personally unpopular to ensure that readers will not prejudge her message simply because they do not like its proponent. Thus, even in the field of political rhetoric, where "the identity of the speaker is an important component of many attempts to persuade," the most effective advocates have sometimes opted for anonymity. [T]he Court's reasoning embraced a respected tradition of anonymity in the advocacy of political causes.

That kind of robust defense of anonymous political speech isn't very prevalent these days. From robust constitutionally-permissible disclosure requirements in the Bipartisan Campaign Reform Act of 2002, to President George W. Bush and Senators John Kerry and John McCain criticizing the "shadowy" 527 groups in the 2004 election, to today's call for further disclosure, "disclosure" is everywhere.

Disclosure, however, has two kinds of costs that are generally underdiscussed. The first is administrative. Smaller politically-oriented groups must comply with highly-detailed and specific regulations just as larger groups, but are less likely to be able to absorb the costs, or more likely to lack the sophistication that larger groups have. Perhaps that's a cost worth having, but it's one to recognize.

The second is about privacy and political persuasion. As McIntyre notes, there is a robust history of anonymous political discourse in the United States, and sometimes anonymity makes the message more persuasive. Disclosure removes that potential for persuasion. And it strips privacy away from the speaker.

Now, strictly speaking, donors to these 501(c)(4)s are not "speaking"; in the campaign finance they are contributing money to an organization, and some of the organization's funds are given to a political action committee, and much of that PAC's funds are used to promote a particular candidate. But we do know that "disclosure" in this context is designed to ferret out anonymous contributions to and affiliations with particular political causes--which might give us some pause.

So is anonymity in political speech a good thing? An important thing? Maybe not to the many commentators, but to the thousands of organizations and donors attempting to find some way around the numerous disclosure requirements elsewhere, there's great value in anonymity.

Who's right? I'll look at some more about anonymity and political speech in the weeks to come.