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Tuesday, January 11, 2011

A response to the Citizen's United ruling

OpEd in the Providence Journal

This has vanished from their website, so here it is

A Citizen's response to the Citizens United Ruling

Martin G. Evans

The Supreme Court has, in its Citizens United decision, unleashed a flood of corporate and union money into the election process. In so doing, it has overturned a hundred years of precedent. It would appear that this has changed the face of elections for the future. We now have anonymous donations going to pay for advertisements supporting corporate and union agendas.

What can we do about it?

These are the issues on which citizens should focus their attention.

First we need to bring into alignment the tax treatment of individuals and corporations when it comes to political expenditures. If I give $500.00 dollars to my favorite candidate, this sum comes from my after tax income. The same should be true of corporations. Any money from their treasury expended on political activity should not be treated as a business expense so should come from their after tax income. Making this non -deductible will also enhance transparency as it will have to appear as a separate line in the Corporation's income statement. I would like to see similar treatment for their lobbying activity on Capitol Hill and in the Statehouses around the nation. The difficulty there is that some lobbying is likely to be a legitimate expense while other lobbying is purely political in nature; we may have to impose an arbitrary fraction of those expenses (say 30% as tax deductible while the rest comes out of after-tax income.

If allowing no deductions seems too harsh, we might adopt the system used in Canada. There, to encourage small donations to political parties, the first $400 of contribution receives a tax credit of 75%; that is one's tax bill is reduced by $300 if one gives $400.00. The next $350 receives a credit of 50%; the next $525 receives a credit of 33.33%. Donations over $1275 receive no tax benefit. These diminishing credits could be granted to both individuals and corporations to encourage broader participation in the financial support of politicians.

Second we need to bring the treatment of corporations and unions into alignment. Since the Supreme Court's decision in Beck v. Communication Workers of America (1988), Unions have had to rely on “voluntary” contribution from members to fund their political activities. In that case, the Supreme Court ruled that Unions could only legally collect fees to cover their administrative and collective bargaining expenses; thus members could opt out of paying any additional dues that were used for political activities. As opting out was a fairly difficult process, it is not clear how many union members took advantage of the reduced union dues available under the Beck ruling. Nevertheless, this does place a potential constraint on unions' political expenditures: if too much is spent in this way, more members may opt out thus reducing the unions’ ability to play in the political arena.

The equivalent constraint for a corporation would be for shareholders to have the right to control corporate political activity. Such constraints might be imposed in two ways. First the shareholders as a body might be required to vote on the next year’s political activity budget and on broad lines on the issues on which it is to be expended. Given the lethargic shareholder governance that currently exists, this would leave the decisions on political expenditure where it is today: in the hands of top management. The second approach would be to give each shareholder the right to “opt out” of making a contribution to political activity. He or she could request that her/his proportion of the political budget be redirected to charity instead of being used for political activity. Alternatively, the individual shareholder could direct to which politician(s) his or her share of the political budget was to be directed. Equitable treatment of Unions and Corporations requires that one or other of these systems to constrain corporate spending be incorporated as quickly as possible.

On the legislative front, we need to pass the DISCLOSE bill that would insist that corporations and unions be open and above board in acknowledging their corporate expenditures. In the Citizens United decision, the Supreme Court called for but did not mandate full disclosure. Just as individual contributions have to be fully disclosed, then as persons, corporate disclosure should also be mandated. One alternative route for disclosure might be for the SEC to issue a regulation that all corporations listed on US stock exchanges had to show in the quarterly and annual reports to the SEC a line item showing the corporation's political expenditures in the previous period. Another alternative might be for states (including Delaware) to insist that providing such a line item would be a condition of incorporation in the state.

Finally, transparency would permit consumer pressure to be brought on corporations. Just as, in the recent campaign (2010), Target was excoriated by many consumers and progressive groups for its support of a gubernatorial candidate in Minnesota who opposed same-sex marriage. It might also be feasible to start a campaign whereby consumers asked that their portion of cash-flow contributions that went to political activity be redirected to charity. Such consumer control is a long way off.

We need to work at both the state and federal levels to pass legislation that will expand shareholder and consumer rights in the domain of corporate political expenditures. Then democracy will be returned to the people.

He is Professor Emeritus of Organizational Behavior at the Rotman School of Management at the University of Toronto.

Sunday, January 9, 2011

Rating Agencies Struggle

Your discussion of the continuing failure of the rating agencies fails to mention the one real reform that would provide incentives to the agencies to provide accurate assessments (The Trade: Post Crisis, A Return To Old Habits, New York Times, January 6, 2011: B1, B11).

The agencies should be paid by the consumers of their information, not by the institutions whose products they are rating. There is no other market wherein the producer pays for a product's ratings.

What is needed is a small tax on every financial transaction. This tax would be used to pay the rating agencies. Pay would be based on performance. If a product received a higher rating than it deserved, the rating agency would forfeit its compensation.

This would remove the current conflict of interest in the market for ratings.

Sent to New York Times

Retreat on End of Life Counseling

It is a great pity that the Administration has rescinded the regulation allowing doctors to be compensated by Medicare for end-of-life discussions with their patients.

As you stated on December 26th:
"The final version of the health care legislation, signed into law by President Obama in March, authorized Medicare coverage of yearly physical examinations, or wellness visits. The new rule says Medicare will cover “voluntary advance care planning," to discuss end-of-life treatment, as part of the annual visit.

Under the rule, doctors can provide information to patients on how to prepare an “advance directive," stating how aggressively they wish to be treated if they are so sick that they cannot make health care decisions for themselves."

This retreat says much about the political incompetence of the administration (yes, I voted enthusiastically for Obama). Throughout 2009 and 2010 the Republicans vociferously denounced the proposal as the creation of "death panels" which would reduce a person's right to a long life. It appears that this outcry was insufficient to alert the Administration that there might be objections to its new regulation.

It is clear that the Administration did not prepare the public and the Congress for the introduction of the rule so that it, in turn, was unprepared to resist the objections to the policy that has occurred since it was announced.

It is incomprehensible to me that the Administration did not do the political and educational work required to explain this policy which in the past, as you note, has garnered bipartisan support.

This is not a good omen for the future political initiatives by the Obama Administration.

Sent to Boston Globe