Corporations and Political Debate: Taxation & Regulation

Under U.S. law, the corporation is a legal person, whose wealth can constitute political speech protected by the first Amendment. It is no matter that the corporation is an artifice constructed by the state for economic purposes: to concentrate wealth in order to produce goods or provide services. That such an entity would lobby and spend money (or “speak”) for political purposes may from this standpoint seem strange, or out of place. To be sure, political influence can indeed help the bottom economic line, but is a corporation a political actor if the purpose is economic? 
Large corporations arguably tend to have a strong arm in Congress,  but if that arm is so strong that it dictates the law, even literally, then entities that are part of society are de facto standing as government for the whole. For some parts of something to control the whole is problematic because those parts will naturally put their own particular interests above those of the whole (e.g., society, or the people). 
Even a dominant role in setting the terms of the debate in the public media during a political campaign can sway or tilt the whole to favor the part. If sustained long enough, pro-business values can become salient in a society's culture. That deregulation could have come out as a major winner in the 2010 election following the financial crisis in 2008 is mind-boggling, and yet the scores of new Republican representatives in the U.S. House had precisely deregulation as one of their main objectives. That unregulated financial derivatives based on risky mortgages had almost brought the economy down two years before was strangely forgotten. The debate was not on whether banks that are too big to fail should be broken up. Instead, the public got to talk about whether the existing regulation on businesses in general should be discarded in favor of economic growth. Such is the power of self-interested money in setting the terms of debate at the societal level.
Accordingly, debate on whether the corporate statutory tax rate of 35% should be lowered never bothered with the inconvenient truth that the weighted effective corporate tax rate (taxes as a share of profits) was 27.1% in the U.S. in 2012, hence below the 27.7% average rate of O.E.C.D. members. The weighted average marginal tax rate on corporations in the U.S. was only 20.2 percent.[1] A U.S. Treasury Department report concluded that 82 percent of the corporate tax was borne by capital, while 18 percent was borne by labor. Either American society was tilted in favor of the interests of capital or the electorate was duped into the false narrative that raising the corporate rate would hurt labor. 
General Electric, the sixth largest corporation in the U.S., had profits of $14.2 billion in 2010 and yet the mammoth company did not have to pay any corporate income tax. Even so, the political mantra that large American corporations pay too much income tax resonates in the political culture. Moreover, taxes are inherently bad, or even theft. It is as if American society has had a blind spot concerning the nature of and need for public goods like roads and airports. The competitive market, excellent in allocating goods and services, so eclipses the value of even esteemed public goods. 
In short, where the corporate advertising and lobbying dollars have already had such a significant influence in shaping the values people hold dear, the very society can tilt in favor of its business sector such that its advantages become invisible to large segments of the electorate. The corporate realm lives under democracy's radar, and thus conveniently beyond the reach of real accountability. 

1. Bruce Bartlett, “Some Big Corporations Don’t Pay Taxes,Either,” The New York Times, September 18, 2012.  

Corporations as Citizens: A Right to Make Political Donations?

In Citizens United, the U.S. Supreme Court held that corporations and unions “should have the same right as individuals to pay for election ads and other electioneering,” according to The Wall Street Journal. Not addressed in the court’s decision was whether corporations and unions also have “the same right as individuals to donate money directly to candidates for Congress or the White House.”

After the ruling, the U.S. Court of Appeals for the 8^th Circuit upheld the ban on direct donations, “saying the [U.S.] Supreme Court recognized Congress could enact such restrictions as a way of deterring corruption.” Given that corporations and unions can contribute to political campaigns through "independent" groups that air commercials favoring certain candidates, one might wonder whether the restriction on direct donations is of any importance whatsoever. Moreover, one might wonder whether any potential restriction could even channel the influence of powerful corporations in Congress and over regulatory agencies (even their own!). That is, the underlying problem is that the large concentrations of wealth and property in corporate form may be inconsistent with democracy. 

Even the ban on direct donations has been challenged. Specifically, Federal Judge James Cacheris of the Eastern District of Virginia ruled on May 27, 2011 that corporations and unions can donate directly to political candidates. In his decision, he wrote, “Citizens United held that there is no distinction between an individual and a corporation with respect to political speech. Thus if an individual can make direct contributions within [campaign-finance] limits, a corporation cannot be banned from donating the same thing.” At the time, federal law limited an individual’s donations to a particular candidate at $2,500 per election. Corporations could donate $5,000 per election to candidates through political action committees, which are funded by voluntary donations from employees.

Cacheris is on solid ground concerning drawing out the logic in Citizens United. Even so, it is the premise of that case that is vulnerable to critique. To claim that there is no distinction between an individual and a corporation (or union) with respect to political speech is to commit a category mistake regarding citizen and free association thereof. In spite of the faddish “corporate citizenship” slogan, a group of citizens is not itself a citizen. To claim otherwise is to engage in anthropomorphism. In other words, having a right to freely associate with other citizens does not give the ensuing group itself the rights of citizenship; only citizens, which are human beings, can have the rights of citizenship.

As retired Justice John Paul Steven pointed out in suggesting that the U.S. Supreme Court would need to clarify its reasoning in Citizens United, "it will be necessary to explain why the First Amendment provides greater protection to the campaign speech of some non-voters [i.e., domestic corporations] than to that of other non-voters [i.e., foreigners who were barred at the time from making campaign contributions]." In referring to corporations as non-voters, Stevens is saying that they are not citizens, and thus the rights of free speech, petitioning the government, and making political contributions do not apply. Relatedly, from the “legal person” judicial doctrine, which limits stockholders’ own liability, has come the spurious notion that money is somehow speech (another category mistake). With certain collective legal persons being deemed citizens, the right to free speech at the corporate level translates into spending money. In short, we as a society seem blind to some rather blatant category mistakes, and this lack of awareness just happens to be in the interest of the large corporations and banks. I'm reminded of the "church lady" who was a character on Saturday Night Live. "Well, isn't THAT convenient!" she used to say rather sarcastically to any given guest on her "talk show." 

It is perhaps beyond coincidence that in a society and polity wherein large corporations are powerful, they have been deemed not only legal persons, but citizens as well—and with the rights of free speech, petition, and campaign contribution. I suspect that beyond the sheer power exists a pro-business ideology in the society, which enables this double-counting of citizens who associate in corporations and unions. A manager, for instance, can exercise rights of citizenship not only individually, but also in directing an organization (association) in its public affairs department.

Rather than worry about whether relaxing particular restrictions might enable corruption, we might examine whether our fallacies (i.e., category mistakes) are both a result and facilitator of it. Our parents and grandparents willfully created an organizational world, such that organizations could gain such assumed legitimacy that they have been able to become citizens having much more wherewithal than the human kind. Merely to write “the human kind” demonstrates how warped the default has become. One might wonder if it is still possible to wind back the line to contain the absurdity from becoming the accepted logic.

Sources:

Brody Mullins and Brent Kendall, “Court Lets Corporations Give to Candidates,” The Wall Street Journal, May 28-29, 2011, p. A4.

Mike Sacks, "Citizens United Attacks from Justice Stevens Continue," The Huffington Post, May 30, 2012. 

The Aristocracy of the Moneyed Corporations

In Citizens United v. FEC on January 21, 2010, the US Supreme Court held by 5 to 4 that because US corporations are legal persons, they can contribute to political campaigns.   The assumption here is that corporations are more than the sum of an aggregate of persons—that is, more than citizens associating.  The corporate entity has rights in itself.  Ginsberg and Sotomeyer questioned in oral arguments whether free speech applies to spending money, and, moreover, whether corporations should be considered legal persons, much less citizens.  After all, they can’t be drafted, or vote.

A corporate is essentially privately owned wealth.  To say that wealth counts as speech seems spurious to me.  In fact, the whole legal person designation seems contrived.  Whereas the Roman republic fell to dictatorship, our republic may well have already fallen to oligarchy or corporatism.   So I agree with Barak Obama that the decision is worrisome.   Sen. Dick Durbin said that the banking lobby owns Congress after that lobby had sunk Durbin’s amendment to allow bankrupcy judges to modify mortgages in foreclosure (the banks want a veto, even if they contributed to the sub-prime mess).

If Goldman Sachs can spend virtually unlimited amounts of money on political campaigns, we can expect to see that bank’s influence over the government expand even beyond what influence it has over its own alums who occupy high policy-making positions in the US Government (e.g., Hank Paulson and Neil Kashkari at Treasury under Bush II).  If our republic is already compromised under the weight of huge concentrations of private capital, the US Supreme Court’s decision may well be enough to sink the republic…ironically in the name of liberty.  But liberty for whom?  Or does “whom” even apply here.

I contend that corporations are not citizens associating for political purposes.  There are indeed non-profit political organizations whose function it is to influence policy.  This is not a business corporation’s function.  Nor is spending money itself political speech.  Any CEO can stand outside his or her building and give a political speech for free.  But which citizens does the CEO represent in his or her association of citizens?  Stockholders?  They don’t approve corporate public affairs spending.  Employees?  They don’t either.  Customers?   We don’t approve what a CEO says just because we have purchased a bar of soap.  The US Supreme Court’s majority might well say that the CEO represents the legal person that is the corporation, but then it is not an association of citizens because associations are not said to be persons (rather, they consist of persons).  Is this too logical?  Too reasoned?  Maybe so. But maybe it shows the duplicity involved in referring to an account of private wealth as a person.  It seems to me that it is rather blatant case of anthropomorphism.  …humans treating our artifacts as having our characteristics.  We must really think we are something.