Taking A Good Decision Too Far

If you have been reading my commentaries for awhile, you know that I firmly agree with the Supreme Court decision in last year’s Citizens United case. But even good decisions have their limits, and a federal judge in Virginia went too far when he concluded that Citizens United gives corporations a right to contribute directly to political campaigns.

U.S. District Judge James Cacheris ruled recently that it is unconstitutional for corporations to be barred from making direct contributions to federal office-seekers. The case involved two men, William Danielczyk Jr. and Eugene Biagi, who were charged with funneling money from a corporation they controlled through private individuals in order to support Hillary Clinton’s 2006 Senate and 2008 presidential campaigns.

This was the second time the federal courts have taken up this issue since the Supreme Court’s decision in Citizens United. A federal judge in Minnesota previously ruled the opposite way.

Cacheris wrote in his opinion that “For better or worse, Citizens United held that there is no distinction between an individual and a corporation with respect to political speech. Thus, if an individual can make direct contributions within [the law’s] limits, a corporation cannot be banned from doing the same thing.”

This echoed arguments made by Biagi’s lawyer, public defender Todd Richman. Richman wrote in court papers, “Corporate political speech can now be regulated only to the same extent as the speech of individuals or other speakers. That is because Citizens United establishes that there can be no distinction between corporate and other speakers in the regulation of political speech.”

But the Citizens United decision did not explicitly hold that contributions directly to candidates or their campaigns represent “speech” by the contributors. .It certainly did not equate the political rights of corporations with those of individuals.  Corporations still cannot vote or run for office.

The reason there can be no distinction between individuals and corporations when it comes to speech is not because the two hold the same political status. It is because the Constitution forbids Congress from limiting speech, regardless of who or what is speaking. The First Amendment does not protect the free speech of any particular group, however broadly defined, but rather states that “Congress shall make no law…abridging the freedom of speech.”

This broad statement protects not just speakers but listeners. By preventing Congress from limiting free speech, the Constitution protects our right to hear any opinions that any entity cares to express and to use that information to shape our own thoughts. Individuals, then, lose some of their own freedom when the speech of corporations is banned.

The key issue in the current case is whether a contribution to a political candidate’s campaign qualifies as “speech.” Citizens United dealt with a clear act of political speech, the distribution of an opinion-based documentary, whereas the current case deals with an exchange of money rather than an exchange of ideas.

Danielczyk and Biagi’s attorneys argued that their clients’ actions were, like the actions of Citizens United, an expression of free speech – with the minor difference that, instead of expressing their opinions themselves, they gave money to Clinton so she could express opinions. Making a campaign contribution, by their argument, is no different than paying an advertising firm for a political ad or contributing to a third-party organization that finances or engages in political speech. Payments and contributions to independent third parties are protected by Citizens United.

Clearly, candidates use campaign contributions to engage in speech. But they also use the money they raise for a variety of other purposes. They hire consultants. They travel. They meet with other contributors. None of those things is necessarily related to speech, and certainly not to any speech that is attributable to the candidates’ contributors.

Of course corporations, like individuals, are ordinarily free to spend their money however they choose so long as managers believe the spending to be in the corporation’s interest. The Supreme Court has established, however, that businesses and individuals both can be prevented from using their money for certain purposes that are contrary to the country’s overall welfare, such as bribing or otherwise corrupting the judgment and performance of public officials.

The fact that the government has the right to limit campaign spending to prevent corruption is evident in the fact that individual contributions are capped at $2,500 per candidate per election. Cacheris, in his ruling, did not conclude that individual campaign contribution caps should be abolished. Instead, he noted that his “finding hardly gives corporations a blank check” since they would still be subject to the $2,500 cap.

Yet if Cacheris accepts that the government can regulate campaign contributions for the purpose of avoiding genuine or perceived corruption, there seems to be no reason why different regulations should not apply to different types of entities based on the risk of possible corruption. Political action committees, for example, are permitted to donate more than individuals, spending up to $5,000 per election. Because of the perceived higher risk of corruption, foreigners, like corporations, are prohibited from making contributions, though they are free to personally express their opinions regarding the candidates.

It is possible that the Supreme Court might someday decide that campaign contributions are a form of speech, outlawing both individual contribution caps and bans on corporate contributions. But this has not happened yet, and Citizens United does not clearly indicate that the high court thinks it should happen.

If Cacheris’ opinion is appealed all the way to the Supreme Court, we may eventually learn exactly how the justices meant for their ruling in Citizens United to affect campaign contributions. In the meantime, however, I would assume that what they meant was what they said and nothing more.

About Larry M. Elkin 534 Articles

Affiliation: Palisades Hudson Financial Group

Larry M. Elkin, CPA, CFP®, has provided personal financial and tax counseling to a sophisticated client base since 1986. After six years with Arthur Andersen, where he was a senior manager for personal financial planning and family wealth planning, he founded his own firm in Hastings on Hudson, New York in 1992. That firm grew steadily and became the Palisades Hudson organization, which moved to Scarsdale, New York in 2002. The firm expanded to Fort Lauderdale, Florida, in 2005, and to Atlanta, Georgia, in 2008.

Larry received his B.A. in journalism from the University of Montana in 1978, and his M.B.A. in accounting from New York University in 1986. Larry was a reporter and editor for The Associated Press from 1978 to 1986. He covered government, business and legal affairs for the wire service, with assignments in Helena, Montana; Albany, New York; Washington, D.C.; and New York City’s federal courts in Brooklyn and Manhattan.

Larry established the organization’s investment advisory business, which now manages more than $800 million, in 1997. As president of Palisades Hudson, Larry maintains individual professional relationships with many of the firm’s clients, who reside in more than 25 states from Maine to California as well as in several foreign countries. He is the author of Financial Self-Defense for Unmarried Couples (Currency Doubleday, 1995), which was the first comprehensive financial planning guide for unmarried couples. He also is the editor and publisher of Sentinel, a quarterly newsletter on personal financial planning.

Larry has written many Sentinel articles, including several that anticipated future events. In “The Economic Case Against Tobacco Stocks” (February 1995), he forecast that litigation losses would eventually undermine cigarette manufacturers’ financial position. He concluded in “Is This the Beginning Of The End?” (May 1998) that there was a better-than-even chance that estate taxes would be repealed by 2010, three years before Congress enacted legislation to repeal the tax in 2010. In “IRS Takes A Shot At Split-Dollar Life” (June 1996), Larry predicted that the IRS would be able to treat split dollar arrangements as below-market loans, which came to pass with new rules issued by the Service in 2001 and 2002.

More recently, Larry has addressed the causes and consequences of the “Panic of 2008″ in his Sentinel articles. In “Have We Learned Our Lending Lesson At Last” (October 2007) and “Mortgage Lending Lessons Remain Unlearned” (October 2008), Larry questioned whether or not America has learned any lessons from the savings and loan crisis of the 1980s. In addition, he offered some practical changes that should have been made to amend the situation. In “Take Advantage Of The Panic Of 2008” (January 2009), Larry offered ways to capitalize on the wealth of opportunity that the panic presented.

Larry served as president of the Estate Planning Council of New York City, Inc., in 2005-2006. In 2009 the Council presented Larry with its first-ever Lifetime Achievement Award, citing his service to the organization and “his tireless efforts in promoting our industry by word and by personal example as a consummate estate planning professional.” He is regularly interviewed by national and regional publications, and has made nearly 100 radio and television appearances.

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