You’re Subsidizing The Threat To Democracy
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Two years after the January 6 insurrection, a plurality of Americans say the most important issue facing the country is the threat to democracy. That threat is not just rioters at the U.S. Capitol, a coup plot by an outgoing president, court rulings limiting voting rights, or politicians denying verified election results. The threat is also something less dramatic but more insidious — an unregulated campaign finance system that allows billionaires to control the political system using secret pools of anonymous cash, otherwise known as dark money.
This week, America got a rare glimpse of this part of the democracy crisis when The Lever, ProPublica, and The New York Times exposed the largest known political advocacy donation in U.S. history. A reclusive tycoon named Barre Seid secretly transferred his business empire to a dark money group run by Leonard Leo, the Republican operative spearheading the conservative crusade to remake the judicial system. Leo’s group then sold Seid’s company for $1.6 billion, which it can now use to finance and expand Leo’s political machine for decades.
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In effect, the maneuver was subsidized by the public: The complex transaction avoided hundreds of millions of dollars of taxes, boosting the size of the contribution. And here’s the kicker: Had word of the donation not leaked, the country may never have learned about the source of the giant investment, even though it equals the GDP of a small country and could now shape an entire era of American politics.
If democracy requires transparency and a commitment to the one-person-one-vote principle, then this situation indeed embodies a serious threat to democracy. But billionaires and corporations are no doubt expecting that readers see this week’s news and breathe a sigh of resignation. They want you to think nothing can be done after a 2020 election that saw $1 billion in dark money spending, a January 6 rampage promoted by dark money groups, and a 2022 midterm in which both parties’ congressional super PACs are teeming with anonymous cash.
But the opposite is true: There are straightforward ways that this oligarchic threat can be beaten back or limited so that Americans can at least know who is trying to influence their votes, their representatives, and their court system.
It’s Time To Finally Pass The DISCLOSE Act
First and foremost, lawmakers could finally pass Sen. Sheldon Whitehouse’s (D-R.I.) DISCLOSE Act, which has languished in Congress since 2010, the year that the Citizens United ruling unleashed an enduring flood of dark money into politics. The bill’s core tenets shouldn’t even be considered partisan or controversial: It would require corporations and dark money political organizations spending money in elections or on judicial nomination campaigns to disclose all of their major donors.
Lawmakers could also pass Whitehouse’s companion measure requiring donor disclosures from advocacy groups lobbying the courts through amicus briefs, also known as “friend of the court” filings. Without such transparency, these influential amicus briefs can seem like they are coming from a wide swath of public-minded grassroots groups — even when those groups are funded by the same handful of billionaire donors and foundations that helped finance the conservative takeover of the high court.
Dark money, however, isn’t just influencing elections and court rulings. It is also corroding the lawmaking apparatus through academic institutions and advocacy groups that seek to shape the way lawmakers think about policy. Every now and again, we get a glimpse of this so-called “cognitive capture” when word leaks of a Washington think tank publishing studies that serve the legislative interests of the organization’s corporate or foreign government sponsors.
To start making this kind of revelation more routine, lawmakers can lift the ban that currently prohibits the Securities and Exchange Commission (SEC) from forcing publicly traded companies to disclose all of their political spending — including donations to think tanks, lobbying groups, and advocacy organizations.
President Barack Obama’s appointees could have gotten this done but refused, and Republicans subsequently barred future administrations from enacting such a disclosure rule. Now, there is legislation in Congress to make the disclosure rule happen — and new SEC commissioners appear supportive of the initiative. These regulators could even follow the demands of Democratic senators and attach a dark money disclosure provision to the greenhouse gas emissions rule the agency is considering right now.
In state capitals, legislatures can continue passing laws requiring donor disclosure from dark money groups when they pour money into elections. Rhode Island successfully defended its dark money disclosure law after it was challenged in a lawsuit and the U.S. Supreme Court decided not to take up the case. Colorado lawmakers likewise just passed bipartisan legislation strengthening its own disclosure laws.
Importantly, such reforms aren’t just happening in solid Democratic states. Just this year, the Republican governor of the deep red state of Tennessee signed a law requiring dark money disclosure. And in November, Arizonans will have the opportunity to vote on a ballot measure requiring disclosure of dark money political contributions of more than $5,000.
Closing The Leonard Leo Loopholes
Outside the political arena, investors can play a big role with shareholder resolutions requiring corporate managers to disclose all company political spending, including on dark money groups. In the last few years, such resolutions and pressure campaigns have compelled more than three fifths of S&P 500 companies to disclose at least some of their spending. More of these resolutions can dramatically increase that percentage, and remove loopholes that still allow companies to hide some of their expenditures.
Finally, tax reforms can prevent billionaires and corporations from using complex transactions to get their dark money donations subsidized by the public.
In Seid’s case, he likely avoided up to $400 million in taxes by transferring his company to Leo’s tax-exempt dark money group, which then sold the company. That maneuver left the monetary gains of the sale untaxed because they were only realized once they were inside a tax-exempt entity.
The donation also appears to have taken advantage of a provision in the tax code solidified in 2015, when President Barack Obama signed legislation explicitly exempting donations to dark money groups from the federal gift tax.
These tax-code boosts of dark money donations are what might be called the Leonard Leo Loopholes — and they can be closed. Congress could reform the gift tax, and pass existing legislation to tax billionaires’ unrealized gains before they can be sheltered inside a dark money group.
“Transparency Enables The Electorate To Make Informed Decisions”
To be sure, there is always the possibility that any of these reforms will be nullified by the Supreme Court, which Leo already packed with his ideological allies. But at least when it comes to the disclosure initiatives, conservative jurists have created favorable precedents. Indeed, as the Roberts Court has killed limits on political spending, it has justified those radical rulings by insisting that disclosure laws are a permissible check on corruption.
“Disclosure permits citizens and shareholders to react to the speech of corporate entities in a proper way,” the court wrote in its Citizens United ruling. “This transparency enables the electorate to make informed decisions and give proper weight to different speakers and messages… The Government may regulate corporate political speech through disclaimer and disclosure requirements.”
The most immediate obstacles to ending the dark money era are the beneficiaries of the current system.
While most rank-and-file Democratic lawmakers acknowledge the dark money problem — and while the entire Senate Democratic caucus officially supports the DISCLOSE Act — the real powerbrokers in both political parties continue to benefit from dark money, which suggests they will not be too eager to make it less dark.
Same thing for corporations and billionaires that have already been lobbying against the disclosure bills. That includes some of the most influential players in Washington, including the U.S. Chamber of Commerce, Koch Industries, and the anti-union National Right To Work Committee.
They want a legal architecture that keeps allowing anonymous donors to buy American politics and subvert the public will.
They want an opaque system that continues to produce corrupt court rulings and legislation benefiting a handful of secret paymasters, rather than the population at large.
They want to perpetuate this stealth and unending assault on democracy that threatens the very foundation of self-governance.
It is up to all of us to stop them.
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