Friday, January 22, 2010

Citizens United (Part II)

Following up on the post yesterday, here are some initial thoughts on the Supreme Court's decision in Citizens United v. FEC, especially with respect to nonprofits.  If you want to read the decision but have trouble accessing it on the Supreme Court's 2009 term opinions page (as I did this morning), here is an alternate site for the opinion courtesy of the Election Law Blog.  That blog also has extensive coverage of reactions to the opinion.  Finally, the reaction of my constitutional law colleague Rick Garnett is available in this news release (along with a brief set of comments from me).

In this case, Citizens United, a section 501(c)(4) nonprofit corporation, challenged the prohibition on corporations paying for express advocacy and electioneering communications.  In a not unexpected by nevertheless dramatic shift, the closely divided Court (5-4) overruled its previous decision, Austin v. Michigan Chamber of Commerce upholding that prohibition, and declared the prohibition to be unconstitutional. The immediate effect of the decision is that corporations, for-profit and nonprofit, are now free to spend unlimited amounts supporting or opposing federal candidates, as long as they do so independently of candidates and political parties. The almost certain implications of the decision are that corporations are now free to spend unlimited amounts supporting or opposing state and local candidates as well because any parallel state law prohibitions are also unconstitutional, and that labors unions are also now free to spend unlimited amounts supporting or opposing candidates at all levels of government. The only silver lining for supporters of campaign finance reform is that the Court upheld by a 8 to 1 vote, with Justice Thomas the only dissenter, the related disclosure provisions that require groups that pay for certain election-related ads to identify themselves and their significant donors publicly.

By reversing a 20-year old precedent and overturning a law that has been on the books for over 60 years, the Supreme Court has opened the floodgates for corporations, both for-profit and nonprofit, and unions to spend unlimited amounts on elections. This decision will further the shift in electoral power away from the political parties, which still face sharp limits on their ability to raise funds for elections, to 527s and other independent groups that now can receive unlimited amounts of corporate and union money. The decision does not mean we will suddenly see lots of candidate ads paid for directly by big corporations such as GE or Microsoft. Given that the disclosure provisions survived, such corporations will not want to risk alienating a large portion of their customers and shareholders. They will rather either pay for such ads indirectly or fund other election-related activities not covered by the disclosure provisions, primarily through increased payments to tax-exempt nonprofit organizations such as the U.S. Chamber of Commerce and trade associations. We can therefore expect to see many more ads from such groups, and from labor unions and nonprofit advocacy organizations, in this year’s elections.

The Citizens United decision does not immediately threaten the longstanding federal tax law limits on section 501(c)(3) organizations engaging in electioneering. This result flows from the fact that the Supreme Court’s previous decision in Regan v. Taxation with Representation upholding speech limits on section 501(c)(3) organizations was not disturbed, and section 501(c)(3) organizations still can easily created affiliated section 501(c)(4) organizations that can engage in electioneering as the reasoning in that decision appears to have required.  Nevertheless, the strong affirmation by the Supreme Court that corporate speech enjoys First Amendment protection as much as individual speech means that the IRS will have to continue to be very careful when enforcing these limits to ensure it does not tread on the free speech rights guaranteed by that amendment.



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Thanks, Lloyd. What about political participation limits on c(4)'s? E.g., the requirement that <50% of the organization be devoted to lobbying? Does the c(4) exemption count as a subsidy, bringing it under Regan? If not, is that restriction unconstitutional under Citizens United? And if the outcome differs, isn't it really strange for the First Amendment result to turn on questions of the normative tax base for entities?

Posted by: BDG | Jan 26, 2010 8:28:51 AM

Just to clarify, C4s (and C5s and C6s) can engage in an unlimited amount of lobbying but cannot have candidate-related electioneering as their "primary" activity - which may mean 50% or more or might have a lower threshold (no one is sure, including the IRS). That said, Brian raises a good point - can this primary activity requirement be defended from constitutional challenge by characterizing the C4s tax exemption as a "subsidy," expecially given that wholly political organizations (527s) are also tax exempt? I frankly am not sure it can be.

Posted by: Lloyd Mayer | Jan 27, 2010 6:24:44 AM

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