Gifts: Networks of Obligation

Access: Loopholes in a System

Money and the Pay-per-View Presidency

excerpted from the book

Dollars and Votes

How Business Campaign Contributions Subvert Democracy

by Dan Clawson, Alan Neustadtl, and Mark Weller

Temple University Press, 1998

p29
Two main approaches, both deeply flawed, dominate the discussion of campaign finance. The first sees donations as a form of legalized bribery-in Will Rogers's famous phrase, "the best Congress money can buy." This approach concentrates on those (relatively rare) instances where there is a direct, immediate, and explicit exchange. Such spectacular abuses are good for mobilizing anger, but they are only a small fraction of the system of campaign finance. The principal alternative to the Will Rogers view argues that campaign contributions are like votes. Senator Mitch McConnell (Republican-Kentucky), the 1990s public spokesperson for opponents of any effort at reform, says, "If you are able to raise a lot of money it means you have a lot of support, and I think that should be applauded, not condemned." A contribution is simply another way of expressing support, says one high executive:

What business PACs ought to be is a device by which business managers with similar political views can act together in support of those political views. Most businessmen don't have very much time to devote to understanding candidates and politics. They have a great interest in it; they don't have much time for it. The congressman from Nevada votes for the legislation that affects you in Massachusetts and Michigan just as much as the congressmen from Massachusetts and Michigan-that's a reality. Therefore, you have an interest in all of them. You don't have time to research it. Business PACS are a very convenient and effective device by which business managers with similar interests can voluntarily band together to support those political interests and values.

This view argues, in effect, that campaign contributions are a disinterested, and perhaps even a noble, means of participating in the democratic process. The executive who volunteered this view ran an ideological PAC; he felt that this was the way a corporate PAC "ought to be." And, he concluded, "If it were, that'd be a damn good thing." However, in his opinion most corporate PACs are engaged in a form of bribery.

... this book as a whole, develops a third perspective) In our view most campaign contributions should be regarded as gifts. The aim of this particular kind of gift is to create a feeling of obligation. The gift is given in a way that will reinforce the politician's feeling of indebtedness to, and connection with, the corporation. At the same time, the fundraising events where these contributions are usually presented also provide a means for the corporation to begin the next step of the process: gaining access to a member in order to ask for a favor. Conceptualizing campaign contributions as gifts is not intended to let either politicians or donors off the hook.

p65
Candidates are reluctant to take any position critical of business because, as campaign consultant Robert Shrum explained, that "will make it more difficult to raise money. Do people in a campaign say that directly? No. What they say is: 'What's the responsible position on this issue?' That's a code word for fund raising."

p68
People usually think of a congressional bill as a relatively short and simple statement specifying new tax rates or mandating cleaner air. Japanese laws are typically very brief: a single paragraph authorizing the appropriate government department to formulate policies to clean up air pollution." In the United States, however, most important bills are "Christmas trees" covered with dozens of special provisions. Congress itself insists on writing many of the details of the regulations.

For example, the Tax "Reform" Act as printed in the U.S. Code Statutes at Large, is 880 pages long. Much of it is incomprehensible-and intentionally so-even to a tax lawyer, unless he or she knows the hidden references. That is, a provision is written to apply to one and only one company, but in order to protect the guilty (both member and corporation), the company is delineated without being publicly named. The purpose of the description is to be sure that reading the act won't be enough for anyone to learn what's going on. Large sections of these 880 pages are filled with passages like the following:

D) A project is described in this subparagraph if-

(i) such project is part of a flat rolled product modernization plan which was initially presented to the Board of Directors of the taxpayer on July 8, I983,

(ii) such program will be carried out at 3 locations, and

(iii) such project will involve a total estimated minimum capital cost of at least $250,000,000.

This sort of material goes on for pages and pages. A huge amount of detective work is necessary to figure out which companies are referred to or how much money the taxpayers are giving them. It would be much simpler to write the law to say:

(5) SPECIAL LOOPHOLES-The rest of you suckers have to pay the full taxes specified in the law, but the following corporations are exempt from most taxes:
(A) Octopus Oil
(B) Monopoly Phone Company
(C) Oligopoly Phone Company
(D) Super Steel Inc.

p71
The Tax Code has become the de facto U.S. industrial policy ...

p73
One of the best indications of the power of business is that corporations are not only able to win themselves billions of dollars through loopholes, but that they are able to do so without much public exposure or blame. Hegemony is most effective when its operation is invisible. Companies not only receive what amount to large government handouts, but these are rarely discussed and exposed. The obscure language is an admission of guilt, a clear indication that these provisions cannot withstand public scrutiny. And yet Congress and (virtually all of) the media cooperate in handing over the money and keeping the public from knowing what is happening.

Two Pulitzer Prize-winning journalists, Donald L. Barlett and James B. Steele of the Philadelphia Inquirer, tackled the job of uncovering the loopholes in the I986 Tax "Reform" Act, and in the process won themselves a second Pulitzer. Despite their reputations and the resources available to them for their search, it still took them fifteen months to trackdown a small fraction of the thousands of tax breaks buried in the law. "The congressional tax-writing committees and their staffs refused to provide any information, insisting that the identities of the beneficiaries of the preferential tax provisions had to be kept secret." Barlett and Steele wrote to the chairs of the relevant committees-not one of their letters was answered. In fact, even members of Congress aren't allowed to know what they are voting for:

In I986, congressional leaders withheld even a partial list of tax preferences from House members until after they voted in favor of the legislation.

The process has become so byzantine that, at times, key lawmakers involved in writing tax bills profess their ignorance about breaks that they personally approved.

Barlett and Steele were able to identify the beneficiaries for many of the tax loopholes, but hundreds more remained hidden. Even when Barlett and Steele found the beneficiary, it was often impossible to determine which member(s) of Congress deserved the "credit" for the loophole.

The same kind of secrecy, we might add, is sometimes applied to the fundraising process itself. Two New York reporters attempted to attend Governor George Pataki's April I997 fundraiser at the Waldorf-Astoria Hotel. They were arrested for trespassing, even though they stood outside the festivities in a part of the hotel normally open to the public, simply trying to determine who went where. The people with power know that their actions-whether inserting loopholes in legislation or giving and raising money for candidates-cannot stand public exposure. In a manner befitting a totalitarian state, the power brokers maintain a cloak of secrecy to protect the guilty.

p75

A reader imbued with the me-first spirit of Reagan-Gingrichism ought to be asking him- or herself: "How can I get in on the action? How much would it cost me to get out of my taxes and to whom should I give the money?" Even a cautious cost-benefit analysis shows that campaign contributions to members are one of the best "investments" available. Philip Stern calculated that AT&T's $I.4 million in campaign contributions saved it $I2 billion in taxes -a fabulous "rate of return." Not all companies are so successful in evading taxes as AT&T, but hundreds of companies regularly receive special exemptions. An educated guess would be that $I in campaign contributions produces at least $100 in a tax loophole (in the AT&T example, almost $1,000). Applying this same ratio to individual taxpayers, if I (Dan) decide that I'd rather not pay taxes, could I just walk in and offer Richard Neal, my member of Congress, $200 to write a provision declaring: "Anyone living on Munroe Street in Northampton, who was born on August I8, I948, doesn't have to pay taxes"?

No one will be surprised to hear that working stiffs can't do this. Part of the reason is simply economies of scale: Members would need to process 2,000 loopholes for individual taxpayers to equal one corporate loophole. But of course that isn't the primary reason: Loopholes for corporations are regarded as sleazy, but only slightly so, and members who write or support such provisions do not need to worry about public exposure or condemnation, but a member who proposed 2,000 loopholes for ordinary people would be regarded as a nut and immediately exposed. The media would have a field day; members would fight for interviews to condemn this behavior and deliver "holier than thou" sermons.

Rich people occasionally get private tax bills that save them millions of dollars. Domhoff gives the example of the Du Ponts, who were forced to divest themselves of the General Motors Corporation (because the courts ruled their simultaneous ownership of both companies was an antitrust violation and in restraint of trade), but arranged to reduce their tax liability from $45 a share to $7.25 per share, paying Washington lawyer Clark Clifford $1 million for arranging this special loophole.' Similarly, over an eight-year period, Ernest and Julio Gallo contributed $3,000 to members to promote an amendment to the tax code that would reduce Gallo's tax liability by $27 million. While the focus is understandably on these multimillion dollar arrangements, members also sponsor some small-scale deals: Senator Moynihan submitted a proposal that would have applied only to five biomedical researchers in Rochester.

In a sense, these examples only prove the point: The laws are made for the benefit of business and the rich. They are the ones with the power and resources to pay people to work out plausible sounding rationales, to coerce the media not to expose these private deals, to have already (or to know how to make) the connections to powerful government officials, and to enjoy the large-scale operations that provide opportunities for sheltering income through unique arrangements. Moreover, somebody has to pay the taxes; if ordinary people could obtain the same sort of loopholes that are routinely dispensed to the rich, the government wouldn't have enough money to operate. As New York real estate mogul Leona Helmsley explained: "We don't pay taxes. Only the little people pay taxes."

p91
The country doesn't have two major parties, it has just one: the money party.

p107
... any political contribution that is not subject to federal law; in practice, big bucks given at fundraisers hosted by the president or top party leaders. The only limitation on soft money is that it cannot (legally) be used explicitly to advocate the election of a specific candidate. Creative consultants and lax regulators are making this restriction less and less significant, but, all other things being equal, politicians still prefer "hard money" given within the law.

p113
Public statements nearly always stress the thousands of small contributor who are responsible for the party's or candidate's funds. At the opening of the I997 Senate hearings investigating campaign finance abuses, especially those by the Clinton campaign, John Glenn noted that the committee and the media had identified problems only with a handful of contributors out of what he said were 2.7 million contributors. Similarly, during the I991 election, Rahm Emanuel, the Clinton campaign's finance director, "said that the Democrats received their most contributions through the mail on the Monday after the Republican convention, when $85,000 arrived, mostly in sums of $5, $10 and $I5.''

Small donors, "ordinary people" who use this money to "have their say" and "participate in the democratic process," serve an important ideological and legitimation function, but they are not especially important in actually raising the money needed to get through the money primary. It is unclear who is included in Glenn's Z.7 million figure; Donald Fowler, the former chair of the Democratic National Committee, said that the party had I million small donors who contributed $26 million during I995 and I996- but 42 percent of this money was needed to pay for the cost of the solicitation, so the net to the party was only $I5 million. (These small donations were presumably "hard money" that did not go beyond the bounds of the law; the party could therefore use them to promote specific candidates, and they are not included in the soft money figures presented below.) The cost of raising money is an important factor; getting money from small contributors is expensive, so the net gain is often much less than the total raised. Not infrequently, a first-time solicitation letter costs more than the amount it brings in. The figures we are about to present therefore understate the importance of big contributors, because the cost of a cup of coffee doesn't make much of a dent in a $I00,000 contribution.

How important are small contributors? Not very. Let's say that a contribution of $I,000 is "small"-and most of us would regard it as huge... these "small" contributors made 71 percent of all the I996 soft money donations; however, this accounted for less than 4 percent of all soft money contributions. An additional 5,009 contributors gave between $1,000 and $10,000. All the $10,000 and under contributors together-89 percent of the total-gave just over 12 percent of the total amount of soft money. At the other end of the spectrum, the contributors who gave $100,000 or more accounted for very close to half of the money; that is, financially these 487 contributors were four times as important as the 24,000 giving less than $100,000. If you were a politician, party leader, or fundraiser, these 487 contributors might seem as important as all the (27,000+) other soft money contributors combined-not to mention the voters. Offending all of the "small" contributors ($10,000 or less) would cost about as much money as offending the 39 largest corporate contributors. If you were a politician struggling to get through the money primary, whose views would most concern you?

BUSINESS VS. LABOR

Discussions about political influence in general, and campaign finance in particular, often counterpose business and labor as if they were two equally powerful groups; even sample lists of large donors may convey this impression. Reporters (or editors, or newspaper owners) appear to believe that "balance" means including labor alongside business in stories on the influence of soft money. Or, in a variation, the opponents of business are said to include not only labor, but also environmentalists and women's groups, and the combination of these forces is presented as a match for business. Typical are the remarks of Robert A. Farmer, the treasurer of the I992 Clinton-Gore campaign (and the top fundraiser for Michael Dukakis as well). "Mr. Farmer said the party had found new sources of contributions this year from women, homosexual groups and health-care companies, along with a substantial increase in support from corporations." This picture of a balance between business and its opponents is not accurate for PAC money and it is ludicrous as a characterization of soft money: Business dominance is overwhelming.

When dealing with "ordinary" campaign contributions by PACS and individuals, it is easy to conclude that the regulations are so porous that they create no effective limits. Accounts by reformers sometimes read as if the campaign finance regulations hardly matter-the wealthy are not at all constrained. We now have two parallel systems: PACS, which are more or less regulated, and soft money, which is almost completely unregulated. As an indicator of whether regulation makes any difference, we can compare these two systems. In the PAC world, corporations outspend labor by 1.6 to I; adding in business-oriented associations, the ratio is 9 to I. If donations were unregulated, would business be any more dominant?

The answer is an unequivocal yes. In terms of soft money, in I996 corporations outspent labor unions by $I40 million to $9.2 million, better than a 15 to 1.

p124
... Business has enormous resources, many times those of any other group in society. The total revenues for all labor unions are estimated at $5 billion, a huge sum compared to that available to any other oppositional group; ,3 but General Motors, General Electric, Exxon, and Philip Morris all have profits higher than that figure, and the revenues for the 500 largest corporations add up to roughly 1,000 times the revenues for all of labor. There are 267 individual corporations that by themselves have revenues greater than the $5 billion received by all labor unions combined. Soft money rules- that is, the absence of such rules-now permit corporations to make direct contributions to politics (something that had been forbidden since the I907 Tillman Act), thus enabling business to marshal its full revenues if needed. Corporations now may simply treat politics as a business expense, similar to advertising, research and development, or public relations. A beer company, for example, could decide to run one less ad on the Super Bowl broadcast, and instead put the $800,000 into a soft money contribution to a political party.

Consider what this might mean. The largest amount contributed by any corporate PAC in any election from the beginning of PACS through the I996 election was $2,651,493 by UPS in I994. The I996 advertising budget for General Motors was $1,68I,621,700; Proctor & Gamble spent $I,493,I09,500. The top corporate advertisers spent $25.5 billion in I996. Suppose these 50 corporations were to decide to shift 1O percent of their advertising budgets into politics, calculating that running a few less ads wouldn't hurt that much and that politics could provide as good a payoff per dollar spent. These 50 corporations would then be spending $2.55 billion-more than all candidates spent in the I996 election (including all the corporate, labor, association, and individual donations, including all PACS and soft money). And they would have done so at no cost to shareholders assuming that the political contributions paid off at the same rate as advertising expenditures. If all corporations (not just 50, as in the hypothetical example above) treat politics as a cost of doing business, building this into the pricing of their products, there is no effective (financial) limit to the amount of money they can spend.

Commentators often focus on the enormous sums spent on politics in the United States. From the perspective of ordinary people, "enormous" is absolutely correct. Few of us can imagine raising the $500,000 minimum needed for a single winning congressional race, never mind the amount that would be needed to change the composition of the Congress or win the presidency. From a corporate business perspective, however, the total amounts spent on politics-by all candidates, all parties, for all races-are trivial. Corporations could easily spend more, so why don't they?

We can't say with certainty, but we can point to three factors. First, business is already pretty damn dominant-where is the pressing need to put in more money? Second, people are disgusted by the influence of big money. If corporations doubled or tripled their spending-never mind if they went all out and increased it a thousand-fold-a backlash might develop, and business could easily end up worse off, possibly much worse off, than it is now. Third, corporations have many other effective ways to exert influence. One indication of this is the decision by three corporations- General Motors, Monsanto, and Allied-Signal-to cease their soft money contributions (at least for now). Their decisions were apparently based far more on practical than on philosophical or moral concerns. In June I997, Monsanto's vice president for government affairs, Linda Fisher, explained: "With the uproar over soft money, and given the fact that we hadn't found it very helpful, we decided not to do it anymore." Similarly, Bernadette Budde, a highly respected representative of the Business-Industry PAC, told the Washington Post that corporations were evaluating whether soft money was "as effective as channeling cash into 'issues advertising' on radio or television or giving directly to candidates through their political action committees. "

Dollars and Votes

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