BIG MONEY IS ALREADY PLAYING A BIG ROLE IN THE 2020 CAMPAIGN

Big money is already pouring into the 2020 election campaigns. The spending by wealthy individuals and corporations continues to grow. Federal candidates have already raised $2.2 billion (yes, Billion) with $1.6 billion of that belonging to the presidential candidates.

Here’s a quick summary of what the major presidential candidates and (supposedly) independent outside groups have spent so far (with 264 days to go!): [1]

Bloomberg: $464 million (self-funded, not accepting any contributions)
Steyer: $271 million
Trump: $218 million plus $35 million of outside money
Sanders: $133 million plus $ 4 million of outside money
Warren: $ 92 million plus $33 million of outside money
Buttigieg: $ 81 million
Biden: $ 68 million plus $ 8 million of outside money
Klobuchar: $ 34 million
Gabbard: $ 14 million
Weld: $ 2 million

Bloomberg is spending roughly $6 million a day of his own money on his presidential campaign. The bulk of his spending, roughly $400 million so far, has gone to advertising on TV, radio, and digital media. He is paying higher compensation to campaign staff than other campaigns in order, in numerous cases, to steal them away from other campaigns. [2] He is literally trying to buy the presidency with his personal fortune.

The 2010 Citizens United Supreme Court decision allowing unlimited spending in election campaigns by (supposedly) independent, outside groups and wealthy individuals continues to exacerbate the role of money in our elections. The securities and investment industry, for example, continues to increase its campaign spending and was the top industry donor to outside groups in each of the last four election cycles. Since 2012, the industry has spent more than $80 million in each two-year federal election cycle, over $320 million in total. Before the Citizens United decision, it never spent more than $18 million in an election cycle. [3]

Much of the campaign spending by corporations and their industry associations is done through Political Action Committees (PACs). Business PACs have already contributed $179 million to federal candidates and parties in the 2020 election cycle. Business PACs account for 73% of PAC contributions, dwarfing the spending by unions and issue-focused groups. Although the contributions themselves must be made by employees, shareholders, and their family members, the business can pay for all the PAC’s expenses and provide incentives to donors for giving to the PAC. The corporation’s direct spending on PAC expenses does not have to be disclosed. Business interests couple their dominant PAC spending with dominant spending on lobbying to give them great influence in policy making. They target specific candidates, often incumbents, who will be in influential policy making positions (e.g., on committees) relevant to their interests. [4]

PACs are supposedly independent of candidates’ campaigns, but they often share office space, staff, and other resources with candidates, House or Senate leaders, or the political parties. [5]

The amount of “dark money” in campaigns is growing, which means voters know less about who’s spending money to influence their votes. (“Dark money” is money that is laundered through non-profit entities that supposedly don’t have political spending as their main purpose and therefore do not have to disclose who their donors are.) In 2019, $65 million in “dark money” has flowed into PAC spending on 2020 election campaigns. In the 2018 election cycle, $176 million in “dark money” was given to PACs. The total for the 2020 election cycle is all but certain to be higher.

A recent report from the federal Government Accountability Office (GAO) found that campaign finance laws and enforcement capabilities have not kept up with the issues presented by “dark money,” unlimited spending, and on-line political spending. The Internal Revenue Service (IRS) doesn’t have clear standards on what constitutes political activity in non-profit entities or the extent to which non-profit entities can engage in political activity. Furthermore, it is not reviewing donor lists or sharing them with other federal law enforcement agencies for review. The Federal Election Commission (FEC) is non-functional due to partisan deadlock, the President’s failure to appoint Commissioners, and under-funding. As a result, for example, the flow of illegal foreign money into our elections through “dark money” channels is not being monitored and no enforcement is occurring. [6]

One often overlooked effect of our money-driven elections is that people of color and their interests are severely underrepresented by elected officials. Ninety percent of elected officials are white, while only 63% of the population is white. The great majority of campaign money at the federal and state levels comes from less than 1% of the population who make donations of over $1,000. The bulk of these donors come from the richest 1% of the population, which is over 90% white. Money is, of course, crucial to election campaigns, with the candidate with more money winning about 90% of the time. The record spending on campaigns, especially by wealthy individuals and corporations unleashed by the Citizens United decision, has exacerbated the political marginalization of people of color. Wealth and political power have been increasingly consolidated in the hands of a very small, very white portion of the population. The bottom line is that people of color are underrepresented among elected officials, among candidates for office, among donors to campaigns, and as having their interests reflected in policies that are enacted. [7]

Given the obscene amounts of money being spent on election campaigns, voters who wish to make good decisions on candidates must now spend more time and effort to wade through the barrage of self-serving ads, misinformation, and noise to ferret out good and truthful information about candidates. If our democracy is to work, this requires all of us to pay more attention and spend more time researching candidates before we make our voting decisions. Voters will need to be consciously skeptical, so they are less swayed by paid media and slick messaging.

Ultimately, we need to change our campaign finance laws to reduce the influence of money and make it easier for voters to discern candidates’ positions on issues. But until that happens, to be informed voters, we will have to wade through the barrage of political advertising and messaging to discern between quality from quantity and differentiate truth from half-truth or outright fiction.

[1] OpenSecrets.org, retrieved 2/23/20, “2020 presidential race,” Center for Responsive Politics (https://www.opensecrets.org/2020-presidential-race)

[2] Evers-Hillstrom, K., 2/20/20, “Michael Bloomberg is spending nearly $6 million per day on campaign,” OpenSecrets.org, Center for Responsive Politics (https://www.opensecrets.org/news/2020/02/bloomberg-spent-6-million-per-day/)

[3] Monnay, T., 1/23/20, “Wall Street donor influence shows unprecedented growth 10 years after Citizens United,” OpenSecrets.org, Center for Responsive Politics (https://www.opensecrets.org/news/2020/01/wall-street-donor-influence-growth-10-years-citizens-united/

[4] Evers-Hillstrom, K., 2/14/20, “Why corporate PACs have an advantage,” OpenSecrets.org, Center for Responsive Politics (https://www.opensecrets.org/news/2020/02/why-corporate-pacs-have-an-advantage/)

[5] Massoglia, A., 2/7/20, “ ‘Dark money’ groups steering millions to super PACs in 2020 elections,” OpenSecrets.org, Center for Responsive Politics (https://www.opensecrets.org/news/2020/02/dark-money-steers-millions-to-super-pacs-2020/)

[6] Massoglia, A., 2/7/20, see above

[7] Lioz, A., 12/14/19, “Stacked deck: How racial bias in our big money political system undermines our democracy and our economy,” Demos (https://www.demos.org/sites/default/files/publications/StackedDeck2_1.pdf)

UNDER-TAXED CORPORATIONS AND WAYS TO MAKE THEIR TAXES FAIRER

A year’s worth of data on what corporations are actually paying in taxes under the 2017 Tax Cuts and Jobs Act (TCJA) is now available. The TCJA cut the stated federal corporate income tax rate to 21% from 35%, a 40% reduction. It created many new tax breaks and loopholes, while (supposedly) closing some existing ones. However, as a previous post highlighted, corporations have been lobbying vigorously, and in many cases successfully, to have the rules and regulations implementing the TCJA weaken or eliminate its closing of tax breaks and loopholes.

An in-depth review of the financial filings of the Fortune 500 largest corporations revealed that 379 of them were profitable in 2018 and found enough information to calculate an effective federal income tax rate for them. (Their effective tax rate is the portion of their profits they paid in federal income taxes.)

The average effective federal income tax rate for these 379 large, profitable corporations was 11.3%, which is barely half of the stated rate. Ninety-one (91) paid no federal income tax including Amazon, Chevron, Halliburton, and IBM. Another fifty-six (56) of them paid less than 5% of profits in taxes.

The 11.3% average rate is the lowest rate since this analysis was begun in 1984. [1] The industries with the lowest effective federal income tax rates, all of which paid less than half of the stated rate, were:

Industrial machinery (which paid an average effective tax of a negative 0.6%, meaning that on average they got back money from the government)
Gas and electric utilities (-0.5%)
Motor vehicles and parts (1.5%)
Oil, gas, and pipelines (3.6%)
Chemicals (4.4%)
Transportation and also Engineering & construction (8.0%)
Miscellaneous services (8.3%)
Publishing and printing (9.8%)
Financial (10.2%)

Twenty-five very large corporations received the bulk of the tax breaks that led to these low effective tax rates. They received $37 billion in tax breaks, half of the $74 billion in tax breaks that all 379 corporations received. This is the result of their capacity to influence public policy through lobbying, campaign spending, and use of the revolving door. (Two previous posts here and here provide more details on corporate manipulation of public policies.)

Five of those very large corporations received more than $16 billion in tax breaks (22% of the total for all 379 corporations): Amazon, Bank of America, J.P. Morgan Chase, Verizon, and Wells Fargo.

Large corporations have succeeded in manipulating tax laws, including through the TCJA and its implementing rules and regulations, to unfairly reduce their taxes. This results in small businesses and individuals having to pay more taxes and to bear an unfair portion of the taxes needed to support government at the federal, state, and local levels. Furthermore, it means governments don’t have the resources they need to perform important functions that are in the public interest and desired by taxpayers.

Here are some examples of changes in tax laws that would lead to large corporations paying a fairer share of taxes: [2]

Remove tax incentives and loopholes that reward the shifting of profits and jobs to offshore entities. This includes effective implementation of provisions of the TCJA that were meant to address this problem but have been undermined by successful lobbying by multi-national corporations during the writing of implementation rules and regulations. (See this previous post for more details.)
Reinstate a corporate Alternative Minimum Tax to ensure that all profitable corporations pay a reasonable amount of income tax each year.
Repeal TCJA and previous tax law provisions that allow corporations to deduct expenses for equipment and other capital expenditures much more quickly than the equipment actually depreciates in value. This is an accounting “trick” that reduces profits and, therefore, income taxes.
Stop the fictitious creation of large expenses for granting stock options to executives. This is another accounting “trick” that reduces profits and, therefore, income taxes.
Require public disclosure of key corporate financial data, including profits and taxes paid, on a country-by-country basis as a routine part of corporate financial reporting. This transparency will allow policy makers and the public to understand whether corporations are paying a fair share of their income in taxes and to adjust policies accordingly.

I urge you to contact your U.S. Representative and Senators to ask them to fix corporate tax laws so that corporations, particularly large, multi-national corporations, are paying their fair share in taxes. Otherwise, you and I and the small businesses we patronize in our communities will continue to bear an unfair burden in funding the public services we need from our governments at all levels.

You can find contact information for your US Representative at http://www.house.gov/representatives/find/ and for your US Senators at http://www.senate.gov/general/contact_information/senators_cfm.cfm.

[1] Gardner, M., Roque, L., & Wamhoff, S., Dec. 2019, “Corporate tax avoidance in the first year under the Trump tax law,” Institute on Taxation & Economic Policy (https://itep.org/corporate-tax-avoidance-in-the-first-year-of-the-trump-tax-law/)

[2] Gardner, M., Roque, L., & Wamhoff, S., Dec. 2019, see above

CORPORATE LOBBYING AND WHAT THEY GET FOR IT

In 2019, corporate spending on lobbying the federal government grew to a nine-year high of $3.47 billion (yes, Billion).

The health industry spent a record $594 million on lobbying in 2019 as it fought against various proposed reforms of our health care system. Roughly half of this money was spent in opposition to controls on drug prices. As a result, proposals from both the Trump administration and Congress have stalled. [1]

The health industry also lobbied heavily against bipartisan legislation to control surprise medical bills. These are typically bills for services delivered by out-of-network providers that aren’t covered by insurance when patients had no idea this was occurring. New players in this industry, private equity vulture capitalists who have bought emergency medical providers and physician staffing services, opposed this legislation with a $54 million ad campaign funded by “dark money,” i.e., money whose actual source was obscured. As a result of this ad campaign and all the lobbying, despite bipartisan support in Congress and support from the Trump administration, this legislation to limit the dollar amount of surprise medical bills has stalled.

Trade and tariff actions were the target of lots of corporate lobbying; 1,430 lobbyists reported lobbying on trade issues, a record high. The giant corporations with huge resources are lobbying for exemptions from tariffs, while smaller businesses, without the resources to engage in major lobbying campaigns, will probably suffer from the tariffs. One example of lobbying on trade issues is that the Semiconductor Industry Association succeed in getting the Trump administration to reverse its ban on the sale of computer chips to the Chinese corporation, Huawei. [2]

The communications and electronics industry spent a record $435 million on lobbying in 2019. Amazon, Apple, and Facebook all set new records for lobbying expenditures in response to concerns in Congress about their business practices and antitrust investigations in Congress and the Department of Justice.

Corporations are spending huge sums on lobbying because they know there will be a high return on their investment. Success in lowering taxes or tariffs, or in allowing higher prices and revenue, will result in higher profits generally well in excess of the amount spent lobbying.

One argument against allowing huge corporations to exist is that they have huge resources to pay for lobbying and to use to pursue legal actions that skew the balance of power in our society and overwhelm the voice of the people and the public interest.

[1] Evers-Hillstrom, K., 1/24/20, “Lobbying spending in 2019 nears all-time high as health sector smashes records,” Common Dreams and the Center for Responsive Politics (https://www.commondreams.org/views/2020/01/25/lobbying-spending-2019-nears-all-time-high-health-sector-smashes-records)

[2] Evers-Hillstrom, K., 1/24/20, see above