Yesterday’s landmark decision by the U.S. Supreme Court in the Citizen’s United case has now opened the door for unlimited corporate and union general treasury spending on independent expenditures for express advocacy of the election or defeat of Federal candidates across the country. But here in California, the new rules aren’t going to be so much different from the rules that have governed state candidate and measure elections for some time. And because of gerrymandering as a result of the almost permanent hold the Democrats have had on the California Legislature, there are hardly any "competitive" Federal general elections in California for its 53 congressional seats, for the new rules to have much impact.
Even though California adopted a sweeping "Political Reform Act" in the 1970s, that law and subsequent amendments have always allowed direct corporate and union spending on state and local candidate elections, as long as the spending was independent of the candidate. Some cities, like Los Angeles and Long Beach, and San Diego County, have responded with their own local rules that attempt to restrict these independent expenditures, whether made by an individual, corporation, or union.
While not too many elections in California will be affected by the change in law, we can predict that one of the biggest affects of the decision is likely to be that, because the articulation of First Amendment rights in the new Citizen’s United decision is so strong, all these limitations on independent expenditures in California will fall in short order if properly challenged in court.
I am not so sure that the new rules will benefit corporations more than unions. Today I read an article in the Los Angeles Times that suggests the "GOP" will benefit most from the rule change. I disagree. It will be the unions and the corporations that will benefit, (not the partys) who can now exert more political power if they so chose. And because corporations sell products to both Republicans and Democrats, and their administrations involve complicated hierarchies that are risk adverse where career advancement might be affected by a political mistake, and because these considerations are essentially nil in a union context, I think unions will be the "first out of the gate" with independent expenditures across the country and here in California, and I believe they will especially bolster the campaign of Senator Barbara Boxer to a degree that beating her in the general election will be all but impossible for Republican challengers, whose potential corporate sponsors will not want to take the risk. I also believe that if this decision was made two weeks ago, that Scott Brown would have been clobbered with Obama-friendly union spending in Massachusetts and may not have won the election.
Small business owners in California that operate out of corporations, and who want to jump into the few competitive Congressional races, such as the 11th Congressional district in the East Bay and Central valley, can now pay for unlimited advertising in support or opposition to a candidate directly out of their companies. They can expect, however, that their expenditures will need to be disclosed, and that their advertisements will need to have disclaimers identifying them, because the Citizen’s United decision did not overturn these requirements. All independent expenditure activities may not be coordinated with the candidate.
And something that has been missing in the reports today on the decision are the tax consequences to the corporations and unions that can now engage in these activities. As many small business owners know, lobbying activities are not deductible for Federal income tax purposes under Section 162 of the Internal Revenue Code. Political electioneering expenditures by both profit and nonprofit corporations are also subject to an excise tax at the highest corporate rate: 35%.
As the decision starts to sink in, tax accountants will become busy bees trying to figure out ways to avoid the tax consequences, and the Democrats that control the Congress who have expressed opposition to the decision may even decide to pass new legislation to make matters worse for corporations that think they now have a great new expressive right conferred on them by the Supreme Court. My advice to business owners that want to use corporate funds to affect a Federal election under the new rules is pretty simple: get a good lawyer!