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Corporate Campaign Spending: The Bucks Stop Where?

When it comes political advertising, the nation's highest court rules, the sky's the limit

Even judges will be affected. In 2004 Don Blankenship, the chief executive of Massey Coal Co., spent $3 million on a statewide advertising campaign that helped to defeat West Virginia Supreme Court Justice Warren McGraw, who had presided over a $50 million judgment against the company, and replace him with Brent Benjamin. Benjamin later voted to reverse the 2002 judgment against Massey. After the court’s new ruling, Massey itself could fund such a campaign. (The U.S. Supreme Court on June 8, 2009, hearing an appeal on that reversal, ruled that Benjamin should have recused himself because of Blankenship’s campaign involvement.)

Green light or yellow?

Corporate executives who might be emboldened to lead their companies into political battle may have some potentially sobering considerations to weigh.

Chief among them is the fact that the activities now rendered permissible by the Supreme Court’s decision are not, under current tax law, deductible as “ordinary and necessary” business expenses. Specifically, Section 162(E) of the Internal Revenue Code denies deductions for any amounts spent in connection with “any attempt to influence the general public, or segments thereof, with respect to elections.”

Andrew Oh-Willeke, a lawyer in Denver who specializes in tax and financial matters, estimates that large, publicly held corporations will incur a steep penalty — “a roughly 65 percent tax,” as he puts it — for amounts spent on advertising for political purposes versus advertising for commercial or charitable purposes.

Changes in the tax treatment of political activity aren’t likely, says Trevor Potter, a Washington lawyer and the president and general counsel of the Campaign Legal Center, a nonprofit group that advocates strong campaign finance restrictions. “The court has historically given the IRS and the tax laws much greater latitude,” says Potter, a former chairman of the Federal Election Commission and general counsel to Republican John McCain’s 2008 presidential campaign. “What’s more, [Section] 162(E) doesn’t prevent political speech or lobbying — it just means that government isn’t subsidizing those activities through the tax code.”

Potter also says that because individuals aren’t entitled to tax deductions or credits for political contributions, the tax law as now written treats individuals and corporations in exactly the same way — the standard the Supreme Court adopted in terms of free-speech guarantees.

And David Primo, a political science professor at the University of Rochester in New York, says that many corporate executives may not be all that eager to have their companies plunge into political advertising for other reasons. “CEOs will be very cautious about how they use a company’s money for independent expenditures because the harms associated with an ill-advised ad attached to a specific firm could outweigh any benefits from other advertising,” he says. “Also, firms have to be wary of shareholder rights groups that might step in and push for shareholder consent for political spending.”

Congressional intervention?

Indeed, some Capitol Hill lawmakers, led by Sen. Charles E. Schumer, D-N.Y., are vowing to push for legislation that, among other restrictions, would require shareholder approval of political expenditures. The idea has the support of Lucian Bebchuk, a professor at Harvard Law School who directs its program on corporate governance. “It would be desirable for Congress to act to require that publicly traded companies do not spend on political purposes without shareholder approval,” he says.

Another proposal making the rounds would require chief executives to appear in political ads (as Washington Post columnist E.J. Dionne Jr. recently mused: “I’m Joe Smith, the chief executive of Acme Consolidated Megacorporation, and I approve this message.”).

Next: A "riotous, wicked, murderous day of atonement”? >>

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