Jen Heerwig & Kate Shaw

October 8, 2013 Safra Center at Harvard Blog - The Supreme Court will hear arguments today in McCutcheon v. FEC, a case that could seriously undermine the substantive limits on the flow of money into federal elections.  Although Citizens United dramatically changed the campaign finance landscape, its direct impact was limited to independent spending; the case did not touch the scheme that regulates the money individuals give directly to candidates, party committees, and other political committees.  McCutcheon represents the first time the post-Citizens United Court will consider any aspect of the limitations scheme that has governed federal elections for nearly forty years.


 McCutcheon v. FEC: Murky Money and the Rise of [More] Mega-Donors?

Background
 
Federal law limits contributions to candidates, political party committees, and other political committees in two separate ways.  First, it limits the amount of money any individual can give to a candidate for office (currently $2,600 per election), political party committee (currently $32,400), or other political committee (currently $5,000 or $10,000, depending on who establishes the committee).  Those “base limits” are not at issue in this case—at least not explicitly.
 
Second, the law imposes an aggregate limit on the amount any individual can contribute during any two-year cycle to all candidates, parties, and committees.  This limit is raised slightly with each election cycle to adjust for the effects of inflation.  The current aggregate figure for 2013-2014 is $123,200.  This basic structure has been in effect since 1974, and the Supreme Court has upheld it against constitutional challenges.
 
In 2012, Republican Shaun McCutcheon, together with the Republican National Committee (RNC), challenged the aggregate limit, with McCutcheon arguing that he wished to contribute, and the RNC that it wished to receive, more than the law’s aggregate limit allowed.  The lower court rejected the challenge, explaining that the Supreme Court has held that the law’s base contribution limits are justified by the important government interest in preventing corruption or the appearance of corruption, and that the aggregate limit is justified by the need to prevent contributors from circumventing the base limits.  The case is now before the Supreme Court.

Consequences and Predictions
 
If the Court does indeed strike down the aggregate contribution limit, what will be left of campaign finance regulations?  Invalidating the aggregate limit wouldn’t necessarily lead to the demise of the base limits (although the logic of the Court’s decision could cast significant doubt on the durability of those limits).  But without the aggregate limit, the base limits could be easily evaded through the formation of multiple committees designed to aid the same candidate or set of candidates.  That is, the elimination of the aggregate limit would render the base limits far less effective at keeping super-wealthy individuals from donating hundreds of thousands—if not millions—of dollars to their favored candidates.

Murky Money

In a campaign finance system without aggregate limits, disclosure requirements may be the last, fully viable method of regulating the campaign finance system.  But are disclosure requirements alone an adequate regulatory safeguard?  In a piece forthcoming in the Georgetown Law Journal, we examine this important possibility.  Relying on the Longitudinal Elite Contributor Database (LECD)—an original database developed by one of the authors to track campaign contributors over $200 in federal elections—we explore the realities of the FEC’s existing disclosure regime.  We conclude that disclosure, at least in its current form, is inadequate to inform the public and prevent corruption—two key objectives of campaign finance regulation.
 
One common misconception about our current disclosure system is that the FEC tracks individual contributors as they give money from one election cycle to the next.  But, in fact, the FEC catalogues contributions—it does not follow unique individual contributors over time.  And although donors are legally obligated to provide their full name, address, and occupation with their contributions, the quality of information reported to the FEC is generally poor.  Contributors often fail to provide required pieces of information, provide false or misleading information, or provide different versions of the same information over time.
 
Since the FEC doesn’t track unique donors, we’re already hard-pressed to detect the biggest, most consistent donors in federal elections.  But this problem will be especially acute if, in a post-McCutcheon world, a small number of individual donors are able to swamp the campaign finance system with dollars that are spread across dozens of unique committees.   There’s no limit to the number of committees that can crop up—including committees whose purpose is to support a single candidate for office.  And a donor who gives $5,000 each to dozens of separate committees, each of which exists solely to support a particular candidate, begins to look a lot like a donor who gives hundreds of thousands of dollars to that candidate directly.

In this way, political money could be funneled from a tiny core of mega-wealthy donors directly to candidates.  Within the current disclosure regime, we won’t be able to identify these mega-donors without significant data cleaning.  Since donors will potentially make contributions to dozens of unique entities, we won’t be able to isolate large contributions (potentially funneled through dozens of unique committees), as savvy political journalists have done with super-PAC donors in the past several election cycles.  If the Court strikes down the aggregate limits, we’ll have an influx of “murky money”—money that is disclosed to the FEC by law, but exceedingly difficult to trace given the current disclosure regime. 

More Mega-Donors

Of course, an influx of money from ultra-wealthy donors will increase the dependence of our elected officials on the wealthiest Americans.1 Using the LECD, we estimate that in 2008, just 0.5% of adult Americans made contributions large enough to be disclosed to the FEC.  This tiny minority of donors who meet the FEC’s threshold for disclosure is already an unrepresentative slice of the American electorate.  But the degree of representational distortion—that is, how much campaign donors differ from the American electorate on politically salient characteristics like wealth—increases with the size of donations.
 
Using the LECD, for instance, we estimate that the median home value of itemized donors is between $350,000 and $399,999 compared to approximately $180,000 for the American population.  But mega-donors donors—donors who have given 50% or more of the legal aggregate limit—are wealthier still.2 A majority of mega-donors own homes worth at least $750,000, and over a third of these donors own homes worth over a million dollars (see Figure 1).  To put this in perspective, the US Census Bureau estimates that just 0.6% of American households own homes worth that much.  Donors who make mega-contributions bear little resemblance to the average American—after all, their average aggregate contribution of $91,000 was nearly twice the median annual income of American households. 

 

donors housing picto

Figure 1: Median Home Value of All American Homeowners, Donors of $200+, and Mega-Donors in Federal Elections

These stark differences between the characteristics of wealthy donors and average Americans might be important for at least two reasons.  For one, the characteristics of donors suggest that wealthy donors may have different interests and needs than average Americans.3 It’s probably fair to speculate that average Americans are concerned with financing their children’s education and paying their mortgages, while these concerns matter little, if at all, to the top 1% wealthiest Americans.

Second, social scientists have recently analyzed decades’ worth of public opinion surveys to evaluate differences in the policy preferences of wealthy Americans.  It turns out that not only do super-wealthy Americans have different interests and needs—they also demand different kinds of public policies from elected officials.  To take just one example, the wealthiest Americans are generally more supportive of economic policies to cut capital gains taxes, reduce top income tax rates, and lower the estate tax than lower- and middle-income Americans.  They also tend to take slightly more liberal views on social issues like abortion and gay rights than do lower- and middle-income Americans.4

 

Concluding Thoughts

McCutcheon v. FEC will be the Court’s most significant campaign finance decision since Citizens United.  The McCutcheon decision could strike down the aggregate contribution limits that have been a staple of our campaign finance regulations since the 1970s.  And in doing so, the decision may have far-reaching consequences for how our nation’s elections are financed.  Without adequate additional safeguards, the decision has the potential to further undermine the transparency of our elections, and to exacerbate the dependence of our elected officials on the nation’s super-wealthy elites.

 

Notes:

1  For an extensive discussion on the dependence of elected officials on wealthy donors, see Republic, Lost:  How Money Corrupts Congress—and a Plan to Stop it by Lawrence Lessig (2011).

2  The housing value estimate for the American population comes from the 2010 Survey of Consumer Finances, converted to current dollars using Bureau of Labor Statistics CPI Inflation Calculator.  To measure the housing wealth of donors, we utilized a random sample of all itemized donors in the 2004 and 2008 federal elections.  “Mega-donors” refers to all donors who contributed 50% or more of the legal aggregate limit in each election cycle.  In 2004, the aggregate limit was $95,000; in 2008, it was $108,200.  

3  For more on representational distortion in American politics, see Voice and Equality: Civic Voluntarism in American Politics by Sidney Verba, Kay Lehman Schlozman, & Henry Brady (1995) and The Unheavenly Chorus: Unequal Political Voice and the Broken Promise of American Democracy by Schlozman, Verba, & Brady (2012).

4  These findings come from political scientist Martin Gilens’ Affluence and Influence: Economic Inequality and Political Power in America (2012).