Besides choosing the wrong Rolling Stones song to quote in a campaign finance opinion – “Salt of the Earth” from Beggars Banquet would have been better, with its references to “stay at home voters” and “gray suited grafters” – there was a lot that the D.C. Circuit got wrong in Stop This Insanity Inc. Employee Leadership Fund v. FEC.
First, the court repeatedly asserted that the separate segregated fund – or what laypeople call a “corporate PAC” – is a “statutory artifact,” “functionally obsolete,” and a “relic.” Yet it remains the prescribed, lawful way by which corporations, and also unions, contribute to federal candidates. And it remains the dominant mode of federal political participation for most major companies. The court glosses over the holding of Citizens United v. FEC and SpeechNow.org v. FEC, which is that the state may regulate contributions more stringently than independent expenditures. It strongly suggests that STII should just go ahead and make independent expenditures, instead of bothering to form a PAC. The court’s strange assault on the PAC option is a startling embrace of the brave new world of campaign finance that has followed Citizens United.
Second, the court failed to confront why STII wanted to shun direct independent expenditures in the first place. A section 501(c)(4) social welfare organization, STII feared that, if it made independent expenditures except through a PAC, it might become a federal political committee and trigger disclosure for the entire organization. Republicans on the FEC readily grasped this fear when STII made the advisory opinion request that gave rise to the litigation. As Commissioner McGahn said then:
Let’s say you do this out of the (c)4, and set aside the tax issues. You only have a handful of employees, you’re not that large, and you start doing independent expenditures … Couldn’t your whole thing become a political committee at some point? Particularly the way the Commission sort of has a case-by-case … There’s no way you’re going to know.
(You can hear McGahn’s comments here at 15:47, with similar comments from McGahn at 2:30 and 33:33, and from Commissioner Matthew Petersen at 26:41.)
A corporation might have many reasons to “do things the hard way” and finance independent expenditures through a PAC, regardless of any desire to evade disclosure of political spending. A tax-exempt organization that genuinely operates as a 501(c)(4) has reason to separate its social welfare activities from its political activities, and to limit disclosure only to those who give for electoral purposes. Indeed, STII appeared to want to preserve the anonymity of one group of donors – those to the 501(c)(4) – by raising and disclosing contributions from an entirely different group of donors – those to the PAC. Were that not the case, then STII would have had little reason to sue, except to avoid other burdens of FEC registration, which it had already chosen to accept by forming the PAC.
Still, the court’s eagerness to urge onto STII what is now a largely unregulated course of action is hardly an outcome for disclosure proponents to celebrate.