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A Budget That Protects Free Speech

Kamala Harris circa 2008
Calif. Attorney General Kamala Harris. Photo by Flickr user aSILVA.

Those of us who believe the government has no business deciding who can place an advertisement that says “Vote for Joe” or “Why not a socialist president?” ought to be happy with the budget bill that kept the federal government operating through the current fiscal year.

But, of course, the long-running argument over free speech on political issues is not over. From the look of things, those who have invented a “dark money” boogeyman in an attempt to limit such speech plan to pick up their fight and take it to a few blue-state capitols, where they stand a better chance of success.

Good news first. In Washington, the new budget law makes crystal clear that the Internal Revenue Service’s efforts under the Obama administration to try to assert gift taxes on contributions to groups active in politics were out of bounds. This should never have been a question, but now the law makes explicit that contributions to nonprofits organized under section 501(c)(4) of the tax code cannot be subject to gift tax.

Gifts are transfers of money that have no other purpose than to elicit or demonstrate affection and commitment to another individual. We can debate how much commitment exists in today’s politics, but there is strikingly little affection to be found - and, as a matter of law, a donor can demonstrate no affection toward a corporate entity, as opposed to a real person. (No, corporations are not legally “people” in this particular sense.)

Calling such contributions “gifts” ignores the very nature of what a gift is. So the IRS’ position that contributions to groups participating in political discourse could be treated as gifts was nonsensical in every respect except the one in which it was clearly intended: as a tool of political intimidation. The budget act takes any regulatory steps to revive that threat off the table, at least for the rest of President Obama’s term.

The legislation also quashed Team Obama’s efforts to force 501(c)(4) organizations to publicly disclose donors, despite the fact that they are not charities. (Supporters can’t deduct contributions to them from their income taxes.) The budget deal also prevents the Securities and Exchange Commission from requiring public corporations to disclose their political advertising efforts, which are explicitly protected as First Amendment activity by the Citizens United decision. This was a great disappointment to Citizens United critics, who want to inhibit corporate political speech by targeting the speakers for boycotts and other pressure tactics.

Whether these efforts to curtail political speech by corporations and nonprofits can be revived after Obama leaves office will depend, in significant part, on who wins the White House next year. But the would-be regulators of such speech are not content to wait that long.

Instead, we can expect them to work through their allies in friendly states to try to accomplish at the state level what they are failing to achieve in Washington. In fact, this process is already underway. In California, state Attorney General Kamala Harris has won appeals court orders forcing the Americans For Prosperity Foundation and the Center for Competitive Politics, two conservative groups aligned with the Koch family and others, to identify their contributors.

Unlike Citizens United and other groups that largely engage in political advertising, the entities involved in the disputes with Harris are 501(c)(3) organizations – in other words, actual charities as defined by the IRS. This classification means the organizations already must identify donors who contribute more than $5,000 to the IRS itself. Harris wants the same information. For now, she is going to get it, though the Ninth Circuit order in the Americans for Prosperity Foundation case bars her from disclosing the data while litigation is ongoing.

Under existing tax law, the IRS has good reasons to require public charities to disclose the identities of large donors. Public charities are required to draw a large fraction of their support from a broad array of donors; if they do not, they are reclassified as private foundations, which are subject to much stricter rules. The donor information is redacted when the IRS eventually releases the charities’ filings to the public.

The rules regarding the differences between public charities and private foundations apply only the federal level, at least for now. This is why most states do not require charities to disclose similar information. State governments just don’t need it.

California’s Harris contends she needs the donor information to enforce state laws governing the operation of charities. Her argument, however, is specious. She has a legitimate interest in how a charity solicits money from donors (to prevent misleading or high-pressure tactics, for example). She also has a legitimate interest in how a charity spends the money that it raises. Harris has no reason to need to know whether Individual A or Individual B gave money to the charity in the first place. This is why the state has not demanded such disclosure previously, and why most other states still do not.

The Center for Competitive Politics took its case to the U.S. Supreme Court, but in November the Court refused to grant a review. As is customary, the high court did not give any reason for declining to hear the appeal. Now the Americans for Prosperity Foundation is likely to try its luck at getting a hearing before the justices.

But what if it succeeds? Even if California loses, we can expect Harris and her allies to simply establish new state regulations on political activity by corporate entities. They will push around the edges of Citizens United, doing their best to limit constitutionally protected political speech. In that respect, they will mirror the strategies that the political right has employed at the state level to circumscribe Roe v. Wade’s abortion rights protections as much as possible.

Yet for now, we can appreciate that the 2016 election, in which money has already shown itself to be something less than the decisive factor in a candidate’s success, can proceed without too much effort by the government to limit who can say “Vote for Joe.”

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s recently updated book, Looking Ahead: Life, Family, Wealth and Business After 55. His contributions include Chapter 1, “Looking Ahead When Youth Is Behind Us,” and Chapter 4, “The Family Business.” Larry was also among the authors of the firm’s book The High Achiever’s Guide To Wealth.

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