Shining Light on Dark Money in Campaign Finance

Authored By 
Jared Milfred

Recent Supreme Court jurisprudence has not looked kindly on campaign finance regulation. Most notably, Citizens United v. FEC struck down laws prohibiting corporations from making independent political expenditures. And just last year, McCutcheon v. FEC declared aggregate caps on direct donations unconstitutional under the First Amendment. These rulings have left Congress with little room to address growing disillusionment over the state of money in politics, and no legal basis to impose limits on independent expenditures, which have come to dominate election-related spending.

But one form of campaign finance regulation has largely escaped the Supreme Court’s red pen. Majority opinions emphasize the constitutionality and importance of mandatory disclosure, based on substantial governmental interests in “preventing corruption of the political process” and “providing the electorate with information about the sources of election-related spending.” And disclosure is not only legal, but prudent—in the opinion of the court—as it “enables the electorate to make informed decisions and give proper weight to different speakers and messages.” Given that transparency requirements are one of the few campaign finance regulations still constitutional, what, if anything, should Congress do with its ample discretion over disclosure?

Exactly this question motivated Eitan Hersh, Assistant Professor of Political Science at Yale and Resident Fellow at ISPS, to organize a special event on campaign finance, entitled “Show Me The Money: How Transparency in Political Donations Could Change American Elections.” Professor Hersh sought to take a polarized topic, often steeped in language of partisanship, and subject it to academic scrutiny. He spoke of two main motivations. First, the need to acknowledge that disclosure places important values at odds: the value of unencumbered political expression and the value of electoral transparency and integrity. Discussing the conflict on these intellectually honest grounds is essential to resolving it. Second, Professor Hersh believes policy choices about disclosure should be informed by empirical evidence. Policymakers on both sides make claims regarding how disclosure changes the behavior of candidates, donors, and voters. But such assertions should not carry weight without empirical support.

To examine these issues, Hersh assembled a panel of experts on campaign finance. Two lawyers on the panel represented a legal perspective on the debate: Heather Gerken, J. Skelly Wright Professor at Yale Law School and Faculty Fellow at ISPS, is a leading scholar on campaign finance and election law; and Trevor Potter, Founding President and General Counsel at The Campaign Legal Center and former Chairman of the FEC, has extensive experience developing campaign finance policies and litigating challenges to campaign finance law before the Supreme Court. Collectively, they spoke to the value, precedent, history, and status quo of campaign finance disclosure.

Two political scientists represented the social science perspective: Ray La Raja,  Associate Professor at University of Massachusetts, Amherst is a distinguished scholar of campaign finance; and David Primo, Ani and Mark Gabrellian Professor at University of Rochester, has written many notable articles on campaign finance, and is an expert on disclosure in particular. La Raja overviewed key findings of political scientists on campaign finance, while Primo offered skepticism that disclosure carries the positive effects trumpeted by proponents.

The panel opened with a broad overview of the history of disclosure from Trevor Potter. Disclosure in one form or another has been required for most of the last hundred years of federal elections. And courts have consistently upheld such requirements on two legal grounds. First, anti-corruption: that public knowledge of who is giving to whom, and who may be buying what, is important to prevent corruption or the appearance of corruption. And second, an informational interest: that disclosure provides the electorate information concerning where money comes from and how it is spent by campaigns, and this helps voters evaluate those who seek federal office. Transparency in campaign finance enables voters to place candidates more precisely on the political spectrum and gauge which interests candidates will be most responsive to. Disclosure additionally helps voters evaluate the credibility of advertisements—the message matters, but so does the messenger’s identity.

David Primo disagreed. He argued that recent experiments in political science challenge conventional wisdom that the public should know when individuals or corporations spend money on politics. The beneficial effects of disclosure alleged by Supreme Court majority opinions—such as preventing corruption and informing voters—are empirically testable, Primo noted. And in his opinion, they are less significant than some claim.

While one study showed that voters who start with no information are better able to place candidates along an ideological spectrum when informed about those candidates’ donors, Primo argued that this is not suggestive of the role disclosure plays in real politics. Instead, Primo emphasized the limited value of campaign finance information at the margin. Since voters can already access a tremendous amount of information about candidates, will additionally knowing the identity of donors add value or sway votes? Primo’s own research suggests not, at least in the context of ballot measures.

More boldly, Primo argued that disclosure comes at great costs. One study found that voters are less likely to make campaign contributions if they believe neighbors of a different political disposition will find out. This suggests a participatory cost to disclosure. Another study found that voters are more skeptical of attack advertisements which disclose their financial contributors. Since attack ads are generally more informative than other advertisements, mandated disclosure could cast doubt on informative political messaging, and create a less-informed electorate overall.

Primo also challenged an assertion of the Supreme Court that shareholders benefit when corporations disclose political activity. The Court argued that disclosure enables shareholders to keep management accountable. But Primo examined the effect of an increase in corporate disclosure requirements in the United Kingdom, and found that when corporations are forced to disclose political activity, their stock prices fall, ultimately hurting shareholders’ bottom lines. Indeed, disclosure of corporate political activity inevitably alienates some employees, angers some customers, and incites some activists, which each decrease a company’s value.

In response, several panelists expressed doubt over the strength of Primo’s empirical results and also challenged his arguments independent of their empirical foundations. Potter and Gerken were unconvinced that disclosure lacks measurable benefits. And more importantly, it seemed not to matter whether benefits could be verified empirically. From a normative perspective, the value of electoral transparency, in and of itself, motivates the need for disclosure. Positive effects stemming from transparency, such as improved voter choice, are at most secondary arguments in disclosure’s favor.

Primo’s concern that mandatory disclosure discourages regular voters from donating could be easily resolved by raising the dollar threshold past which donations must be disclosed. Reformers seek to shine light on large political expenditures, not small donations. But as Potter pointed out, the current $200 threshold for disclosure has not been adjusted or reformulated since 1974. $200 then was equivalent to $963 today. This suggests that the law was originally intended to apply only to contributions of substantial value. If the threshold were simply adjusted for inflation, most donors would be free to contribute modest sums without fear, while disclosure requirements would still capture the outsized influence of millionaires and billionaires.

Gerken pushed back against Primo’s appeal to cost. She noted that the First Amendment embodies a normative judgment about what costs are acceptable, and consumer boycotts of corporations are exactly the kind of expression the First Amendment was designed to protect.  If corporations wish to influence the political process, the government need not enable them to do so in secret, simply to avoid ramifications from consumers.

And Potter pointed out that while negative advertisements may produce more educated voters, they do not necessarily produce better educated voters—it depends on an advertisement’s content. The few negative advertisements which criticize policy positions genuinely add to the democratic process. But those which engage in ad hominem attacks often detract from the democratic process, even if viewers remember their contents well. Non-disclosing groups are more likely to fund negative advertisements, since anonymous donors need not fear the consequences of mud-slinging. Thus loosening disclosure requirements may well increase unproductive attack advertisements, and actively countervail the democratic process.

La Raja agreed that effective disclosure can promote an accountable marketplace in campaign finance. And he suggested raising what few contribution limits remain in federal law, as this would encourage donors to give to candidates and parties, which must disclose, rather than unregulated social welfare organizations, which need not.

Separate from the debate between normative values and empirical effects, Gerken spoke about the state of disclosure and recent proposals to address the undisclosed “dark money” in federal politics. During the 2012 election $400 million in undisclosed money was spent to influence federal races. But one bill, The DISCLOSE Act, could stem this tide. DISCLOSE makes three straightforward changes: it redefines the definition of an independent expenditure and requires they be accompanied by real-time reporting; it extends special reporting requirements to corporations, unions, tax-exempt charitable organizations, and super-PACs; and it addresses the problem of transfers among organizations, a common tactic used to obfuscate the source of political funding.

But though disclosure was endorsed eight-to-one by the Supreme Court in Citizens United, it remains considerably less popular in Congress. Reformers have tried unsuccessfully three times in three years to pass The DISCLOSE Act. Upon each failure, the Act is stripped of its most controversial provisions and reintroduced in Congress. But even progressively slimmed versions have not overcome fierce Republican opposition.

Such opposition from the Republican Party may surprise those who remember debates over the McCain-Feingold Act of 2002. Numerous republican legislators insisted that the Act was unnecessary, provided that the federal government had adequate disclosure requirements. Based on these comments, one might imagine that if any policy could garner bipartisan support, surely it is government transparency. Instead, disclosure has become deeply politicized.

During discussion, I asked the panelists why the Republican Party shifted ground on disclosure in the decade following McCain-Feingold. Potter pointed to the realities of practical politics. After Citizens United, corporations gained the legal ability to spend unlimited sums, but with reputational risk. If disclosed, shareholders, customers, and employees might each object to a corporation’s political activity. Thus corporate money, much headed for the Republican Party, ended up disproportionately in vehicles which do not disclose. The United States Chamber of Commerce was especially frank about proposals to mandate disclosure—if Congress passed one, the Chamber would not be able to raise the money necessary to turn the Senate Republican.

Data from the latest election confirms a partisan divide. Outside spending was roughly even between Republicans and Democrats. But while Democratic outside money was spent primarily through super-PACs, which disclose, Republican outside spending came primarily through non-disclosing 501(c)4s and (c)6s.

In closing, the political scientists on the panel expressed optimism that further academic research on campaign finance could identify effective regulations or conclude that none are needed. The lawyers on the panel were considerably less optimistic. Given bitter partisan division over disclosure, there seems little hope for movement. One bright spot, however, is a novel idea Gerken has proposed: that every advertisement funded directly or indirectly by a group which does not disclose its donors be required to acknowledge that fact with a short disclaimer. This “non-disclosure disclosure,” would be simple, truthful, and would clue voters to be skeptical of advertisements paid for by non-disclosing groups, without depriving individuals or corporations the opportunity to make anonymous political expenditures.

Such a proposal has several benefits. By targeting advertisements rather than organizations, it avoids “regulatory whack-a-mole,” where clever lawyers inevitably find new legal means for undisclosed expenditures donors as Congress scrambles to close loopholes. The proposal addresses the problem of transfers, since any advertisement funded indirectly by a non-disclosing group must include the disclaimer. And the proposal is modest and unintrusive. It does not require that donors stand by their ads, just that donors who do not, acknowledge so. Perhaps most importantly, non-disclosure disclosure may be uncontroversial enough to garner bipartisan support in Washington, and in the long run, raise awareness of undisclosed political contributions and open the issue to further reform. Those who desire increased disclosure in campaign finance should give Gerken’s idea serious consideration.

Jared Milfred is an ISPS Director’s Fellow and a junior at Yale majoring in Ethics, Politics and Economics. He recently was appointed the chair of New Haven’s Democracy Fund