Dec 01 2013

Social Welfare Organizations: Donor disclosure improves political speech


Reform Party of California Essay

Policy recommendations the Reform Party of California (RPCA) derives from this essay are summarized in a short accompanying RPCA commentary.


The Bill of Rights provides for personal freedoms including the right to free speech. The first amendment to the Constitution says that “Congress shall make no law abridging the freedom of speech, or of the press”. The few limits on free speech there are came from the courts, not congress. Limits on free speech include child pornography, incitement to imminent lawless action and certain kinds of false statements of fact such as slander (oral) or libel (written or images). When it comes to politics, the bounds of free speech have essentially no limits and they include flag burning. Political speech includes what the RPCA would consider statements that are false but nonetheless constitutionally protected. What is true or false in politics is often, maybe usually, significantly dependent on the speaker’s political or religious ideology, political self-interest and/or economic interest.[1] Protected free speech includes spending by 501(c)(4) groups (“social welfare organizations“) for political purposes.

At present, conservatives usually want anonymity for money spent in the name of political speech. Conservatives on the supreme court are generally hostile to campaign finance laws and limits on political spending, including public financing of political campaigns (Citizens United v. Federal Election Commission, 2010; Free Enterprise Club v. Bennett, 2011; McCutcheon v. Federal Election Commission, to be decided before July 2014). The court’s rationale behind the Bennett decision was interesting. In Bennett, the court said that public financing of political campaigns inhibited free speech of self-financed candidates and political groups who backed them because the opposing candidate might receive more tax dollars which would be spent on opposing political speech.

The reasoning was that groups such as the Free Enterprise Club who supported one candidate would not spend money supporting their candidate because their candidate’s opponent would receive matching public funds if the opponent was outspent. Thus, an outside group, operating independently of a privately financed candidate but supporting that candidate, would contribute to out-spending subsidized candidate and that would add to public finding of the opponent.  The court concluded that less campaign or political speech would result and therefore political issues would be discussed less, not more.

The power of money to influence politics is old and well known. A political fund raiser/operative allegedly remarked after William McKinley’s presidential campaign in 1896: “There are two things that are important in politics. The first is money, and I can’t remember what the second one is.” The 1896 campaign was accompanied by fund raising pressures on businesses. Given the modern supreme court’s hostility to limits on spending money as political free speech, it seems reasonable to assume that spending by wealthy individuals and legal entities (corporations, labor unions) will become more important over time.

So far, the supreme court has not expressed hostility to a requirement for disclosure of donors to political parties, candidates or issues, but that could change. In Citizens United, the court observed that the “First Amendment protects political speech; and disclosure permits citizens and shareholders to react to the speech of corporate entities in a proper way. This transparency enables the electorate to make informed decisions and give proper weight to different speakers and messages.” In another case upholding disclosure law, Doe v. Reed, 2010, Justice Scalia in concurring with the Doe v. Reed decision upholding a disclosure law said that “it may even be a bad idea to keep petition signatures secret. There are laws against threats and intimidation; and harsh criticism, short of unlawful action, is a price our people have traditionally been willing to pay for self-governance. Requiring people to stand up in public for their political acts fosters civic courage, without which democracy is doomed”. The quoted comments are dicta (non-binding), not binding holdings, and thus the Supreme Court could, for any reason or for no reason, change its mind about the merits of donor disclosure.

Liberals generally seem to have few complaints with 501(c)(4) donor disclosure. The business community, with the exception of some wealthy, politically active ideologues, is mostly accepting of donor disclosure as well. Donor disclosure to political committees and candidates has been generally required by state or federal law for many years. That is in contrast to law federal that allows 501(c)(4) donor anonymity.

The debate exemplified

A recent Wall Street Journal (WSJ) editorial (Oct. 26-27, 2013, page A11; online here) discussed a lawsuit that arose from illegal political activities by 501(c)(4) groups operating in California. Opposition to donor disclosure became part of the lawsuit. This episode and the WSJ editorial exemplify the best arguments in favor of anonymity from the conservative, pro-business point of view.[2] That viewpoint appears to be the most powerful voice arguing in favor of donor anonymity. The lawsuit arose under California’s 1974 Political Reform Act, which requires disclosure of most donors to candidates and political committees. People and companies wanting anonymity for their political speech form 501(c)(4) nonprofit groups, which are exempt from donor disclosure under federal law.

One of the 501(c)(4) groups operating outside of California donated $11 million to two 501(c)(4)s inside the state. Some of the money was earmarked for specific campaigns or causes.[3] Under California law, the names of donors of such earmarked contributions must be reported to the state. One 501(c)(4) involved, the Arizona-based Center to Protect Patient Rights, donated money to in-state 501(c)(4)s to oppose (i) a ballot measure proposing a tax hike on wealthy individuals and (ii) a ballot measure proposing limits on the ability of labor unions to spend union dues on politics. The Arizona group did not report who the donors were and they thus violated state law, which they admitted to. That opened the California 501(c)(4)s up to a disgorgement action under a state second law, which another Arizona 501(c)(4) donor group (Americans for Responsible Leadership) will fight in court.

WSJ’s editorial writer, Allysia Finley, called California’s actions a “Name-and-Shame Attack on Political Speech”. She characterized the situation as “punishing the non-profits”, with California’s intent being to “silence conservative groups and donors by deterring them from spending big sums on California initiatives.” Ms. Finley called each of California’s laws an “obscure state campaign-finance rule”. Ms. Finley said that disclosure of donors “isn’t always beneficial”, citing blowback against donors who supported Prop. 8, a 2008 ballot measure that made same-sex marriage unconstitutional in California.[4] The bad repercussions were that donors who supported Prop. 8 were opened to “vilification and retribution” with some donors receiving “threatening letters, and their businesses were boycotted.”

Analysis and conclusions

The strongest argument for donor anonymity in 501(c)(4) groups is that donors or their property will be subject to threats, damage and/or illegal harassment. In October 2008, some prominent supporters of California’s Prop. 8 received death threats because of their support. In addition, some Mormon churches were vandalized in retaliation for strong Mormon church support of Prop 8. Clearly, there is a real potential for significant harm to persons and property in retaliation for political speech. The question is how to assess the very real threats and costs and weigh that against the very real benefits such as enabling the electorate to make informed decisions and give proper weight to different speakers and messages.

One factor offered in defense of 501(c)(4) donor anonymity is that the political speaker’s business interests can be impaired. In RPCA opinion, that argument carries very little persuasive weight for two reasons. First, anonymous wealthy donors often have  economic incentives embedded within their political speech, e.g., corporations that spend money to limit labor union power or to reduce regulations that reduce business profits. Second, anonymous wealthy donors often seek to limit or eliminate the ability of opposing political speech, e.g., (i) the ballot measure mentioned above that proposed limits on labor unions to spend union dues on politics and (ii) the Free Enterprise Club v. Bennett Supreme Court case mentioned above.[5] Because economic interests are often a major goal of the anonymous donor’s free speech and because those interests usually want to stifle opposing speech, there is no strong reason to allow donors to remain anonymous based on their economic interests. The economic argument is weak, at best.

Argument for anonymity based on other situations such as anonymous jurors is insufficient to change the analysis. In cases where juror identity needs to be protected, the jurors are performing a constitutional duty. Dangerous defendants have a right to a jury trial for their crimes. Unfortunately, anyone is subject to threat from crime to some degree or another. There are times when juror identities need to be protected. In the case of anonymous donors to political advocacy groups, there is (so far) no threat from organized crime or hardened criminals. The threat is from unhinged individuals or groups that are not in the business of breaking knee caps, selling drugs or murdering people in pursuit of profit. The threats are simply not of the same magnitude. Yes, there could be one or more exceptions and that would be a tragedy, just like any other comparable crime. Despite the threat, which fully applies to politicians themselves, anonymous donors can have a profound impact on major elections, including presidential elections. That impact tips the balance in favor of allowing or requiring donor name disclosure.

Given the balance of interests and the cost-benefit situation, the Supreme Court’s current acceptance of laws that require donor disclosure makes sense. Voters need to be free to choose who they want to believe and they need to know whose economic interests are arguing what. Voters cannot assess impacts on the public interest and their own choices without knowledge of who is paying whom for what. Special interests will essentially always argue that what they want serves the public interest first and foremost. The RPCA simply rejects that as self-serving propaganda. Sometimes it is mostly true, e.g., the Red Cross, FactCheck.org or the League of Women Voters, and sometimes it isn’t, e.g., the pro-coal or oil lobbies[6] or most public labor unions.

The fact that some donors face threats personal or property threats is absolutely unacceptable. To the extent that there are laws to protect donors, those laws absolutely must be enforced. Individuals or groups that cross the line must be held fully accountable. Whether existing laws need to be strengthened is an open question. Regardless, illegal responses to political speech are illegal and they must be deterred, or failing that, fully prosecuted. The RPCA agrees with the Supreme Court in characterizing this unacceptable aspect of politics as a matter for law enforcement. From a pragmatic point of view, what people do when they break laws in retaliation against free speech they do not like, empowers the people who are speaking legally because it strengthens the arguments for allowing donors to remain anonymous.

Whether one likes the fact that individuals and corporations can speak for or against various interests and policies, it is nonetheless legal. That is not going to change any time soon, if ever. People who break laws in retaliation hurt themselves more than they hurt their opponents and that is just plain stupid.

The RPCA wants the public to have a chance to know who is paying for what in politics. That allows people not only the option to weight and then accept or reject the arguments the speakers are making, it also economically empowers the public to choose which businesses they wish to patronize, assuming there is a choice. Obviously, when a local utility supports or opposes a law or policy that a local resident opposes, that resident generally has no choice but to continue to use energy from the utility. In other cases, there is a choice and a citizen can choose to patronize or not patronize the 501(c)(4) donor’s business in support or opposition to what the business supports or opposes. That is just bare knuckles U.S. democracy and it has always been bare knuckles. It still is a bare knuckles hatefest for the most part.

The case for allowing anonymity for 501(c)(4) donors simply does not outweigh the case for allowing voters and other citizens an opportunity to become informed about who is paying for what.[7] The case for anonymity would be stronger if there was more illegal responses to legal speech. If the illegality escalates, the Supreme Court might use that as a rationale for attacking existing disclosure laws. If it ever came to that it would be a tragedy on two levels. First, the public would be largely in the dark about who is buying what in elections and that would profoundly alter our democracy for the worse. Second, it would evince a failure of society at large and law enforcement to prevent such nonsense in the first place.


1. The RPCA frequently cites the power of ideology, political self-interest and economic interest as factors that heavily influence perceptions of reality and right and wrong. Given the subjective nature of how many or most people see most things most of the time, the courts cannot usually tell truth from lies. Given that reality, the courts tend to simply stay away from deciding those matters as protected free speech. One person’s perception of political truth or reality is not necessarily the same perception for another.

2. This is the best argued example the RPCA is aware of that deals directly with the issue of 501(c)(4) donor disclosure. If other, better articulated examples or differing fact patterns come to the RPCA’s attention, that will be considered for its impact on the logic and conclusions applied here. The RPCA tries to work from the best arguments and most relevant fact patterns, pro, con and otherwise, for any issue in politics, including this one. Reliance on the best facts and arguments should lead to the best conclusions and policy recommendations. At least, that is the rationale and the goal. If there are better or other arguments or fact patterns pro, con or otherwise on this issue, the RPCA would very much like to be made aware of that. Any comments, information or different/better arguments would be more than welcome here: commentdotrpca@gmaildotcom. Being non-ideological and pragmatic, the RPCA only looks for what works best in service to the public interest. If the conclusions drawn here can be shown to be in error, the RPCA wants to know and take that into account, even if the opinions and conclusions drawn here would need to be reversed. That is just the nature of reality based politics – merit wins and second best doesn’t. That kind of politics is fundamentally different from what you get with the two-party system.

3. Apparently, some politically-focused 501(c)(4) groups maintain their tax exempt status by shuffling some of their money among like-minded 501(c)(4) groups. The law requires 501(c)(4) groups to spend no more than 50% of their money on political activism such as supporting or opposing candidates or laws. The practice of shuffling money between 501(c)(4)s is legal, although it would be a surprise if that kind of sleight of hand is what congress had in mind when it passed laws allowing social welfare organizations to operate as nonprofits. That is another garden variety example of congress passing laws with unforeseen tax consequences. The RPCA has estimated that about $430 billion/year is lost to tax evasion, which is illegal non-payment of taxes. It is reasonable to guess that the U.S. treasury loses about $250 billion or more each year to even more ‘unintended’ tax breaks. Congress is inept, often (usually?) intentionally so, when it comes to drafting federal tax law. The tax code is congress’ preferred place to provide political payback for contributions from big donors (http://reformpartyca.org/the-tax-gap-the-price-of-our-two-party-political-system/; http://reformpartyca.org/politics-and-special-interest-money/).

4. A federal trial court overturned California’s Prop. 8 as unconstitutional on due process and equal protection grounds. That decision survived a challenge in the Supreme Court. As of June 2013, same-sex marriages were legal in California.

5. Obviously, supporters of anonymity in Free Enterprise Club v. Bennett would, to say the least, disagree that Bennett stood for limiting free speech. That is in the eye of the beholder, or more to the point, where your ideology and/or economic interests lie. In Bennett, the Supreme Court reasoned that the Free Enterprise Club’s free speech was unconstitutionally inhibited by Arizona’s matching fund law because the club refused to give money to their candidate. The club feared that if they donated money to their candidate the opposing candidate would receive matching funds from Arizona and that would, in turn, pay for free speech opposing their candidate. In other words, the Free Enterprise Club wanted to get their free speech heard, but not their opponent’s free speech. So, what is that decision: Pro-free speech or anti-free speech? That perception is in the eye of the beholder, isn’t it? Regardless of how you call this, a likely outcome is that Bennett will result is less free speech because tax dollars cannot be used in Arizona and maybe 13 other states to fund campaigns under matching fund laws. In other words, special interests can get their voices heard but there is no wealthy voice the RPCA is aware of that argues for the public interest as counterpoint. What is needed but missing from politics is a multi-billion dollar non-taxpayer fund arguing for the public interest. Although 100% of existing political funds or groups will say they argue for the public interest, do you really believe that? Consider who and what the Free Enterprise Club, NRA, AARP, trial lawyers, public labor unions and other special interest groups work for. Are they working first and foremost for you or themselves? They are working for themselves with benefits to the public interest being mostly incidental or essentially nonexistent.

6. This is not a criticism of the coal or oil industries or public labor unions. It is a statement of fact and nothing more. Publicly held companies are obligated to act in their own economic interests. Labor unions are funded to protect their member’s interests. If corporations or unions fail to do that to too great an extent, they face shareholder or member lawsuits. The point of for-profit business is profit, not defense of the public interest. The point of government is to protect the public interest, which includes the business operating environment as an important component. Serving the public interest is very complex and doing it competently requires balancing competing interests. Serving special interests is much simpler because many of the factors that government has to consider are not relevant. Businesses can choose to serve the broader public interest if they wish to and can do so sustainably, but that is optional. At present, a key criticism the RPCA directs at two-party politics is the fact the balance has shifted too far toward service to special interests at the expense of the public interest. Money in politics, including money in 501(c)(4) groups is contributing to the unhealthy balance. In the long run, what the two-party system has done (http://reformpartyca.org/two-party-politics-and-recent-history-2/) and continues to do is obviously unsustainable. Getting us out of the mess will require decades of careful, intelligent policy implementation. In RPCA opinion, that task is beyond the capacity of the two-party system because of the constraints that limit them, including special interest money and its corrupting influence on politics (http://reformpartyca.org/the-tax-gap-the-price-of-our-two-party-political-system/; http://reformpartyca.org/politics-and-special-interest-money/).

7. At their heart, arguments for allowing donor anonymity are very odd. On the one hand, wealthy individuals and businesses demand their rights to free speech, but on the other don’t want anyone to know what they are saying. That is fine for small donors who cannot affect much of anything. A $100 donation buys essentially nothing in politics. However, a $10,000 donation can have some real bite in local races and a $1 million donation is real anywhere. One would think that if a donor spends thousands of dollars for free speech, they would be proud of it and want to publicly stand behind it. The only principled reason for anonymity they can offer is fear of illegal retaliation and personal safety for themselves and their families. If it were not for nincompoops who break laws opposing legal free speech they do not like, wealthy donors and the courts would have no excuse whatever.