Saturday, December 1, 2012

Colbert's latest civics lesson

A little while ago, Stephen Colbert gave America another civics lesson on the the topic of campaign finance, as he decided what to do with all his unspent donation revenues (if you missed it, definitely watch it--here).  The show featured Colbert's lawyer Trevor Potter, who essentially suggested that Colbert could 'disappear' the money left in his current super PAC structure simply by adding another layer of secrecy. I confess, I watched the whole thing with incredulity. So I contacted Lloyd Mayer, who knows much about campaign finance law, election law, charities, etc. (you can read one of his many articles on the subject here), and who moreover worked as a legal associate at Potter's firm.  Lloyd had this to say in response:

I believe what is creating this "disappearing money" trick is an at least arguable disconnect between the federal election law rules for PACs and the federal tax rules for 501(c)(4)s.  Under federal election law, a PAC (including a SuperPAC, which is not an actual legal category) must report the name and address of the payee for any disbursement of more than $200, along with the purpose of the disbursement, the date of payment, and the amount.   
In this case, the payee would be the entity on the initial check - the first 501(c)(4) - reading this requirement literally.  Under federal tax law and principal-agent principles, however, the "agency letter" Trevor described would arguably render both the first and second 501(c)(4)s mere conduits for the funds and so those funds would not show up on their returns as either income or expenses because those funds are really those of the principal (the SuperPAC).   
My unresearched take is that this is an aggressive position, but probably defensible on audit. Note this trick works in part because PACs do not have to file IRS Form 990 or to make any other filings under federal tax law that would require reporting the disbursement using the tax rules (which presumably would require the ultimate recipient of the disbursement pursuant to the agency letter, not the payee listed on the SuperPAC's check).

Thank you Lloyd!  So it's not incredible to him, but then again, neither is it straightforward. Another legal scholar recently posted Campaign Finance Disclosure and the Information Tradeoff, with the following abstract:
    Campaign finance law is in shambles, and American politics, by many accounts, is dominated by wealthy, shadowy interests. Reformers have rested their hopes on disclosure – mandated, public disclosure of what individuals, corporations, super PACs, and others spend on politics. Reformers argue, and the Supreme Court agrees, that disclosure provides valuable information to voters. Opponents, on the other hand, vilify disclosure for chilling speech and infringing speakers' First Amendment rights. Both positions – disclosure informs voters, disclosure chills speech – have become conventional wisdom.

    This paper challenges that wisdom. First, it shows that disclosure does not necessarily inform voters. ... Second, the paper argues that disclosure does not necessarily chill speech. It can thaw it. By providing potential speakers with information about the positions and credibility of candidates, disclosure can prompt actors to speak when they otherwise would not. When disclosure thaws speech, there is no information tradeoff. Voters gain information in two ways – source revelation, more speech acts – and lose it in none. When disclosure thaws speech, it promotes exactly those First Amendment values it is thought to undermine.
I don't know whether disclosure would explain Colbert's disappearing money trick, and if it did, whether that would chill or thaw speech or which of those two options is preferable. But I like disclosure as a means of bringing to light what Lloyd describes as the unintended and possibly absurd consequences of ill-coordinated regulatory regimes. Perhaps disclosure would not create a means of achieving public accountability for those consequences. But I'm all for any sunlight that can be shed on the subject, even if it does come from the comedy channel.

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