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January 23, 2010 01:22 AM UTC

Is It Constitutional To Surtax Corporate Political Speech?

  • 12 Comments
  • by: ohwilleke

The U.S. Supreme Court’s held yesterday in the Citizens United case that it is unconstitutional to ban independent corporate campaign spending.  This raises serious doubts about the constitutionality of Internal Revenue Code Section 162(e), which in its current form denies businesses a tax deduction for any spending in connection with political campaigns and lobbying.  For a large profitable publicly held corporation operating exclusively in Colorado (which has a flat 4.63% income tax rate tied applied to a slightly modified version of federal taxable income), Section 162(e) is a de facto 65% surtax on political advertising, relative to advertising related to the business or in furtherance of a charitable cause.

The activities denied a deduction by Internal Revenue Code Section 162(e) include the very poltical speech that the U.S. Supreme Court held yesterday that corporations have a constitutional right to engage in under the First Amendment.  In the wake of Citizens United, can it be constitutional to impose a 65% surtax on an expenditure for a an independently produced, funded and aired television spot urging viewers to vote for John Doe, when no tax would be imposed on an otherwise identical television spot asking people to buy widgets or give to the United Way?

Generally speaking, free speech regulations that are not content neutral are subject to strict scrutiny and may only be upheld when necessary in light of a compelling governmental interest. The court in Citizens United expressly held that equalizing the resources of political candidates was not a compelling governmental interest.  A handful of cases provide precedent for the principle that taxes that make content based distinctions on constitutionally protected speech are unconstitutional under the First Amendment.  A tax case arising out of the Citizens United case may be the next precedent in that line of cass.  

Prior to Citizens United, the fact that Congress was believed to have the power to prohibit corporate political speech, at least in the context of partisan elections, made the related tax treatment based on content based distinctions about speech seem a fortiori also constitutional.  Now, each of the limitations on business expense deductions under Section 162(e) of the Internal Revenue Code need to be examined on a case by case basis to determine if they involve corporate free speech rights that are constitutionally protected.

The corruption justification used in Citizens United to refrain at that time from rendering an opinion so sweeping that it would invalidate the ban on direct contributions to candidates by corporations and unions might very well be extended to IRC 162(e)(1)(D) (direct lobbying of public officials), but it is easy to imagine that at least some of IRC 162(e) could be invalidated on the basis of Citizens United and the First Amendment tax cases.

More at Wash Park Prophet.

Is It Constitutional to Tax Corporate Campaign Spending?

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12 thoughts on “Is It Constitutional To Surtax Corporate Political Speech?

  1. Obviously, I’m not a legal scholar, so all I can do is make the simple comparison to the tax break I get for all my political contributions — nada.

    As some might posit, we are the legal fiction, and corporations are the only “people” that matter.

    So will it be “one share, one vote”?

    1. their non-political advertising (e.g. Match.com premium membership, lost dog ads), or compensation of household employees either.

      One can easily imagine an independent political expenditure having a business purpose, in contrast.  Indeed, in the case of bona fide for profit corporations with operating businesses that are marking independent political expenditures (particularly those that are publicly held and hence not closely identified with any particularly shareholder, as a lot of the corporations in question will be), the popular criticism of corporate personhood is that they have no purposes other than business purposes.

      1. And again, you may tire of arguing with a legal moron 😉

        But, as much of the tax code is a policy prescription (what do we want to encourage/discourage), decisions about what is deductible, whether corporate person or living individual, will vary by intended result (within the limits of the constitution, which takes us back to your initial post).

        Bottomline, as has been posted in other threads, we do need to take this SCOTUS decision very seriously, and devise new campaign laws and/or constitutional amendments to limit the power of corporations in this particular area.

        IMO, the aggregation of money and power to so few, large entities directed at our political system is a fundamental threat to our democracy.

        Interestingly, what hasn’t been discussed is the accompanying Denver Post editorial praising the decision.  Of course, it is in the best interests of the Post (and any other likely recipient of election year advertising dollars) to support “Free” (or the best money can buy) speech.

        1. campaign funding.  This is mostly because I believe that the far larger piece of corporate political power comes from the fact that actions of large businesses have great relevance to lots of people.

          The CEO of Wells Fargo would have no trouble getting the ear of members of Congress even if not a single agent, contractor for, or employee of Wells Fargo ever donated a penny to anyone.  The power to create and destroy jobs and wield economic influence imparts political power all its own.

          Also, I am in the minority who believe that we spend far too little on political advertising and campaigns, not too much.  We spend more on advertising for relatively simple household products that don’t put our nation’s fate in the balance.

          Finally, there is no such thing as a “legal moron.”  Most of law is simply moral intuition.  Any way, citizens in Colorado routinely make law at the ballot box, and citizens in Colorado routinely interpret law in the jury box.  You are a lawmaker and arbiter of the law and probably didn’t even notice it.

          1. I cannot share your sanguiness over the impact of corporate political influence.

            Large businesses have great relevance to lots of people

            Sure, and if their impact rises to the level where great good or harm may occur, then the government should take action to help or reform.  

            Otherwise, their actions would not be on the radar of government.

            The CEO of Wells Fargo would have no trouble getting the ear of members of Congress even if not a single agent, …, ever donated a penny to anyone

            Only in the sense that they travel in similar social/business spheres.  Or in the case where the corporation’s actions again hit the government’s radar, which is unlikely to be welcome attention to the corporation.  Money is absolutely a major factor in access to Congress.  

            I don’t condemn it as prima facie evidence of corruption, but recognize it as a simple fact of life as long as campaigns run on donations.

            I am in the minority who believe that we spend far too little on political advertising and campaigns, not too much

            Thank God! 😉  Seriously, should we encourage more public interest activism and organizations?  Absolutely!  But comparing the total amount of money spent on political campaigns to that of consumer advertising is a false dichotomy (as Steve Harvey might say 😉  70% of the economy is consumer-driven, afterall.

            Who would pay an extra buck or two for brand name toothpaste over the equivalent store brand, if not for all the blizzard of “educational” commercials?  More worrisome is the entry of big Pharma into the commercial goods advertising arena — pushing marginally useful, but outrageously profitable “cures” for diseases we didn’t realize we were suffering from.  

            Can you imagine the impact of even more commercialization of political ads, given the fresh influx of corporate money?  At least many of us now have Tivo to skip over that nonsense.

            there is no such thing as a “legal moron.”  Most of law is simply moral intuition

            Ah, yes, but the tortuous logic needed to arrive at legal opinions is what leaves us laypersons slack-jawed!  As much as I try to follow the discussion you, Steve and Old Time Dem had on this topic, little, if any, sunk into my Magna Cum Laude, Graduate Degree-holding skull.  But I’ll keep trying.

            Thanks.

            1. Harry, setting aside all discussion of this particular holding (which I agree is a public policy disaster), I never would have been able to stomach legal reasoning if I hadn’t enjoyed a few decades of exploring everything else first. I worry about young lawyers whose minds are steeped too early and too thoroughly in it, but, for me, it’s a blast. And, despite how constrained and artificial it is, it’s really very useful when understood in its context. It does, I believe, serve a valuable purpose in our overall social institutional landscape.

              And it would be a good thing for laypeople interested in politics to be more familiar with (both legal reasoning and microeconomics, I would say). I was surprised when someone normally as savvy as sxp failed to distinguish between parsing a legal argument and stating a personal opinion, but it’s pretty important to distinguish between those two things. You’d be surprised how often, in written opinions, judges and justices write, or imply, that they don’t like the conclusion legal reasoning took them to, and they sure hope that Congress steps in and does something about it.

              The courts are definitely political, but not in the completely arbitrary way that most people seem to assume. The judges (in federal circuit courts) and justices (on the Supreme Court) generally do follow the logic of their own prefered system of legal interpretation (with some blaring exceptions from time to time), which is selected for its compatability with their underlying political ideology. Granted, sometimes (not always) they just choose their prefered conclusion and then rationalize it. But even when they do that, they have to fit the conclusion into the space that can be legally rationalized, and that really does constrain them in interesting and consequential ways.

              Since we’re talking about the procedures followed by one of the three branches of government, the one, in a sense, that has “the final word,” it’s worthwhile, I think, for engaged laypeople to develop a better sense of how it works. Most criticisms and complaints about decisions made by the Court are based on a logic and set of criteria so far removed from the logic and criteria actually used by the Court, that it just enhances the degree to which the Court is a black box making mysterious and capricious decisions from on high. The better politically engaged lay-people understand it, the more they can, indirectly and cumulatively, affect it.

              Besides, I’ll bet you’d find it to be a lot of fun, if you ever decided to dive into it for awhile. If you ever get a chance to work on solving the logic games written for the LSAT, try it. They’re an abstracted version of the same thing.

              1. Thanks Steve, I found that very interesting.  And yes, I see your point about how judges vary, not only in temperament and intellect, but in their ability to distance their personal opinions from the legal choices they must make.

                But, as the controversy in the Sotomayor confirmation hearings illustrated, is it better to make decisions based on purely abstract arguments, regardless of one’s personal opinions even if it leads to bad social policy, or to factor in one’s own biases, tilting the scales of justice to the greater good?

                I honestly can’t answer that question because the judgement of what is bad social policy or the greater good hinges upon yet another layer of personal bias.

                Thus, our life experience, intellectual capacity, mental discipline, ability to feel compassion and courage — our essential character that determines our biases — is the key.

                1. I think that it is very important to appoint justices laden with compassion and highly atuned to considerations of what makes for good public policy. Then I think it’s very important that they adhere to a procedure of judicial review that is designed to divorce their decisions from those biases.

                  This country is steeped in the self-perception of “exceptionalism.” I generally find that self-perception to be highly exaggerated. If one thing fundamentally distinguishes the United States from less savory countries, it is the enormous degree to which we have managed to submit ourselves, collectively and comprehensively, to the rule of law. To the extent that a nation can design well-crafted and exhaustive principles by which to coordinate their collective existence, and then adhere to those principles without allowing individual caprice to pre-empt them, that nation has accomplished a marvelous and powerful thing.

                  Of course, personal biases do continue to play a role, and, frankly, a much larger role than many would like to admit. And maybe it is for the best that such biases are never completely scrubbed out of the system, because we want decisions to remain human and humane. But we want those biases to remain constrained by, and channeled through, the specific elaborations of our articulated basic values and guiding principles, rather than to simply run wild with the individual dispositions of those in positions of power.

      1. …as I understand them, the Court answers only those questions that it is asked.  Granted, the Court seemed to turn that understanding on its head in the Citizens United case, as Justice Stevens noted (according to the NYT).

        So, anyway, I’m suggesting that people not ask this specific Court any such questions.  Wait until the Court changes some.  Patience is a virtue, some slow person once said.

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