During Bradley A. Smith's legendarily testy 2000 confirmation hearing for a slot on the Federal Election Commission (FEC), senators piled on the insults like pork for home-state contractors. None were more effusive in their outrage than the Glimmer Twins of campaign finance reform, Sens. John McCain (R-Ariz.) and Russell Feingold (D-Wis.), whose eponymous legislation, also known as the Bipartisan Campaign Reform Act of 2002, has helped usher in a repressive age of limits on explicitly political speech.
Putting Smith, a Harvard-trained lawyer who was then 42 years old, on the commission responsible for making sure campaigns followed the law would be "akin to confirming a conscientious objector to be secretary of defense," thundered McCain. "Smith on the FEC would really be a case of the fox guarding the hen house," chimed in Feingold. Al Gore, who as vice president ruled over the Senate, sniffed that Smith was "unfit for office" despite an enviable record of scholarly publications. Yet Smith, whose nomination was strongly supported by Sen. Mitch McConnell (R-Ky.), not only passed senatorial muster but went on to serve as chairman of the FEC before resigning his post this year.
What follows is an edited transcript of an April 18 speech that Smith delivered at Capital University in Columbus, Ohio, as part of the George H. Moor Chair Lecture Series. Smith, who first joined the law faculty at Capital in 1993, has returned to teaching law there after resigning his FEC post in August.
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Polls consistently show that campaign finance reform is an extremely low priority for most Americans. It's not an issue that Americans wake up thinking about, even while pondering politics. It may seem like an obscure regulatory system that has very little effect on our daily lives, or even our political lives. But it's an assault on the First Amendment and a transfer of power from citizens to incumbent politicians, one that doesn't address far more serious conflicts of interest, including those of politicians who bang the campaign finance drum the loudest. As I step down as chairman of the Federal Election Commission, I fear that the regulatory machinery set in motion by Sens. John McCain and Russ Feingold will be used to further grind down the free expression of individual citizens.
Before I discuss this, here is a very limited overview of what we call the limits, prohibitions, and reporting requirements of the Federal Election Campaign Act, or FECA.
FECA's provisions create a very complex matrix that depends on who is giving to whom. But to oversimplify, individuals can give a candidate no more than $2,200 per election; a political action committee (or PAC), which is merely a group of people pooling their small contributions, can give up to $5,000 to a candidate per election; and an individual can give up to $5,000 to a PAC per year. There are other limits on how much you can give to political parties, and there are overall limits on how much a person can give in a two-year period, but to keep this simple I want to focus on contributions by people to candidates. The list of prohibitions also includes bans on direct contributions by corporations, labor organizations, federal contractors, or foreign nationals to candidates and committees. Additionally the law prohibits the conversion of campaign funds for personal use, and then there are a wide variety of reporting requirements, things that have to be reported to the federal government, including the name, address, and occupation of donors contributing over $200–creating a sort of federal database of citizen political activity.
In the legislative record there is considerable evidence that many supporters of McCain-Feingold specifically wanted the law to silence criticism of their own performance in office. The act includes a provision that prohibits most citizen groups, such as the National Rifle Association, the Sierra Club, and Planned Parenthood, from making any broadcast advertisements within 60 days of an election that even mention a candidate for federal office.
You can easily find quotes from across the political spectrum explaining why members of Congress find the speech of these citizen groups distasteful. But for brevity's sake, let's focus on Sen. McCain. These groups, he once said, "often run ads that the candidates themselves disapprove of." What a horrible thought: citizens running ads that candidates disapprove of.
Sen. McCain went on: "Further, these ads are almost always negative attack ads, and do little to further beneficial debate and healthy political dialogue." Now, when Sen. McCain called my colleague on the FEC, Ellen Weintraub, "corrupt" merely because she disagreed with him on the proper interpretation of the law, I don't think that necessarily promoted healthy political dialogue. But should he be banned from saying it? No.
In his brief to the Supreme Court, Sen. McCain said, "These ads are direct, blatant attacks on the candidates. We don't think that's right." Well, I'll bet they don't. But the question is why we, as citizens, should be banned from having groups to which we belong, to which we've contributed money, which represent us and our beliefs, run ads that criticize officeholders, simply because the ads are "negative" or expose things about candidates that the candidates would rather not have exposed.
The odd thing is that we approach restrictions on political contributions on the theory that elected officials will tend, both in actuality and appearance, to place their personal interests in retaining office ahead of the public good, and shape public policy in the interest of campaign donors, even when those policies are opposed by their constituents and perhaps even themselves. And yet, in order to combat this alleged problem, we turn around and suggest that these same elected politicians should be given great deference because surely they would not pass campaign finance rules in order to handcuff their challengers. Of course they would have only altruistic motives in passing this kind of law.
Do Contributions Get Results?
Do campaign finance rules improve government ethics? In theory, they exist to prevent influence peddling. There is another angle from which we might talk about political contributions, and that is to presume that the giving is not voluntary, but rather the result of extortion by officeholders. I think there is some anecdotal evidence to support this view, and that it is more credible than the notion that corporations are trying to buy influence. There have been statements by executives who felt they were being shaken down; some episodes in which executives or others interpreted ambiguous public statements or letters by politicians as veiled threats; and incidents in which a successful corporation without a history of political giving suddenly opened up its checkbook after being subjected to a seemingly senseless regulatory legal assault by the government–such as what happened to Microsoft a few years ago.
From an ethical standpoint I'm not sure it matters much whether one calls it "extortion" or "influence seeking." They are flip sides of the same coin, and they are based on the idea that contributions will buy results in Congress. But the empirical evidence simply does not support this thesis.
Literally dozens of studies have been conducted trying to isolate the effects of campaign contributions on legislative behavior. And the substantial majority of these found no statistically significant impact. A small minority of the studies have located some correlation but have also found that the effect is distorted by several other factors, including ideology, party position, and constituent desires.
It's hard to isolate and measure political influence, and promoters of broad restrictions on corporate political activity have criticized these studies for precisely that reason. Nevertheless these surveys represent the best information we have, and they show that there isn't really a measurable problem. Regulatory enthusiasts like to say, "Well, those for-profit corporations must be getting something for their investment," but corporations give roughly 100 times as much to charity without getting much more than some decent P.R. and a sense of well-being. And we know from studies that corporate executives often act in ways contrary or tertiary to maximizing profits–by, for instance, choosing relocation sites based simply on where they'd prefer to live.
Similarly, most political giving seems to be "consumption" rather than "investment" spending. Corporate executives make more personal and corporate contributions because they simply like making contributions, whether because it fits their ideology, because it makes them feel like big shots, because they get invited to rub shoulders with politicians, or because they enjoy doing what they see as their civic duty–being a "good corporate citizen."
Whatever the motivation, do these corporate contributions actually buy "undue" influence? Even before McCain-Feingold, only about half of the Fortune 100 made soft money contributions. That suggests right away that the idea that political giving is a bottom-line plus for firms is suspect; obviously, half the firms don't think so.
But what of those who do make contributions? If a Fortune 100 company's profits are roughly $5 billion a year, and the company makes $500,000 in political contributions in a two-year election cycle (an amount few donors ever reach), and if the firm further receives a 100 percent return on those soft money contributions, the profit would amount to about 0.01 percent of the corporation's two-year profit. That's hardly enough to matter. But suppose even that they were getting a 1,000 percent return on investment–meaning about 0.1 percent of the company's profits over two years–or even something higher: Wouldn't that nefarious influence purchasing be reflected in their stock prices?
And here is where the work of three economists at the Massachusetts Institute of Technology, led by Stephen Ansolabehere, is relevant. Ansolabehere's group divided the Fortune 500 into three groups: 216 companies that did not make soft money contributions, 142 that were modest donors (giving up to $250,000), and 142 large donors who gave more than $250,000. From the latter group, they also looked at a super-donor list of 50 who gave $1 million or more.
The researchers studied stock prices in the wake of five events related to campaign finance reform: the passage of the McCain-Feingold bill in the House of Representatives; the passage of the bill in the Senate; the signing of the bill into law by the president; oral arguments in the Supreme Court (at which Chief Justice William Rehnquist, who previously supported such restrictions, indicated that he had changed his position, which many people thought would make the Court much more likely to strike down the law); and the announcement of the Supreme Court decision upholding the soft money ban.
Were political donors penalized by the capital markets after the soft money ban? No. All these events had no measurable adverse effect on the stock valuation of these companies. If anything, it was the opposite. When the Supreme Court announced its decision on December 10, 2003–the most definitive event upholding the soft money ban–nondonors' stock suffered more than the stock of moderate donors, moderate donors did not do as well as large donors, and large donors did not do as well as the subset of million-dollar donors. Similarly, on the day the Senate passed the bill, large donors did the best of all, followed by moderate donors, and then nondonors. Now, most of these findings did not rise to the level of statistical significance. But the few that did indicated that the ban on soft money actually helped companies that had been making soft money donations. In short, none of the evidence supported the thesis that corporations were buying beneficial results.
What's More Corrupt?
So is this a problem that requires broad, prophylactic ethics rules? There are problems with arguing that donors are buying tangible results. On the other hand, there is strong reason to believe that the reformers and regulators who pursue these restrictions are not as concerned about government ethics as they claim. When I compare actions to rhetoric, their worries about the influence of corporate money on politics are a little too selective for me.
For example, there are no laws preventing, say, BellSouth from hiring the offspring of Sens. John Breaux (D-La.) and Trent Lott (R-Miss.)–both members of the influential Senate Commerce Committee–as lobbyists. [Breaux retired last year.] No concerns about the "appearance of corruption" prohibited the wife of former Sen. Tom Daschle (D-S.D.) from working as an aviation lobbyist while her husband was majority leader. Family members of high-ranking legislators are also frequently paid to sit on corporate boards and to make highly lucrative speeches. The wife of Sen. Joe Lieberman (D-Conn.), for example, earned $328,000 in speaking fees in 2001, just after her husband shot to national prominence as Al Gore's running mate. I do not believe that any of these senators are corrupt, and these activities did not violate Senate rules. But campaign contributions arguably amount to far less of an "appearance of corruption" than do personal cash payments to members' spouses or relatives. And politicians themselves can also easily line their pockets from fat book contracts or shake down corporations for donations to their "family foundations" and trusts.
Why should personal payments to successful politicians be relatively free from regulation, yet much smaller campaign contributions to not-yet-successful politicians be strictly regulated and reported, down to the contributions from parents of the candidates? (Yes, it's true: A parent cannot contribute $2,500 to his or her child's run for Congress, because it might corrupt that individual. While I've been at the FEC, we've fined sons for giving too much to their parents, parents for giving too much to their kids, and husbands for giving too much to their wives.)
For other "appearance of corruption" examples, we need look no further than the father of campaign finance reform himself, Sen. John McCain. In 2001 the Brennan Center, a group that advocates campaign finance reform, held a large fund-raising dinner whose honored guest and speaker was the "straight-talking" senator from Arizona. Several big corporations–many with interests before the Senate Commerce Committee, of which Sen. McCain was then the ranking minority member–sponsored the event. These sponsors included such companies as Coca-Cola; the investment firm Bear Stearns; many top law firms with lobbying practices in Washington; cigarette manufacturer Philip Morris–yes, Big Tobacco; and even Enron, which as we know is the most evil corporation in the history of the world. The event grossed an impressive $750,000.
Now what does the Brennan Center do? Well, the Brennan Center lobbied extensively to pass the McCain-Feingold bill, an issue that Sen. McCain once declared was of "transcendent importance to me." (An interesting choice of words, since transcendent, if you look it up in the dictionary, means "beyond human comprehension.") The Brennan Center also provided legal services, pro bono, to defend the constitutionality of the McCain-Feingold bill in court.
So let's put this together: The Brennan Center invites Sen. McCain to speak and then approaches a large number of corporations, perhaps saying something like, "Sen. McCain–the ranking minority member of the Commerce Committee, before which your company has a great deal of business, and a possible future presidential candidate–is coming to speak. Would you care to sponsor a table?" And Enron and Coca-Cola and Philip Morris just suddenly decide that they are very interested in campaign reform and kick in some good old soft money, which the Brennan Center uses to lobby and provide free legal services for an issue of "transcendent importance" to none other than Sen. McCain. Appearance of corruption, anyone?
Wouldn't suggesting that corporations support the Brennan Center to provide legislative support to Sen. McCain on the issue that made his national reputation carry the same potential for blackmail and favoritism as corporate donations to political campaigns? Yet there is no suggestion that we should have broad prophylactic prohibition of that kind of fund raising–despite the fact that doing so would not only address this very real "appearance of corruption"; it would do much less to infringe on the free speech of the citizenry than McCain's treasured campaign finance restrictions.
McCain's Soft-Money Machine
Here's another situation reported by The New York Times in March 2005: "In a small office a few miles from Capitol Hill, a handful of top advisers to Senator John McCain run a quiet campaign. They promote his crusade against special interest money in politics. They send out news releases promoting his initiatives. And they raise money–hundreds of thousands of dollars, tapping some McCain backers for more than $50,000 each."
These advisers work for a group called the Reform Institute, founded in 2001 after Sen. McCain's failed presidential bid. The chairman of the board of the Reform Institute is…John McCain. If you go to look at the press releases at reforminstitute.org, you will see that virtually every release mentions Sen. McCain in the first sentence. Not paragraph, sentence. Who runs the Reform Institute? Well, the president is Richard Davis, who is paid over $110,000 a year. Who is Richard Davis? He was John McCain's 2000 campaign manager. The counsel to the Reform Institute is Trevor Potter, whose law firm is paid more than $50,000 a year for the work. Who is Trevor Potter? Why, he was legal counsel to McCain 2000! The finance director of the Reform Institute is a woman named Carla Eudy. She was finance director for McCain 2000. The communications director is Crystal Benton; she was McCain's press secretary.
Recently the Reform Institute, which bills itself as "a thoughtful, moderate voice for reform in the campaign finance and election administration debates," launched what it calls the Natural Resources Stewardship Project. And what does natural resources stewardship have to do with "campaign finance and election administration"? As near as I can tell, its only connection to campaign finance and election administration is, as the institute's site tells us, that "Senators John McCain and Joe Lieberman have introduced the Climate Stewardship Act" in Congress. And, of course, John McCain is planning to run for president again, and his signature issue, other than campaign finance regulation, is global warming. To run the Natural Resources Stewardship Project, the institute hired John Raidt, who, you guessed it, served 15 years working on "environmental initiatives" for Sen. McCain.
And how is the Reform Institute funded? With contributions, in six figures or more, from individuals and corporations, including the cable company Cablevision. Cable companies are constantly before the Senate Commerce Committee, which Sen. McCain chaired at the time of Cablevision's contribution. In fact, Cablevision gave $200,000 to the Reform Institute around the same time its officials were testifying before the Senate Commerce Committee. Appearance of corruption, anyone?
So what's next? Right now the FEC is conducting a rule making that could regulate the Internet. Because the McCain-Feingold bill did not mention Internet regulation in its list of terms, we at the FEC passed a rule exempting online speech. So Reps. Christopher Shays (R-Conn.) and Marty Meehan (D-Mass.), the main House sponsors of McCain-Feingold, filed suit, joined by Sens. McCain and Feingold in an amicus brief. They argued that the Internet exemption was improper and got a federal district court judge to agree. This rulemaking is the result.
What will come of it, I don't know, but I'll tell you this: Right now in First Amendment jurisprudence there is more protection for simulated child pornography, flag burning, tobacco advertising, or burning a cross in an African-American residential neighborhood than there is for running an advertisement that merely mentions a congressman's name within 60 days of an election. And why?
We're told this is to prevent corruption and to promote ethics. Well, I would suggest that ethics and government are served by political competition, and that regulation of campaign finances in fact serves as protectionism for incumbent politicians. It diminishes the relative influence of individuals and political parties, thus increasing the relative influence of politicians, corporate lobbyists, the media, and large foundations. At the same time it strikes at the very heart of self-government, which depends upon the idea that individual citizens outside of Washington can engage in an open exchange of ideas and criticisms of today's powers that be.
But perhaps most important, campaign finance regulation is based on the notion that government must be empowered to act on and order the lives of citizens without influence or pushback from those very same citizens. The "reformers" believe that politics should be reserved for the folks inside the Beltway who can handle it. In short, McCain-Feingold supporters grasp that changes in the rules–changes enacted in the name of ethics–can enhance their influence and foster their political aims by silencing their political opponents. Until we recognize this, and recognize that the very purpose of the First Amendment was to prevent such changes in the rules, the war on political speech will continue.?