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Legislative Options After Citizens United v.
FEC: Constitutional and Legal Issues
L. Paige Whitaker
Legislative Attorney
Erika K. Lunder
Legislative Attorney
Kate M. Manuel
Legislative Attorney
Jack Maskell
Legislative Attorney
Michael V. Seitzinger
Legislative Attorney
May 24, 2010
Congressional Research Service
7-5700
www.crs.gov
R41096
CRS Report for Congress
P
repared for Members and Committees of Congress
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Legislative Options After Citizens United v. FEC: Constitutional and Legal Issues
Summary
In Citizens United v. FEC, the Supreme Court invalidated two provisions of the Federal Election
Campaign Act (FECA), finding that they were unconstitutional under the First Amendment. The
decision struck down the long-standing prohibition on corporations using their general treasury
funds to make independent expenditures, and Section 203 of the Bipartisan Campaign Reform
Act of 2002 (BCRA), prohibiting corporations from using their general treasury funds for
“electioneering communications.” BCRA defines “electioneering communication” as any
broadcast, cable, or satellite communication that refers to a clearly identified federal candidate
made within 60 days of a general election or 30 days of a primary. The Court determined that
these prohibitions constitute a “ban on speech” in violation of the First Amendment. The Court,
however, upheld the disclaimer and disclosure requirements in Sections 201 and 311 of BCRA as
applied to a movie regarding a presidential candidate that was produced by Citizens United, a tax-
exempt corporation, and the broadcast advertisements it planned to run promoting the movie.
As a result of the Court’s ruling, federal campaign finance law no longer restricts corporate or,
most likely, labor union use of general treasury funds to make independent expenditures for any
communication expressly advocating election or defeat of a candidate. In addition, the law now
also permits corporate and union treasury funding of electioneering communications. However,
the law prohibiting contributions to candidates, political parties, and political action committees
(PACs) from corporate and labor union general treasuries still applies.
In response to the Supreme Court’s ruling, various proposals have been discussed and legislation
has been introduced in the 111th Congress, including for example H.Con.Res. 13, H.J.Res. 13,
H.J.Res. 68, H.J.Res. 74, H.R. 158, H.R. 1095, H.R. 1826, H.R. 2038, H.R. 2056, H.R. 3574,
H.R. 3859, H.R. 4431, H.R. 4432, H.R. 4433, H.R. 4434, H.R. 4435, H.R. 4487, H.R. 4510, H.R.
4511, H.R. 4517, H.R. 4522, H.R. 4523, H.R. 4527, H.R. 4537, H.R. 4540, H.R. 4550, H.R.
4583, H.R. 4617, H.R. 4630, H.R. 4644, H.R. 5175, S.J.Res. 28, S. 133, S. 752, S. 2954, S. 2959,
and S. 3004. This report provides an analysis of the constitutional and legal issues raised by
several proposals, organized by regulatory topic: increasing disclaimer requirements, increasing
disclosure for tax-exempt organizations, requiring shareholder notification and approval,
restricting U.S. subsidiaries of foreign corporations, restricting political expenditures by
government contractors and grantees, taxing corporate independent expenditures, and providing
public financing for congressional campaigns. The report also addresses amending the
Constitution.
For a comprehensive discussion of legislation that has been introduced and an analysis of policy
options, see CRS Report R41054, Campaign Finance Policy After Citizens United v. Federal
Election Commission: Issues and Options for Congress, by R. Sam Garrett. For a legal analysis of
the Supreme Court’s ruling, see CRS Report R41045, The Constitutionality of Regulating
Corporate Expenditures: A Brief Analysis of the Supreme Court Ruling in Citizens United v. FEC,
by L. Paige Whitaker.
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Legislative Options After Citizens United v. FEC: Constitutional and Legal Issues
Contents
Background ................................................................................................................................ 1
Impact of Citizens United on Current Federal Campaign Finance Law................................... 2
Legislation and Proposals in Response to Citizens United...................................................... 2
Increased Disclaimer Requirements............................................................................................. 3
Disclosure of Donors to § 501(c) Organizations .......................................................................... 4
Shareholder Notification and Approval........................................................................................ 7
Restrictions on Foreign-Owned Corporations .............................................................................. 8
Foreign Corporations vs. Foreign-Owned Corporations under Election Law .......................... 9
Redefining “Foreign Nationals” to Include Foreign-Owned Corporations .............................. 9
First Amendment Rights...................................................................................................... 12
Vagueness ........................................................................................................................... 13
Conditioning Government Contracts or Grants on Forgoing Right to Political Speech ............... 14
“Unconstitutional Conditions” on the Receipt of Federal Funds........................................... 14
Government Program Restrictions and “Government Speech” ............................................. 17
Governmental Interest Promoted by the Legislation; Least Restrictive Means of
Accomplishing Objective ................................................................................................. 18
Other Government Interests or Narrower Tailoring Sufficient to Justify Restrictions
Involving Government Contractors .................................................................................. 20
Taxation of Corporate Campaign-Related Expenditures............................................................. 22
Public Financing For Congressional Campaigns ........................................................................ 26
Constitutional Amendment ........................................................................................................ 27
Contacts
Author Contact Information ...................................................................................................... 28
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Legislative Options After Citizens United v. FEC: Constitutional and Legal Issues
Background
In a 5-to-4 ruling, the Supreme Court in Citizens United v. Federal Election Commission (FEC)1
lifted certain restrictions on corporate independent expenditures. The decision invalidated two
provisions of the Federal Election Campaign Act (FECA), codified at 2 U.S.C. § 441b. It struck
down the long-standing prohibition on corporations using their general treasury funds to make
independent expenditures,2 and Section 203 of the Bipartisan Campaign Reform Act of 2002
(BCRA), which amended FECA, prohibiting corporations from using their general treasury funds
for “electioneering communications.”3 The Court determined that these prohibitions constitute a
“ban on speech” in violation of the First Amendment.4 In so doing, the Court overruled its earlier
holdings in Austin v. Michigan Chamber of Commerce,5 finding that the allegedly distorting effect
of corporate expenditures provided no basis for allowing the government to limit corporate
independent expenditures. It also overruled the portion of its decision in McConnell v. FEC,6
upholding the facial validity of Section 203 of BCRA, finding that the McConnell Court relied on
Austin.7
The Court, however, upheld the disclaimer and disclosure requirements in Sections 201 and 311
of BCRA as applied to a movie regarding a presidential candidate that was produced by Citizens
United, a tax-exempt corporation, and the broadcast advertisements it planned to run promoting
the movie.8 According to the Court, while they may burden the ability to speak, disclaimer and
disclosure requirements “impose no ceiling on campaign-related activities.”9
It does not appear that the Court’s ruling in Citizens United affects the validity of Title I of
BCRA,10 which generally bans the raising of soft, unregulated money by national parties and
federal candidates or officials, and restricts soft money spending by state parties for “federal
election activities.” For a legal analysis of the Supreme Court’s ruling, see CRS Report R41045,
The Constitutionality of Regulating Corporate Expenditures: A Brief Analysis of the Supreme
Court Ruling in Citizens United v. FEC, by L. Paige Whitaker.
1 No. 08-205, slip op. (U.S. Jan. 21, 2010).
2 See id. at 20-51.
3 See id.
4 Id. at 22.
5 494 U.S. 652 (1990).
6 540 U.S. 93 (2003).
7 See Citizens United, slip op. at 50. For further discussion of McConnell v. FEC and Austin v. Michigan Chamber of
Commerce, see CRS Report RL30669, The Constitutionality of Campaign Finance Regulation: Buckley v. Valeo and
Its Supreme Court Progeny, by L. Paige Whitaker.
8 See slip op. at 50-57.
9 Id. (quoting Buckley v. Valeo, 424 U.S. 1, 64 (1976)).
10 2 U.S.C. § 441i(a).
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Impact of Citizens United on Current Federal Campaign Finance
Law
In brief, before the Court’s ruling, corporations and labor unions were prohibited from using their
general treasury funds to make expenditures for communications expressly advocating election or
defeat of a clearly identified federal candidate.11 In addition, corporations and unions were
prohibited from using general treasury funds to finance electioneering communications,12 which
FECA defines as any broadcast, cable, or satellite communication that refers to a clearly
identified federal candidate made within 60 days of a general election or 30 days of a primary.13
However, corporations and labor unions were permitted to use political action committees
(PACs), financed with regulated contributions from certain employees, shareholders, or members,
to make independent expenditures for express advocacy communications and to fund
electioneering communications within the restricted time periods.14
As a result of the Court’s ruling, it appears that federal campaign finance law does not restrict
corporate or, most likely, labor union15 use of general treasury funds to make independent
expenditures for any communication expressly advocating election or defeat of a candidate. In
addition, the law now also permits corporate and union treasury funding of electioneering
communications.16 However, the law prohibiting contributions to candidates, political parties, and
political action committees (PACs) from corporate and labor union general treasuries still
applies.17
Legislation and Proposals in Response to Citizens United
In response to the Supreme Court’s ruling in Citizens United v. FEC, various proposals have been
discussed and legislation has been introduced. This report provides an analysis of the
constitutional and legal issues raised by several proposals, organized by regulatory topic:
increasing disclaimer requirements, increasing disclosure for tax-exempt organizations, requiring
shareholder notification and approval, restricting U.S. subsidiaries of foreign corporations,
restricting political expenditures by government contractors and grantees, taxing corporate
independent expenditures, and providing public financing for congressional campaigns. The
report also discusses amending the Constitution.
This report does not describe specific legislation. For a comprehensive discussion of legislation
that has been introduced and an analysis of policy options, see CRS Report R41054, Campaign
11 2 U.S.C. § 441b(a).
12 2 U.S.C. § 441b(b).
13 2 U.S.C. § 434(f)(3).
14 2 U.S.C. § 441b(b)(2)(C).
15 Although the issue before the Court was limited to the application of 2 U.S.C. § 441b to Citizens United, a
corporation, the reasoning of the opinion would also appear likely to apply to labor unions. “The text and purpose of
the First Amendment point in the same direction: Congress may not prohibit political speech, even if the speaker is a
corporation or union.” Citizens United, slip op. at 5 (Roberts, C.J., concurring).
16 In addition to impacting federal campaign finance law, it appears that the Court’s ruling in Citizens United v. FEC
may also affect numerous state laws prohibiting corporate expenditures. See, e.g., Ian Urbina, Consequences for State
Laws in Court Ruling, N.Y. TIMES, Jan. 23, 2010.
17 2 U.S.C. § 441b(a).
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Finance Policy After Citizens United v. Federal Election Commission: Issues and Options for
Congress, by R. Sam Garrett.18
Increased Disclaimer Requirements19
Some legislation and proposals that have been discussed in response to the Supreme Court’s
ruling in Citizens United v. FEC would increase disclaimer requirements for political
communications paid for by corporations. The term “disclaimer” typically refers to sponsor
identification that is included in the content of the advertisement. For example, such proposals
may require advertisements to include a statement by the president or chief executive officer of
the corporation, identifying such individual by name and position, and indicating that the
corporation that he or she heads paid for the ad and approved its contents. In addition, such
proposals may require inclusion of an image of the individual making the statement.
Currently, the Federal Election Campaign Act (FECA) requires that any public political
advertising financed by a political committee include various disclaimers. Of particular relevance,
it also requires that corporations and labor unions include disclaimers in any communication
expressly advocating the election or defeat of a clearly identified candidate, any solicitation of
contributions, or any other public political advertising, including electioneering communications,
that are financed by corporations and labor unions.20 FECA defines “electioneering
communication” as any broadcast, cable, or satellite communication that refers to a clearly
identified federal candidate made within 60 days of a general election or 30 days of a primary.21
For communications financed by corporations and labor unions, FECA requires the disclaimer to
clearly state the name and permanent street address, telephone number, or website address of the
person who paid for the communication and state that the communication was not authorized by
any candidate or candidate committee. In radio and television advertisements, corporations and
labor unions are required to include in a clearly spoken manner, the following audio statement:
“________ is responsible for the content of this advertising,” with the blank to be filled in with
the name of the entity paying for the ad. In addition, in television advertisements, the statement is
required to be conveyed by an unobscured, full-screen view of a representative of the entity
paying for the ad, in a voice-over, and shall also appear in a clearly readable manner with a
reasonable degree of color contrast for a period of at least four seconds.22 This requirement is
often referred to as “stand by your ad.” FECA does not require disclosure for advertising that
does not expressly advocate election or defeat of a clearly identified candidate, and that does not
meet the criteria of an “electioneering communication.”
In McConnell v. FEC,23 by a vote of 8 to 1, the Supreme Court upheld the facial validity of the
disclaimer requirement in Section 311 of BCRA. Specifically, the Court found that it “bears a
18 For a discussion of campaign finance policy issues in the 1111th Congress, see CRS Report R40091, Campaign
Finance: Potential Legislative and Policy Issues for the 111th Congress, by R. Sam Garrett.
19 This portion of the report discussing increased disclaimer requirements was written by L. Paige Whitaker.
20 2 U.S.C. § 441d(a). See 2 U.S.C. § 431(11), which defines “person” to include corporations and labor unions.
21 2 U.S.C. § 434(f)(3).
22 2 U.S.C. § 441d(d)(2).
23 540 U.S. 93 (2003).
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sufficient relationship to the important governmental interest of ‘shedding the light of publicity’
on campaign financing.”24
Similarly, in Citizens United v. FEC, by a vote of 8 to 1, the Court upheld the disclaimer
requirement in Section 311 as applied to a movie that Citizens United produced regarding a
presidential candidate and the broadcast advertisements it planned to run promoting the movie.25
According to the Court, while they may burden the ability to speak, disclaimer and disclosure
requirements “impose no ceiling on campaign-related activities,”26 and “do not prevent anyone
from speaking.”27 According to the Court, the disclaimer requirements in Section 311 of BCRA
“provid[e] the electorate with information,”28 and “insure that the voters are fully informed”
about who is speaking.29 Moreover, they facilitate the ability of a listener or viewer to “evaluate
the arguments to which they are being subjected.”30 At a minimum, the Court announced,
disclaimers make clear that an advertisement is not financed by a candidate or a political party.
As a result, it appears likely that enactment of increased disclaimer requirements for corporate-
financed political advertisements would survive facial challenges to their constitutionality.31
However, if a disclaimer requirement was so burdensome that it impeded the ability of a
corporation to speak—for example, a requirement that a disclaimer comprise an unreasonable
amount of time—a court might conclude that it is a violation of a corporation’s free speech rights
under Citizens United.
Disclosure of Donors to § 501(c) Organizations32
Some have proposed requiring the identities of certain donors to § 501(c) organizations be
publicly disclosed, either through traditional disclosure mechanisms or the disclaimer provisions
discussed above. The organizations described in IRC § 501(c) have federal tax-exempt status.
They include § 501(c)(4) social welfare organizations, § 501(c)(5) labor unions, and § 501(c)(6)
trade associations.33
24 Id. at 231 (quoting Buckley, 424 U.S. at 81).
25 Citizens United, slip. op. at 50-57.
26 Id. at 51 (quoting Buckley, 424 U.S. at 64).
27 Id. (quoting McConnell v. FEC, 540 U.S. at 201).
28 Id. (quoting McConnell at 196).
29 Id. at 52-53 (quoting Buckley, 424 U.S. at 76).
30 Id. at 53 (quoting First Nat’l Bank of Boston v. Bellotti, 435 U.S. 765, 792 n. 32 (1978)).
31 Note, as discussed below, if a disclaimer proposal required that donors to a corporation – such as a tax-exempt
corporation – be disclosed in a public communication, the Supreme Court’s analysis of the constitutionality of
disclosure requirements would apply. According to the Court, such requirements would be unconstitutional as applied
to an organization if there were a reasonable probability that its donors would be subject to threats, harassment, or
reprisals. See id. at 54-55; National Association for the Advancement of Colored People v. Alabama, 357 U.S. 449,
462-63 (1958).
32 This portion of the report discussing increased disclosure for tax-exempt organizations was written by Erika K.
Lunder.
33 For more information on § 501(c) organizations, see CRS Report RL33377, Tax-Exempt Organizations: Political
Activity Restrictions and Disclosure Requirements, by Erika K. Lunder. For purposes of this report, it is assumed that §
501(c)(3) organizations would not be subject to the proposed donor disclosure requirements since such organizations
are not permitted to engage in campaign intervention under federal tax law. See IRC § 501(c)(3).
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Under current law, FECA requires the public disclosure of certain donors to entities, including §
501(c) organizations, that make independent expenditures and electioneering communications. In
general, the identification of donors to such entities is subject to disclosure if their donations
exceed a threshold amount and are made to further the entity’s campaign activity.34 In certain
situations, the identity of any donor whose contribution exceeds the threshold amount may be
subject to disclosure, regardless of whether it was made to further the activity.35 The organization
may avoid disclosing these donors by establishing a separate account to pay for the activities,
which will result in only the donors to that account being publicly disclosed.36
Some might argue that compelled donor disclosure chills the organization’s and donors’ First
Amendment rights.37 In Citizens United, the Court upheld disclosure requirements as applied to
the movie that Citizens United produced and the broadcast advertisements it planned to run
promoting the movie.38 The Court explained that while they may burden the ability to speak, the
requirements “impose no ceiling on campaign-related activities,” and “do not prevent anyone
from speaking.”39 At the same time, such requirements would be unconstitutional as applied to an
organization if there is a reasonable probability that its donors would be subject to threats,
harassment, or reprisals.40
As mentioned, some have suggested mandating the public disclosure of certain donors to § 501(c)
organizations beyond that required by current law. Additionally, some have proposed expanding
FECA’s disclaimer requirements so that large donors to § 501(c) organizations would be named in
the organization’s political advertisements. Some of these proposals would differ from the
existing provisions described above in that they would require public disclosure of certain donors
regardless of the purpose for which the money was donated or used, without providing a
mechanism by which the organization could limit such disclosure to only those donors whose
contributions were intended to be used for political purposes.
Some have raised the possibility that there might be constitutional limitations on the ability of
Congress to require disclosure of donors who have not necessarily donated specifically for
34 See 2 U.S.C. § 434(c)(2)(C) (requiring any “person” (other than a political committee) that makes an independent
expenditure in an aggregate amount or value of more than $250 during the year to disclose, among other things, the
identification of donors who contributed more than $200 “for the purpose of furthering an independent expenditure”);
see also 11 C.F.R. § 104.20 (requiring corporations, labor unions, and qualified nonprofit corporations that make
certain types of electioneering communications to disclose the donors who contributed more than $1,000 “for the
purpose of furthering” the communication). This regulation was promulgated prior to Citizens United, and some might
question its applicability in light of the Court’s decision.
35 See 2 U.S.C. § 434(f)(2)(E), (F) (requiring any “person” who makes electioneering communications that aggregate
more than $10,000 during the year to report, among other things, the identity of donors who have contributed at least
$1,000 during the period between the first day of the preceding calendar year and the date of the communication;
however, if the disbursement was paid out from a separate bank account that contains only contributions by U.S.
citizens or green cardholders made directly to the account for electioneering communications, then only the donors who
have contributed at least $1,000 to that account are disclosed).
36 See id.
37 U.S. CONST. amend. I (“Congress shall make no law respecting an establishment of religion, or prohibiting the free
exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble,
and to petition the Government for a redress of grievances.”)
38 See Citizens United, slip op. at 50-57.
39 Id. at 51(internal quotations omitted).
40 See id. at 54-55; National Association for the Advancement of Colored People v. Alabama, 357 U.S. 449, 462-63
(1958).
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political activity, particularly if there is no mechanism by which such disclosure could be limited.
In other words, some might argue that the differences between the proposals and existing law
could be constitutionally significant. How a court would analyze such an argument might be
uncertain.41 It seems any requirement would be subject to “exacting scrutiny, which requires a
substantial relation between the disclosure requirement and a sufficiently important governmental
interest.”42
Here, some might argue, for example, that the relationship between (1) the compelled disclosure
of donors who gave money for reasons not necessarily related to campaign activity and (2) the
government’s interest to provide information to the electorate or avoid corruption or the
appearance of corruption is insufficient to withstand judicial scrutiny. Proponents of such an
argument might point to the fact that § 501(c) organizations engage in a panoply of activities
outside the election context and campaign activity cannot, by law, be their primary activity.43
Thus, donors who make non-earmarked contributions are supporting the entirety of the
organization’s activities, and some might question whether the government can require the public
disclosure of their identities simply because the organization happens to engage in limited
amounts of campaign activity.44 Such an argument might be extended to the disclaimer proposals
as well.
On the other hand, it is unclear whether this argument has constitutional merit. As discussed
above, the Court has generally looked favorably on disclosure and disclaimer requirements, and
there may be other factors that support the constitutionality of the proposals. For example, while
the § 501(c) organizations we are concerned with here are limited in the amount of campaign
activity they may participate in, they are permitted to engage in an unlimited amount of lobbying.
Thus, a court might look at the full spectrum of the organization’s activities when determining
whether a donor disclosure requirement is sufficiently related to the government’s informational
interest. A court might also consider the extent to which the requirement furthers donor protection
interests (i.e., whether donors’ interests are presumably aligned with the organization’s activities
or donors are on notice that their donations might be disclosed). Additionally, particular proposals
might contain limitations or protections that could be important to a court’s analysis.
41 It does not appear there is a directly analogous provision in federal law. Federal lobbying law requires registered
lobbyists to report the name and other information of non-client organizations that contribute at least $5,000 to the
lobbyist or his/her client in the quarterly period to fund the lobbying activities and “actively participates in the
planning, supervision, or control” of those activities. 2 U.S.C. § 1603(b)(3). The constitutionality of this provision was
upheld by the U.S. Court of Appeals for the D.C. Circuit in National Association of Manufacturers v. Taylor, 582 F.3d
1 (D.C. Cir. 2009). Under the tax laws, § 501(c) organizations that file an annual information return (Form 990) are
generally required to disclose significant donors (typically those who give at least $5000 during the year) to the IRS. 26
C.F.R. § 1.6033-2(a)(2)(ii)(f). No identifying information of these donors is subject to public disclosure under the tax
laws except in the case of private foundations (which are a type of § 501(c)(3) organization). IRC § 6104(b), (d). The
private foundation provision, which does not appear to have been challenged on constitutional grounds, might be
supported as an anti-abuse provision since these entities generally have a small number of donors who often have
significant control of the foundation.
42 Citizens United, slip op. at 51 (internal quotations omitted).
43 See Rev. Rul. 81-95, 1981-1 C.B. 332 (ruling that lawful participation in campaign activity would not affect the §
501(c)(4) status of an organization whose primary activity was promoting social welfare); Gen. Couns. Mem. 34233
(Dec. 30, 1969) (applying similar reasoning to § 501(c)(5) and § 501(c)(6) organizations).
44 Some proposals would not appear to permit the organization to establish a separate account solely to fund the
political activities, and then limit disclosure to only those donors who contribute to that account. Thus, it might be that
even if the donor requested his or her donation not be used for campaign activity, and the organization agreed, the
donor’s identity could be subject to public disclosure.
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Shareholder Notification and Approval45
There is congressional interest in amending federal securities laws to require a corporation to
provide notice to shareholders of corporate political spending and/or to require that shareholders
authorize corporate political spending.46 For example, a very general description of such a bill is a
proposal requiring that no publicly traded company which must file annual and other reports with
the Securities and Exchange Commission may make any political expenditure in excess of a
certain amount in a fiscal year without first obtaining the authorization of a majority of the
shareholders.
Congress does not appear to have enacted legislation which provides shareholders with voting
authority concerning specific corporate expenditures. These matters have traditionally been left
for individual corporations to handle. Most decisions involving corporate expenditures are made
by corporate executives and boards of directors. Under the business judgment rule, if there is a
reasonable basis that a corporate transaction was made in good faith, management will typically
be immunized from liability.47 Arguably, the business judgment rule applies to decisions of
management concerning corporate political expenditures.
However, this tradition of leaving corporate expenditure decisions to corporate executives does
not mean that Congress is without constitutional authority to enact legislation requiring
shareholder approval of corporate political expenditures. The Constitution’s Commerce Clause48
may arguably provide Congress with authority to enact legislation of the type in question. No
case specifically on point may be cited as precedent for upholding such legislation, but courts
have cited the Commerce Clause as providing Congress with constitutional authority to enact
various kinds of broad legislation concerning corporations. For example, several cases were
brought challenging the constitutionality of the Securities Act of 193349 and the Securities
Exchange Act of 1934.50 The cases upheld the constitutionality of these major federal securities
laws on the basis of Congress’s power under the Commerce Clause.51 Although these cases are
approximately 70 years old, their holdings arguably remain within the philosophy of later
interpretations by courts of the Commerce Clause.
The Securities Act of 1933 ... does not attempt to regulate or prohibit the sale of securities in
intrastate commerce. It merely provides as a condition precedent to the use of the mails and
the facilities of interstate commerce that the issuer file a registration statement containing a
45 This portion of the report discussing shareholder notification and approval was written by Michael V. Seitzinger.
46 See CRS Report R41054, Campaign Finance Policy After Citizens United v. Federal Election Commission: Issues
and Options for Congress, by R. Sam Garrett.
47 The “business judgment rule … immunizes management from liability in corporate transaction undertaken within
both power of corporation and authority of management where there is reasonable basis to indicate that transaction was
made in good faith.” BLACK’S LAW DICTIONARY 181 (5TH ed. 1979).
48 “The Congress shall have Power ... To regulate Commerce with foreign Nations, and among the several States, and
with the Indian Tribes....” U.S. CONST. art. I, § 8, cl. 3.
49 15 U.S.C. §§ 77a et seq.
50 15 U.S.C. §§ 78a et seq.
51 See, e.g., Wright v. Securities and Exchange Commission, 112 F.2d 89 (2d Cir. 1940); Oklahoma-Texas Trust v.
Securities and Exchange Commission, 100 F.2d 888 (10th Cir. 1939); and Securities and Exchange Commission v.
Jones, 12 F. Supp. 210 (S.D.N.Y. 1935), aff’d 79 F.2d 617 (2d Cir. 1935), cert. granted in part, 297 U.S. 705 (1936),
cert. denied in part, 297 U.S. 705 (1936), rev’d in part on other grounds, 298 U.S. 1 (1936).
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true and complete statement of the information required by Section 7 of the Act, 15 U.S.C.A.
§ 77g, in order to protect the public against imposition and fraud in the sale of securities
through the use of the mails or the facilities of interstate commerce.... It is well settled that
Congress may enact reasonable regulations to prevent the mails and the facilities of interstate
commerce from being used as instruments of fraud and imposition.52
The type of legislation described above would not prohibit corporate spending on political
advertising; rather, it would require that shareholders give their approval of the spending. It may
be argued that shareholders, as owners of a corporation, have virtually an inherent right, though
perhaps not necessarily the expertise, to direct spending by executives and boards of directors and
that legislation of the type in question would affirm this right.
Legislation requiring voting by shareholders on proposed corporate political advertising could
arguably be drafted in such a way as to act as a kind of impediment to the corporation’s free
speech as set out in Citizens United. For example, if a proposal required that a corporation submit
to shareholder vote each specific expenditure for political advertising and that the vote must occur
within an unreasonable period of time, a court might conclude that the legislation is a violation of
the corporation’s free speech rights as described by Citizens United. The practicalities of when to
require these votes and the enforcement of this kind of legislation may need to be carefully
considered in order not to run afoul of corporate freedom of speech rights defined by the Supreme
Court in Citizens United.
Restrictions on Foreign-Owned Corporations53
The Supreme Court in Citizens United struck down an attempt to limit First Amendment rights to
political speech based on the speaker’s “form” as a corporation.54 However, its doing so does not
necessarily mean that the ability to make campaign expenditures, or otherwise engage in political
speech, cannot be restricted based upon the speaker’s foreign status.55 Certain federal laws
already categorize some corporations incorporated within the United States as “foreign” because
of circumstances related to their ownership and control and impose significant restrictions upon
them. Congress could explore similar legislation in response to the Citizens United decision.56
Because of the lack of direct precedent, it is unclear how far Congress could go in this regard.57
52 Oklahoma-Texas Trust v. Securities and Exchange Commission, 100 F.2d 888, 890 (10th Cir. 1939).
53 This portion of the report discussing restrictions on U.S. subsidiaries of foreign corporations was written by Kate M.
Manuel.
54 Citizens United, slip op., at 40.
55 Id. at 47-48.
56 Prior Congresses considered similar proposals, including amending the definition of “foreign national” to include
corporations with more than 50% foreign ownership, and the Federal Election Commission reportedly once proposed
similar rules. See, e.g., S. 2, 100th Cong., 1st Sess. (1987); S. 779, 100th Con., 1st Sess. (1987); H.R. 2499, 104th Cong.,
1st Sess. (1995); Foreign-Connected PACs Increased Gifts in ‘92 Races, POL. FIN. & LOBBY REP., Jan. 12, 1994, at 1.
57 Cf. Testimony of Heather K. Gerken, J. Skelly Wright Professor of Law, Yale Law School, Before the Senate
Committee on Rules and Administration, Feb. 2, 2010, available at http://rules.senate.gov/public/index.cfm?a=
Files.Serve&File_id=46b20c68-8e8b-44ba-a206-32703e280a4e (“We have relatively little guidance as to whether
preventing foreign influence on elections is a legitimate state interest or what level of scrutiny would be used to
evaluate such regulations.”).
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Foreign Corporations vs. Foreign-Owned Corporations under
Election Law
The corporations that are the targets of proposed legislation are incorporated within the United
States but are owned, to some degree, by foreign governments, corporations, or individuals, or
can otherwise be characterized as under “substantial foreign influence.”58 They are not foreign
corporations in the sense that they are incorporated under the laws of another country. Such
foreign corporations are among the “foreign nationals” currently prohibited from making
campaign contributions or expenditures under 2 U.S.C. § 441e(a).59 The constitutionality of this
prohibition was not at issue in Citizens United and has apparently never been challenged.60
In contrast, U.S. corporations with some degree of foreign ownership or control were prohibited
from directly making campaign expenditures under 2 U.S.C. § 441b prior to Citizens United
because of their status as corporations, not because of their foreign ties. They could, however,
form political action committees (PACs) to make such expenditures. There were statutory and
regulatory limitations upon the involvement of foreign nationals in these PACs, but these
limitations were based on the alienage of the foreign nationals, not of the corporations.61
Redefining “Foreign Nationals” to Include Foreign-Owned
Corporations
Many proposed bills would amend the existing definition of “foreign national” to include
corporations with some degree of foreign ownership or control.62 Such proposals could arguably
be characterized as contrary to the prevailing legal theory of the corporation, the “natural person
theory,” which views corporations as separate persons possessed of personalities and interests
distinct from those of their shareholders.63 However, there are instances where courts or statutes
effectively rely on alternate theories of the corporation,64 or otherwise look beyond the corporate
58 S. 2959, § 2.
59 “Foreign national” includes any “foreign principal” under 22 U.S.C. § 611(b), as well as individuals who are not U.S.
citizens or lawful permanent residents. 2 U.S.C. § 411e(b)(1)-(2). “Foreign principal” under 22 U.S.C. § 611(b)
includes foreign governments, corporations, and political parties “organized under the laws of or having [their]
principal place of business in a foreign country.” 22 U.S.C. § 611(b)(1) & (3).
60 Citizens United, slip op., at 118 (Stevens, J., dissenting) (“Although we have not reviewed them directly, we have
never cast doubt on laws that place special restrictions on campaign spending by foreign nationals.”).
61 See 2 U.S.C. § 441e(a) (prohibiting foreign nationals from funding the operation of the PAC); 11 C.F.R. §
110.4(a)(3) (“[Foreign nationals may not] direct, dictate, control, or directly or indirectly participate in the decision-
making process of any political action committee.”).
62 The degree of foreign ownership varies, ranging from 5% of the total number of outstanding shares (H.R. 4517, § 2)
to 20% of the voting shares (S. 2959, § 2) to 50% or more (H.R. 4540, § 2).
63 See, e.g., Cannon Mfg. Co. v. Cuhady Packing Co., 267 U.S. 333 (1925); Herbert Hovenkamp, Enterprise and
American Law: 1836-1937 43 (1991).
64 For example, the “enterprise theory,” also known as the “unitary business theory,” treats the corporation and its
parent or subsidiaries as a single entity because of their common interests. See, e.g., Mobil Oil Corp. v. Comm’r of
Taxation of Vt., 445 U.S. 425 (1980) (upholding a tax on the income that corporations received in the form of
dividends from subsidiaries or affiliates doing business abroad); Copperweld v. Independence Tube Corp., 467 U.S.
752 (1984) (holding that, because of their common economic interests, a parent and subsidiary are incapable of
conspiring with each other for purposes of the Sherman Act); David Aronofsky, Piercing the Transnational Corporate
Veil: Trends, Developments, and the Need for Widespread Adoption of Enterprise Analysis, 10 N.C. J. INT’L L. &
COMM. REG. 31, 38-41 (1985) (“[The] notion [is] that the principal purpose of a multicorporate business entity is to
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form to its shareholders.65 For example, federal statutes currently classify some U.S. corporations
as “foreign” because they have a certain percentage of foreign ownership.66
There is no constitutional provision that expressly permits Congress to enact such statutes, which
generally regulate foreign investment in the United States.67 However, these statutes are
commonly justified by other federal powers mentioned in the Constitution, including federal
powers over immigration and naturalization;68 federal power to regulate interstate and foreign
commerce;69 and the power to provide for the national defense.70 These provisions, or similar
ones limiting the involvement of foreigners in the federal government,71 could also be cited in
support of legislation restricting the political speech of foreign-owned or -controlled corporations.
In fact, there are already two instances within election law where parent corporations and their
subsidiaries are treated as a single entity.72
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achieve the economic welfare of the group as a whole through the integrated and coordinated activities of the individual
members.”).
65 Particularly where the courts are concerned, a court will look beyond a corporate form if a subsidiary acts as an agent
of the parent. The fact that a subsidiary is wholly owned is generally not enough. See, e.g., Delagi v. Volkswagenwerk,
278 N.E.2d 895, 897 (N.Y. 1972) (“[T]he [parent’s] control over the subsidiary’s activities … must be so complete that
the subsidiary is, in fact, merely a department of the parent.”); Frummer v. Hilton Hotels Int’l, Inc., 227 N.E.2d 851
(N.Y. 1967) (finding that the subsidiary acted as the agent of its parent). See also 29 U.S.C. § 623(g) (considering
evidence regarding interrelations of operations, common management, centralized control of labor relations, and
common ownership or financial control in determining whether a U.S. parent corporation’s control of a subsidiary
incorporated in a foreign country is such as to make the standards of the Age Discrimination in Employment Act
applicable to the foreign subsidiary).
66 See, e.g., 46 U.S.C. § 12102 (certain ships owned by U.S. corporations are eligible for documentation only if their
chief executive officer and the chairman of their board of directors are U.S. citizens and no more of their directors are
noncitizens than a minority of the number necessary to constitute a quorum); 49 U.S.C. § 40102 (prohibiting U.S.
corporations from registering aircraft unless (1) their president and two-thirds or more of their board of directors and
other managing officers are U.S. citizens; (2) the corporation is under the actual control of U.S. citizens; and (3) at least
75% of the voting interest is owned or controlled by U.S. citizens); 42 U.S.C. § 2133(d) (prohibiting corporations
believed to be controlled by foreign citizens or governments from obtaining licenses for nuclear facilities). There are
also provisions that define “U.S. citizens,” “U.S. exporters,” or “U.S. businesses” so as to include foreign corporations
with certain percentages U.S. ownership. See 15 U.S.C. § 4721(j)(3); 15 U.S.C. § 4724(e)(1)(C).
67 For more on this topic, see generally CRS Report RL33103, Foreign Investment in the United States: Major Federal
Statutory Restrictions, by Michael V. Seitzinger.
68 Art. I, § 8, cl. 4; Fiallo v. Bell, 430 U.S. 787 (1977).
69 Art. I, § 8, cl. 3; North Am. Co. v. Secs. & Exch. Comm’n, 327 U.S. 686 (1946); Elec. Bond Co. v. Secs. & Exch.
Comm’n, 303 U.S. 419 (1938).
70 Art. 1, § 8, cl. 12.
71 Then-Justice Rehnquist’s dissent in Sugarman v. Dougall, for example, notes that there are “no less than 11
instances” that distinguish citizens from foreigners in the Constitution: “Representatives, U.S. CONST. art. I, § 2, cl. 2,
and Senators, art. I, § 3, cl. 3, must be citizens. Congress has the authority ‘to establish an uniform Rule of
Naturalization’ by which aliens can become citizen members of our society, art. I, § 8, cl. 4; the judicial authority of the
federal courts extends to suits involving citizens of the United States ‘and foreign States, Citizens or Subjects,’ art. III,
§ 2, cl. 1, because somehow the parties are ‘different,’ a distinction further made by the Eleventh Amendment; the
Fifteenth, Nineteenth, Twenty-Fourth, and Twenty-Sixth Amendments are relevant only to ‘citizens.’ The President
must not only be a citizen but ‘a natural born Citizen,’ art. II, § 1, cl. 5.” 413 U.S. 634, 651-52 (1973).
72 2 U.S.C. § 441a(a)(5) (“For purposes of the limitations provided by paragraph (1) and paragraph (2), all contributions
made by political committees established or financed or maintained or controlled by any corporation, labor
organization, or any other person, including any parent, subsidiary, branch, division, department, or local unit of such
corporation, labor organization, or any other person, or by any group of such persons, shall be considered to have been
made by a single political committee.”); 11 C.F.R. § 114.5(g)(1) (“A corporation or a separate segregated fund
established by a corporation is prohibited from soliciting contributions to such fund from any person other than its
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There does not appear to be any bright-line rule as to what percentage of foreign ownership
suffices for categorizing a corporation as “foreign” for statutory purposes. Rather, courts would
consider any percentages along with the other provisions of the statute when examining the
relationship between any challenged restrictions and the alleged government interests. Federal
laws that distinguish on the basis of alienage and do not affect fundamental rights, discussed
below, will generally be upheld so long as they are not “‘wholly irrational’ means of effectuating
a legitimate government interest.”73 In one of the few cases directly on point, Moving Phones
Partnership, L.P. v. Federal Communications Commission, the U.S. Court of Appeals for the
District of Columbia Circuit upheld Section 310(b) of the Communications Act and its
implementing regulations against an equal protection challenge brought by several partnerships
whose applications for authorization to construct and operate cellular systems were denied
because they were more than 20% foreign-owned.74 The plaintiffs conceded that concerns about
national security constituted a legitimate reason for discriminating against aliens in broadcasting,
and the court found that limiting foreign ownership to no more than 20% was not a “wholly
irrational” means of effectuating that interest.75
Preventing foreign influence on U.S. elections has apparently never been recognized as a
legitimate state interest in the same way that national security was recognized in Moving Phones
and other cases. However, it seems plausible that a court would treat it as such given that
determining who can participate in the political process is arguably an inherent aspect of
sovereignty;76 there are other restrictions on non-citizens’ involvement in the political process
(i.e., lobbying and contributions);77 and certain provisions of the Constitution have been read as
indicating the Framers’ concerns about foreign involvement in U.S. politics.78
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stockholders and their families and its executive or administrative personnel and their families. A corporation may
solicit the executive or administrative personnel of its subsidiaries, branches, divisions, and affiliates and their
families.”).
73 Moving Phones Partnership, L.P. v. Federal Communications Commission, 998 F.2d 1051 (D.D.C. 1993). See also
Campos v. FCC, 650 F.2d 890 (7th Cir. 1981) (upholding a federal law prohibiting lawful permanent residents from
obtaining radio operator licenses); Noe v. FCC, 260 F.2 739 (D.D.C. 1958) (rejecting a claim that a Jesuit educational
institution is under alien control and therefore ineligible to operate a television station because the institution was
chartered by the state; holds its own property in trust for educational purposes; does not receive monetary support from
the Society of Jesus; and is directed by American citizens); In Re Request by Data Transmission Co., 52 F.C.C.2d 439
(1975) (noting that “Congress wanted to guard against actual alien control rather than the mere possibility of alien
control”). State and local laws are subject to a different standard of review and outside the scope of this report.
74 998 F.2d at 1056.
75 Id.
76 See, e.g., Zephyr Teachout, Extraterritorial Electioneering and the Globalization of American Elections, 27
BERKELEY J. INT’L L. 162, 185-87 (2009) (discussing sovereignty interests in restricting foreign participation in
elections); Lori Fisler Damrosch, Politics across Borders: Nonintervention and Noninforcible Influence over Domestic
Affairs, 83 AM. J. INT’L L. 1, 33-49 (1989) (discussing “state system values” in limitations on foreign participation in
elections).
77 2 U.S.C. § 441(e) (prohibiting campaign contributions); 22 U.S.C. §§ 611-621 (limitations on foreign lobbying).
78 See supra note 71.
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First Amendment Rights
Because foreigners located abroad generally lack First Amendment rights,79 it seems possible that
some restrictions upon campaign expenditures or other political speech by foreign-owned
corporations could be upheld.80 Also, the United States has a strong sovereign and constitutional
interest in limiting political participation to members of its polity. The nature of these restrictions
may, however, depend upon corporate structure and related considerations, as courts attempt to
reconcile the corporation’s “foreignness” with the general corporate rights to political speech
recognized in Citizens United. Some commentators have suggested that the Court’s intention, in
finding that an outright ban on corporate expenditures could not be justified as a protection
against foreign influence, “is clear: it does not want to license too broad a ban on all corporate
independent expenditures when there is no reason to think that foreign nationals exercise control
over the decision making.”81 Such commentators are probably correct in suggesting that
restrictions targeting small percentages of ownership, without the possibility of control, are more
suspect than restrictions targeting wholly owned subsidiaries of foreign governments.82 Beyond
the identity of the foreign owners and the degree of ownership, other considerations could include
whether foreign ownership is unitary or dispersed (i.e., does a single foreign owner own the entire
interest, or are there multiple owners?); whether ownership is direct or indirect; and what, beyond
ownership, suffices for control.83
Certain restrictions upon the political speech of foreign-owned or -controlled corporations could
also potentially be challenged on First Amendment grounds by U.S. citizens. Courts have
recognized that some restrictions on the speech of foreigners can abridge First Amendment rights
of U.S. citizens by, for example, denying them use of funds to finance this speech. In Mendelsohn
v. Meese, a U.S. district court upheld a challenged statute that prevented two U.S. citizens from
using funds from the Palestine Liberation Organization (PLO) to finance their speaking
79 Palestine Info. Office v. Schultz, 674 F. Supp. 910, 919 (D.D.C. 1987) (upholding application of the Foreign
Missions Act, 22 U.S.C. §§ 4301-4313, to close down an information office found to represent a foreign entity);
Pauling v. McElroy, 164 F. Supp. 390, 393 (D.D.C. 1958) (“The protection of the Constitution of the United States
does not extend to … nonresident aliens.”).
80 While the majority in Citizens United noted that it did not reach the question of “whether the Government has a
compelling interest in preventing foreign individuals or associations from influencing our Nation’s political process,”
this statement was dicta and does not necessarily mean that strict scrutiny would inevitably be applied to restrictions on
the political speech of foreign corporations. Citizens United, slip op., at 46-47.
81 Gerken supra note 57.
82 Some commentators have suggested that foreign governments represent a special case, for purposes of constitutional
rights, because their independent sovereignty places them entirely outside the constitutional structure. See, e.g., Lee M.
Caplan, The Constitution and Jurisdiction over Foreign States: The 1996 Amendment to the Foreign Sovereign
Immunities Act in Perspective, 41 VA. J. INT’L L. 369, 399 (2001) (“[F]oreign states, whether acting in a public or
private capacity, remain political entities that seek to further the public interests of the government. In other words,
they always act qua sovereign. Regardless of the form in which a foreign state participates in the world market, i.e.,
through its national bank or a government-owned corporation, and regardless of the commercial nature of the
transaction at issue, the foreign state acts at all times to improve its wealth or viability. By nature, the foreign state can
never shirk the essential attributes of sovereignty.”).
83 While many proposed bills treat ownership as synonymous with control, some bills recognize forms of control that
are independent of ownership. See, e.g., H.R. 4522, § 2 (amending the definition of “foreign national” to include
corporations with foreign principals on the board of directors, or whose debt or other obligations are directly or
indirectly held by foreign principals); S. 2959, § 2 (amending the definition of “foreign national” to include
corporations where foreign principals have the “power to direct, dictate, control, or directly or indirectly participate in
the decisionmaking process of the corporation with respect to activities in connection with a[n] … election,” or which
received a majority of its gross receipts for the prior fiscal year from two or more “foreign principals or individuals”).
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throughout the U.S. on behalf of the PLO after applying the more lenient standard of review
applied to content-neutral speech.84 Similarly lenient review may be unlikely here, however, in
part because the majority in Citizens United noted that “[s]peech restrictions based on the identity
of the speaker are all too often simply a means to control content.”85 This could potentially be a
problem with restrictions on corporations with small percentages of foreign ownership because
the speech of the U.S. majority owners would be affected by these restrictions.86
Vagueness
Certain proposed restrictions could potentially be challenged on the grounds that they are vague.
Due process under the Fifth Amendment requires that criminal statutes “give adequate guidance
to those who would be law-abiding, to advise defendants of the nature of the offense with which
they are charged, or to guide courts in trying those who are accused.”87 Statutes that fail to do this
will be held “void for vagueness.”88 Vagueness is of particular concern with governmental
restrictions on speech and has been used to void statutes involving loyalty oaths,89 obscenity and
indecency,90 and restrictions on public demonstrations.91 Some commentators have expressed
concerns that difficulties in determining corporate ownership, particularly in the case of
corporations whose stock is publicly traded, could raise vagueness issues because corporations
might not know whether they had the requisite percentage of foreign ownership.92 Similar
concerns could also arise because corporate ownership can shift over time, or because of
difficulties in determining what, beyond ownership, constitutes control or influence.93 Such
concerns may be particularly apposite given that the majority in Citizens United suggested that
complicated regulations of speech can serve to unconstitutionally chill speech.94
84 Mendelsohn v. Meese, 695 F. Supp. 1474, 1476-77, 1482-83 (S.D.N.Y. 1988) (requiring the government to show
only that the challenged provision is within the government’s constitutional power in furtherance of an important or
substantial government interest that is unrelated to suppression of free expression and is no greater than essential to
further the government interests). See also Kleindienst v. Mandel, 408 U.S. 753 (1972) (upholding a visa denial despite
implication of the First Amendment rights of U.S. citizens).
85 Citizens United, slip op., at 31. The dissent in Citizens United would, in contrast, have treated the restrictions on
electioneering communications as a time, place, and manner restrictions, which are subject to more lenient scrutiny.
Citizens United, slip op., at 114 (Stevens, J., dissenting).
86 Cf. Mendelsohn, 695 F. Supp. at 1481 (stating that associating with or accepting money from the PLO does not place
American citizens outside the scope of constitutional protection).
87 Musser v. Utah, 333 U.S. 95, 97 (1948).
88 Cantwell v. Connecticut, 310 U.S. 296, 308 (1940).
89 See, e.g., Keyishian v. Bd. of Regents, 385 U.S. 589 (1967); Baggett v. Bullitt, 377 U.S. 360 (1964); Cramp v. Bd. of
Pub. Instruction, 368 U.S. 278 (1961).
90 See, e.g., Reno v. ACLU, 521 U.S. 844, 870-874 (1997); Interstate Circuit v. City of Dallas, 390 U.S. 676 (1968);
Joseph Burstyn, Inc. v. Wilson, 343 U.S. 495 (1952); Winters v. New York, 333 U.S. 507 (1948).
91 See, e.g., Cantwell, 310 U.S. at 296; Coates v. City of Cincinnati, 402 U.S. 611 (1971); Gregory v. City of Chicago,
394 U.S. 111 (1969).
92 See, e.g., Gerken, supra note 57 (“It may be necessary to target certain regulations at foreign shareholders rather than
corporations as such.”).
93 The Small Business Administration, for example, has a rule that spans four pages in the Code of Federal Regulations
defining what constitutes “control” for purposes of the 8(a) Minority Business Development Program. See 13 C.F.R. §
124.106.
94 Citizens United, slip op. at 18 (“As a practical matter, however, given the complexity of the regulations and the
deference courts show to administrative determinations, a speaker who wants to avoid threats of criminal liability and
the heavy costs of defending against [Federal Election Commission] enforcement must ask a government agency for
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Conditioning Government Contracts or Grants on
Forgoing Right to Political Speech95
Efforts by the federal government to restrict private, nongovernmental entities from using their
own (non-federal) resources to engage in independent political advocacy or other political
communications as a condition to receiving, or because the entity receives, some federal funding
by way of grants or contracts would raise significant First Amendment concerns. Congress may
certainly limit, regulate, or condition the use of the funds it appropriates,96 and there are now
under federal law and regulation several prohibitions and multiple restrictions on the use by
private recipients of federal funds or federal subsidies for political or advocacy purposes.97 When
the government goes beyond restrictions and conditions on the use of the funds it appropriates,
however, (or goes beyond attempts to control or “define” the content of a government program98),
and seeks to institute a direct suppression of independent political advocacy by private entities as
a condition to receive (or as a consequence of receiving) federal funds, then such legislation must
be examined under the heightened scrutiny of First Amendment principles. The Supreme Court
has noted that restrictions on otherwise constitutionally protected activities could not be “justified
simply because” persons were receiving federal funds, nor was “a lesser degree of judicial
scrutiny ... required simply because Government funds were involved.”99
“Unconstitutional Conditions” on the Receipt of Federal Funds
The Supreme Court has in the past ruled “that the government may not deny a benefit to a person
because he exercises a constitutional right.”100 The principle has thus developed in a line of cases
that the government may not condition the receipt of a public benefit upon the requirement of
relinquishing one’s protected First Amendment rights.101 Although it is true that a private
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prior permission to speak. These onerous restrictions thus function as the equivalent of prior restraint.”) (internal
citations omitted).
95 This portion of the report discussing restrictions on government contractors and grantees was written by Jack
Maskell, and was derived from and is a summary of CRS Report RL34725, “Political” Activities of Private Recipients
of Federal Grants or Contracts, by Jack Maskell, at 21-33.
96 Cincinnati Soap Co. v. United States, 301 U.S. 308, 321-322 (1937).
97 OMB Circular A-122, Attachment B, para. 25, as added 49 F.R. 18276 (1984) (restrictions on non-profit grantees);
Federal Acquisition Regulation for commercial contractors and nonprofit contractors of the federal government, 48
C.F.R. § 31.205-22 (commercial contractors); 48 C.F.R. § 31.701 et seq., (non-profit contractors); “Byrd Amendment,”
31 U.S.C. §§ 1352, see common rules by major agencies, 55 F.R. 6738, February 26, 1990 (and OMB government-
wide guidance, 54 F.R.52306, December 20, 1989 upon which the rules were based); 18 U.S.C. § 1913, and various
yearly appropriations law riders.
98 As to government program restrictions or limitations, however, the Supreme Court found: “Congress cannot recast a
condition on funding as a mere definition of its program in every case, lest the First Amendment be reduced to a simple
semantic exercise.” Legal Services Corporation v. Velazquez, 531 U.S. 533, 547 (2001).
99 FCC v. League of Women Voters, 468 U.S. 364, 401 n.27 (1984).
100 Regan v. Taxation With Representation of Washington, 461 U.S. 540, 545 (1983).
101 Note “unconstitutional conditions” cases, including Perry v. Sinderman, 408 U.S. 593 (1972); Speiser v. Randall,
357 U.S. 513 (1956); Regan v. Taxation With Representation of Washington, 461 U.S. at 545, see also 461 U.S. at
552-553 (Blackman, J. concurring) (1983); FCC v. League of Women Voters, 468 U.S. 364, 381 (1984). Compare with
Rust v. Sullivan, 500 U.S. 173, 196 (1991).
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organization may simply choose to forgo participating in political or public policy advocacy to be
eligible to receive a grant or a contract, and although no one has a “right” to participate in or
receive funding, the Supreme Court under the so-called “unconstitutional conditions” cases has in
the past established the principle that the receipt of a federal benefit may not be conditioned upon
abdicating one’s constitutional rights, particularly one’s First Amendment freedom of speech:
For at least a quarter-century, this Court has made clear that even though a person has no
“right” to a valuable governmental benefit and even though the government may deny him
the benefit for any number of reasons, there are some reasons upon which the government
may not rely. It may not deny a benefit to a person on a basis that infringes his
constitutionally protected interests—especially, his interest in freedom of speech. For if the
Government could deny a benefit to a person because of his constitutionally protected speech
or associations, his exercise of those freedoms would in effect be penalized and inhibited.
This would allow the government to “produce a result which [it] could not command
directly.” Speiser v. Randall, 357 U.S. 513, 526. Such interference with constitutional rights
is impermissible.102
In 1996 the Court recognized “the right of independent contractors not to be terminated for
exercising their First Amendment rights.”103 This principle, noted the Court, expressly applied to
and derived from judicial decisions negating attempts to condition the receipt of government
contract funds on the abdication of one’s First Amendment rights of speech and advocacy.104
The Supreme Court under this line of cases invalidated a federal law which would have placed an
advocacy restriction on any recipient of particular grants from a federally funded program (public
broadcasting) in Federal Communications Commission v. League of Women Voters of
California.105 Although broadcast stations might be required to follow certain fairness guidelines,
the Court found that such broadcasters, merely because they receive some federal funding
through the Corporation for Public Broadcasting, could not be prohibited from providing their
own expression and opinions on matters of public interest, as the ban was not narrowly tailored to
sufficiently address the government’s asserted justifications for such restrictions on speech.106
In Citizens United, one of the arguments for maintaining the statutory restriction on independent
corporate campaign expenditures was that the corporation had been granted by law certain
benefits and privileges, and as a condition to receive such government-granted benefits, the
corporations could be denied their First Amendment right to engage in political expression in
making independent campaign expenditures.107 The Supreme Court, however, summarily
dismissed such notion that government benefits could be given in this situation on the condition
of forfeiting or forgoing First Amendment privileges:
102 Perry v. Sinderman, 408 U.S. 593, 597 (1972).
103 Board of Commissioners v. Umbehr, 518 U.S. 668, 686 (1996).
104 See 518 U.S. at 680, and the Court’s explanation of “[o]ur unconstitutional conditions precedents ....”
105 468 U.S. 364 (1984).
106 468 U.S. at 399-401. In Speiser v. Randall, 357 U.S. 513, 518 (1956), the Supreme Court found that the state may
not place a condition on eligibility for a tax-exemption on a basis that violates one’s First Amendment freedoms of
speech, expression, and association: “To deny an exemption to claimants who engage in certain forms of speech is in
effect to penalize them for such speech.” See discussion in Regan v. Taxation With Representation of Washington, 461
U.S. at 545, specifically 461 U.S. at 552-553 (Blackman, J. concurring).
107 Citizens United, slip op. at 34-35.
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[T]he Austin majority undertook to distinguish wealthy individuals from corporations on the
ground that “[s]tate law grants corporations special advantages—such as limited liability,
perpetual life, and favorable treatment of the accumulation and distribution of assets.” 494
U.S. at 658-659. This does not suffice, however, to allow laws prohibiting speech. “It is
rudimentary that the State cannot exact as the price of those special advantages the forfeiture
of First Amendment rights.”108
It is therefore questionable under this line of cases whether general or broad-based restrictions on
independent expenditures for political speech and advocacy of all private individuals, firms,
associations, or corporations could be instituted as a “condition” to receiving a federal grant or a
federal contract. It is noted that under current federal law, a government contractor is prohibited
from making a campaign “contribution.”109 Under the theory that campaign contributions to
candidates have a significant potential for quid pro quo corruption, the Supreme Court, in
overturning the corporate campaign independent “expenditure” prohibition, left intact the
limitation on such corporate campaign “contributions.” Campaign contributions to candidates or
parties (and their potential for corrupting influences) have been clearly distinguished by the
Supreme Court from independent campaign “expenditures.” Such independent expenditures in
campaigns are afforded greater First Amendment protection as speech, and are apparently not
subject to the same considerations of potential corruption or corrupting influence because of the
absence of pre-arrangement or coordination with the candidate or the candidate’s campaign:
The Buckley Court recognized a “sufficiently important” government interest in “the
prevention of corruption and the appearance of corruption.” Id., at 25; see id., at 26. This
followed from the Court’s concern that large contributions could be given “to secure a
political quid pro quo.” Ibid.
The Buckley Court explained that the potential for quid pro quo corruption distinguished
direct contributions to candidates from independent expenditures. The Court emphasized that
“the independent expenditure ceiling ... fails to serve any substantial governmental interest in
stemming the reality or appearance of corruption in the electoral process,” id., at 47-48,
because “[t]he absence of prearrangement and coordination ... alleviates the danger that
expenditures will be given as a quid pro quo for improper commitments from the candidate,”
id., at 47.110
The Court then concluded in Citizens United:
Limits on independent expenditures ... have a chilling effect extending well beyond the
Government’s interest in preventing quid pro quo corruption. The anticorruption interest is
not sufficient to displace the speech here in question.
* * *
For the reasons explained above, we now conclude that independent expenditures, including
those made by corporations, do not give rise to corruption or the appearance of corruption.111
108 Id. at 34-35, citing Austin, 494 U.S. at 680 (Scalia, J. dissenting).
109 2 U.S.C. § 441c.
110 Citizens United, slip op. at 29.
111 Citizens United, slip op. at 41-42 (emphasis added).
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The same considerations in allowing an exception to First Amendment principles in prohibiting
contractor “contributions” to candidates, therefore, may not necessarily be present to justify a
similar government restriction on contractor “expenditures” for independent political speech.
Government Program Restrictions and “Government Speech”
It is obvious that Congress may and does institute various conditions and requirements on the
receipt of federal funds. Although the cases discussed above were found to constitute an
“unconstitutional condition” on the receipt of federal funds by private parties, the Supreme Court
has permitted the government to require a restriction on the use of a recipient’s own funds for
certain speech within a particular program when that program is even partially funded with
federal funds. In Rust v. Sullivan,112 the Court explained that in prohibiting abortion counseling by
private entities within certain federally supported programs the government did not place a
“condition on the recipient of the subsidy,” but rather placed the restrictions on the “particular
program or service” which “merely require that the grantee keep such activities separate and
distinct from the” publicly funded activities.113 Chief Justice Rehnquist, writing for the Court,
distinguished this situation from the “unconstitutional conditions” cases:
In contrast, our “unconstitutional conditions” cases involve situations in which the
Government has placed a condition on the recipient of the subsidy rather than on a particular
program or service, thus effectively prohibiting the recipient from engaging in the protected
conduct outside the scope of the federally funded program.114
More recently, the Supreme Court has noted that when the government funds activities it may
limit, restrict, and fashion the speech of those speaking on its behalf either as “government
speech,” or when the government uses “private speakers to transmit specific information
pertaining to its own programs.”115 The Court explained that “[w]hen the government disburses
public funds to private entities to convey a governmental message, it may take legitimate and
appropriate steps to ensure that its message is neither garbled nor distorted by the grantee.”116
This “exception” to the First Amendment for “government speech,” or for certain private speech
within the parameters of some government programs, would not, in any event, extend to all
activities and programs of individuals or private entities which receive government funds. In
Legal Services Corporation v. Velazquez,117 the Court overturned a restriction on the Legal
Services Corporation’s grantees “lobbying” for changes in welfare legislation as part of legal
representation of indigent clients. The Court found that even though the legal services program
was government funded, and thus the speech that the government wished to limit by statute was,
112 500 U.S. at 173 (1991).
113 Id. at 196.
114 Id. at 197. See also “voluntary” expenditure limitation on campaign expenses when a candidate agrees to accept
federal funds. That provision was not directly challenged, and its constitutionality was not before the Court in Buckley.
424 U.S. at 87 n. 119. The Court, however, appeared to favor such provision since it believed that providing federal
funds to private parties for political campaigning enhanced, rather than restricted, opportunities for public
communication: “Subtitle H is a congressional effort, not to abridge, restrict or censor speech, but rather to use public
money to facilitate and enlarge public discussion and participation....” 424 U.S. at 92-93.
115 Legal Services Corporation v. Velazquez, 531 U.S. 533, 541 (2001).
116 Rosenberger v. Rector and Visitors of the University of Virginia, 515 U.S. 819, 833 (1995), citing Rust, supra at
196-200 (emphasis added).
117 531 U.S. 533 (2001).
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in fact, within the confines of that program (as in Rust), the activity and speech involved, that is,
lobbying the legislature on behalf of a client, could not be considered “government speech,” and
thus was not subject to regulation under the “government speech” doctrine.118
Along a somewhat similar line as the “government speech” concept may be situations where
private organizations serve as what might be described as surrogates or stand-ins for government
agencies, to perform “governmental functions” of administering and disbursing public funds. In
some of these instances federal law has treated these private organizations, for purposes of
restrictions on the partisan political activities of their employees, as “state or local” governmental
agencies under the provisions of the Hatch Act.119 If a contract or a grant were thus given to
perform what might be considered “governmental functions,” or to have private parties serve as
surrogates for government officials in administering or managing certain public programs, then
arguments could be made that the government could then limit political speech or activities of
such private participants in the program under the “government speech” guidelines, or under a
similar rationale as the Hatch Act, to protect the fair administration of government programs. The
Supreme Court in Citizens United noted that there is “a narrow class of speech restrictions” which
may be permissible, such as in the Hatch Act (citing the Letter Carriers case, 413 U.S. 548
(1973)), “based on an interest in allowing governmental entities to perform their functions.”120
Such rationale, however, would not appear to be strong in the case of private contractors who are
merely providing goods or selling products to the government.
Governmental Interest Promoted by the Legislation; Least
Restrictive Means of Accomplishing Objective
When a provision of law limits or interferes with First Amendment rights, the Supreme Court will
engage in what it terms “strict scrutiny” to examine the law and its purposes to determine,
initially, if there are significant, “overriding,” or “compelling” governmental interests in the
restriction that outweigh the impositions on First Amendment rights.121 If there are such
governmental interests in the suppression of speech, the Court will then examine whether the
restriction is sufficiently tailored to promote those interests asserted as the law’s justification.
There are several governmental interests which might arguably be promoted by a prohibition on
“independent expenditures” by government contractors or grantees, and such interests would need
to be analyzed under the Supreme Court’s standards. The interests of the prevention of corruption
of the electoral process and undue influences on candidates and officeholders, for example, have
been found to be important governmental interests which may justify, in some cases, certain
limitations or burdens on First Amendment activities.122 Even while such interests have been
found to be significant, however, the Court has struck down restrictions on advocacy and political
118 Id. at 542-543.
119 5 U.S.C. §§ 1501 et seq. Note Community Services Block Grant Program 42 U.S.C. § 9918(b)(1), and the Head
Start program, 42 U.S.C. § 9851(a).
120 Citizens United, slip op. at 24-25.
121 Citizens United, slip op. at 23-25.
122 Buckley, 424 U.S. 1 (1976); McConnell v. Federal Election Commission, 540 U.S. 93, 143 (2003): “Our cases have
made clear that the prevention of corruption or its appearance constitutes a sufficiently important interest to justify
political contribution limits.”
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activities which were not narrowly tailored to meet the objective of preventing such undue
influence or the appearance of corruption.123
In relation to the interest of preventing “corruption,” the Supreme Court has found that although
such governmental interest is compelling, that interest is not necessarily advanced by restricting
“independent expenditures” by private entities in political campaigns. In Buckley v. Valeo, the
Supreme Court found “that the governmental interest in preventing corruption and the appearance
of corruption [was] inadequate to justify [the ban] on independent expenditures.”124 Similarly, the
Court found in Citizens United that a prohibition on “independent expenditures” does not advance
in a sufficient manner the interest of preventing corruption: “[W]e now conclude that independent
expenditures, including those made by corporations, do not give rise to corruption or the
appearance of corruption.”125 For this reason, it would seem that legislation which would restrict
all private parties (or merely all corporations) receiving federal contracts or grants from engaging
in independent political expenditures with their own non-governmental resources, may not
necessarily advance the interest in the prevention of “corruption” of candidates or officeholders.
As noted by the Supreme Court in Citizens United, the absence of any pre-arrangement or
coordination with the candidate in the making of an “independent expenditure” by a private entity
mitigates against a corrupting influence or quid pro quo agreement, and thus does not necessarily
reach the concerns in so-called “pay to play” corruption schemes.126
A governmental interest in attempting to “balance” competing voices in public policy or
campaign debate, by limiting expression of one group over another, was found by the Supreme
Court not to be a compelling interest to justify suppression of speech. The Supreme Court thus
rejected the so-called “antidistortion” rationale that would attempt to limit the influence of
monied interests over less well-funded persons or groups in a political campaign.127
If the governmental purpose is not to prevent corruption of candidates or governmental processes,
then such interest may be to protect government funds and programs. In such case the interests
may be two-fold: one would be to prevent the use and diversion of federal government funds for
private political or public policy advocacy activities which are not authorized by Congress; and
the second would be to prevent the federal government “subsidizing” political advocacy activities
of private parties by providing such private parties with federal dollars for other purposes.
Clearly the federal government need not “pay for,” nor directly “subsidize,” the political
advocacy or lobbying of private entities.128 To that end, current federal provisions already
123 Buckley at 39-51 (independent expenditures); First National Bank of Boston v. Bellotti, 435 U.S. 765 (1978)
(corporate expenditures on ballot measures); Federal Election Commission v. Massachusetts Citizens for Life, Inc., 479
U.S. 238 (1986) (non-stock, non-business corporations and electioneering communications); Citizens United v. Federal
Election Commission, No. 08-205 (U.S. January 21, 2010) (corporate campaign “expenditures.”)
124 Buckley at 45, as quoted in Citizens United, slip op. at 40.
125 Citizens United, slip op. at 42.
126 Any campaign “expenditure” which is coordinated or pre-arranged with a candidate is not an “independent
expenditure” under federal law (11 C.F.R. § 100.16), but rather is to be treated as an in-kind “contribution” to a
candidate (11 C.F.R. Part 109.20(b)), prohibited for corporations and contractors. It should be noted that a state
Supreme Court recently overturned a state provision of law which had banned campaign contributions from all state
contractors which received sole-source contracts, as an unconstitutionally over broad intrusion into First Amendment
rights. Dallman v. Ritter, No. 09SA224 (Co. 2/ 22/2010).
127 Citizens United, slip op. at 35-40.
128 Regan v. Taxation With Representation, 461 U.S. at 544-546; Cammarano v. United States, 358 U.S. 498 (1959).
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expressly bar the use of contract or grant funds by private recipients for political or lobbying
purposes, or the paying for or “charging off” of expenses for political advocacy or lobbying to
any government contract or grant; and provide criminal penalties for the diversion of government
funds to non-authorized purposes. Such limitations are less restrictive means of providing
assurances concerning the proper use of government funds than a ban on all political speech by
private recipients with their own resources. If the interest of the government is merely to avoid a
direct subsidy for private political activities out of public monies, then a restriction in any
proposed legislation which barred all privately funded advocacy by grant or contract recipients
might arguably, in the first instance, be considered “over-inclusive” because it reaches activities,
speech, and conduct paid for completely with private, non-federal monies, as well as privately
funded activities wholly outside of the realm of the federal program. As such, the restriction may
arguably be found, with respect to otherwise protected First Amendment speech and conduct, to
be unnecessarily over-broad and burdensome on such First Amendment rights.129
A further interest of the government forwarded by legislation might also arguably be to prevent
an “indirect” subsidy for groups which engage in political advocacy by providing such groups
with federal funds for other non-advocacy activities, goods, or services which the government
desires. The argument in such case would be that money is “fungible,” and thus grants and
contracts for proper public purposes to private groups “frees up” other non-federal money which
the private contractor or grantee may then use for any purposes, including campaign or public
policy advocacy activities. The Supreme Court, however, in another context, has found that a
grant for one purpose is not a subsidy of the other, non-federally funded activities, and expressly
rejected the “fungibility” of funds argument as a justification to prohibit federal funding of an
organization engaging in First Amendment activities.130
Other Government Interests or Narrower Tailoring Sufficient to
Justify Restrictions Involving Government Contractors131
While conditioning the political speech of all government contractors upon their forgoing their
rights to political speech seems likely to raise significant First Amendment issues, as discussed in
prior sections, it is possible that the government could assert hitherto unrecognized interests in
such conditions, especially if any restrictions targeted specific categories of contractors.
Alleged government interests in preventing contractors from using the “wealth” generated by
their dealings with the government to influence the political process,132 or in avoiding the
appearance of corruption created when “contractors endorse their friends in power,”133 may be
insufficient to support conditions affecting all government contractors in the aftermath of Citizens
129 See, e.g., FCC v. League of Women Voters, 468 U.S. at 399-401.
130 In Committee for Public Education and Religious Liberty v. Regan, 444 U.S. 646, 658 (1980), the Court specifically
found that providing grant funds to a religious organization for one (secular) purpose, does not constitute a federal
“subsidy” of the other, private, non-federally funded religious activities of the organization under the “fungibility”
argument. See also Hunt v. McNair, 413 U.S. 734,743 (1973).
131 This portion of the report discussing other government interests or narrower tailoring was written by Kate M.
Manuel.
132 See, e.g., Bruce Ackerman & Ian Ayres, Despite Court Ruling, Congress Can Still Limit Campaign Finance, Wash.
Post, pg. A15 (noting that “almost three-quarters of the largest 100 publicly traded firms are federal contractors”).
133 Id.
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United. The majority in Citizens United found such interests were insufficient to justify a ban on
campaign expenditures and electioneering by all corporations,134 a conclusion which it reached
after considering the various “types” of corporations affected by such prohibitions.135
Commentators have alleged other interests that the government could potentially assert in
targeting government contracts, such as safeguarding the integrity of the procurement process136
and protecting contractors from being required to “pay for play.”137 However, no court appears to
have recognized these interests as compelling governmental interests justifying restrictions on
First Amendment rights, and courts may find that such interests are insufficient to justify across-
the-board restrictions given the wide variety of “types” of government contractors and means by
which they into enter contracts with the government.138
Such alleged interests might more plausibly be asserted with narrower restrictions targeting
specific types of contractors. For example, the appearance of quid pro quo corruption of the sort
that the majority in Citizens United recognized as sufficient to uphold limitations on campaign
contributions is arguably stronger with contracts that are “earmarked” for certain entities as part
of the congressional appropriations process than with other contracts.139 Contractors performing
“functions approaching inherently governmental,” “critical functions,” or “mission essential
functions,” could perhaps be similarly targeted on an analogy to the Hatch Act, which bars federal
employees from express endorsements,140 although any such legislation could raise constitutional
concerns about vagueness141 given recent disputes over whether particular functions qualify as
such.142 “Personal service contracts,” or contracts that, by their express terms or as administered,
make contractor personnel appear to be government employees, could perhaps also be targeted
based on this analogy.143
134 Citizens United, slip op., at 32-45.
135 Id. at 38.
136 Testimony of Donald J. Simon, Partner, Sonosky, Chambers, Sachse, Endreson & Perry, LLP, Before the House
Judiciary Committee, Subcommittee on the Constitution, Civil Rights, and Civil Liberties, Feb. 3, 2010, available at
http://judiciary.house.gov/hearings/pdf/Simon100203.pdf.
137 Testimony of Laurence H. Tribe, Carl M. Loeb University Professor and Professor of Constitutional Law, Harvard
University Law School, Before the House Committee on the Judiciary, Subcommittee on the Constitution, Civil Rights
and Civil Liberties, Feb. 3, 2010, available at http://judiciary.house.gov/hearings/pdf/Tribe100203.pdf.
138 While Ackerman and Ayres, supra note 132, point out that “almost three-quarters of the largest 100 publicly traded
firms are federal contractors,” such companies are arguably not representative of all government contractors. See, e.g.,
U.S. Small Bus. Admin., FY2008 Government-wide Scorecard, available at http://www.sba.gov/idc/groups/public/
documents/sba_homepage/goals_08_gov_wide.pdf (noting that small businesses receive over 20% of federal contract
and subcontract dollars); Grant Thornton, 15th Annual Government Contractor Industry Highlights Book 4, 6 (2010)
(reporting that 81% of responding contractors were privately held and that 71% had profit rates below 10%). Moreover,
their contracts result from the government’s exercise of various source selection methods, ranging from the Federal
Supply Schedules, which are catalog-like listings of goods and services whose prices are set based upon the price that
the contractor gives its best private-sector customer, to negotiated procurements, which can involve protracted
discussions between the government and contractor. See 48 C.F.R. Parts 13-18.
139 This presumes that earmarked contracts are not competitively awarded. The 111th Congress has, however, subjected
earmarks for for-profit entities to competition requirements. See, e.g., Department of Defense Appropriations Act,
2010, P.L. 111-118, § 8211,—Stat.—(Dec. 19, 2009).
140 Cf. Ackerman & Ayres, supra note 145.
141 See, e.g., Connally v. Gen. Constr. Co., 269 U.S. 385, 391 (1926) (noting that when laws are vague people “of
common intelligence must necessarily guess at [the law’s] meaning and differ as to its application.”).
142 See generally CRS Report R40641, Inherently Governmental Functions and Department of Defense Operations:
Background, Issues, and Options for Congress, by John R. Luckey, Valerie Bailey Grasso, and Kate M. Manuel.
143 48 C.F.R. § 2.101. Government agencies may not award personal services contracts unless specifically authorized
(continued...)
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Government contractors that are foreign governments, corporations, or individuals are prohibited
from making campaign contributions or expenditures under a separate statute whose
constitutionality has apparently never been challenged.144
Taxation of Corporate Campaign-Related
Expenditures145
Some have proposed that Congress enact an excise tax on the corporate campaign-related
expenditures permitted under Citizens United. As discussed below, there are several existing taxes
that apply to tax-exempt organizations, including those that are incorporated. For purposes of this
discussion, it is assumed that any proposed tax would apply to both for-profit and non-profit
corporations, and, in the case of incorporated tax-exempt organizations, be in addition to the
existing taxes. It is also assumed that the expenditures would be non-deductible under IRC §
162(e) as a trade or business expense.146
Congress has broad powers to tax under the Constitution.147 In general, tax distinctions and
classifications are constitutionally permissible so long as “they bear a rational relation to a
legitimate governmental purpose.”148 The rational basis standard is a low level of review by a
court. In the tax context in particular, courts typically show great deference in recognition of “the
large area of discretion which is needed by a legislature in formulating sound tax policies.”149 At
the same time, not all exercises of Congress’s taxing power receive such deference. Sometimes,
tax provisions are subject to higher levels of scrutiny. For example, tax provisions based on the
content of speech are, like non-tax provisions, subject to strict scrutiny.150 A provision subject to
this highest level of scrutiny must be necessary to serve a compelling government interest and be
narrowly drawn to achieve that end.151 This is a heavy burden for the government to meet.
The decision by Congress to impose a tax on certain corporate expenditures would typically
appear to be within its broad taxing powers and subject to minimal review by a court.152 It could,
(...continued)
by statute to do so. See 48 C.F.R. § 37.104(b).
144 2 U.S.C. § 441e.
145 This portion of the report discussing a corporate independent expenditure tax was written by Erika K. Lunder.
146 Under IRC § 162(e), taxpayers are generally not allowed to deduct campaign and lobbying expenditures as a trade
or business expense. Additionally, § 162(e) denies a deduction for the portion of dues paid to a tax-exempt organization
that is used for these purposes. The provision only applies if the organization notifies the taxpayer of the portion that is
non-deductible. If an organization fails or chooses not to notify the taxpayer of the disallowed amount, then the
organization is subject to a proxy tax on that amount under IRC § 6033.
147 U.S. CONST. art. I, § 8, cl. 1 (“The Congress shall have Power to lay and collect Taxes, Duties, Imposts and Excises
….”).
148 Regan v. Taxation with Representation of Washington, 461 U.S. 540, 547 (1983).
149 Id. at 547 (internal quotations omitted).
150 See Arkansas Writers’ Project, Inc. v. Ragland, 481 U.S. 221 (1987) (striking down a state sales tax that taxed
general interest magazines, but exempted newspapers and religious, professional, trade, and sports magazines).
151 See id. at 231.
152 Cf. Comm’r v. Tellier, 383 U.S. 687, 693 (1966) (quoting Comm’r v. Sullivan, 356 U.S. 27, 28 (1958)) (“Deduction
of expenses falling within the general definition of §162(a) may, to be sure, be disallowed by specific legislation, since
deductions are a matter of grace and Congress can, of course, disallow them as it chooses …”).
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nonetheless, be argued that a more rigorous analysis should apply when, as here, the tax is related
to the exercise of a constitutional right. Any analysis of whether Congress could enact an excise
tax on corporate political expenditures is severely limited by the fact that it does not appear there
is case law analyzing the constitutionality of a similar tax. Even so, it appears an excise tax could
potentially raise significant constitutional concerns since, depending on the particulars of a
specific proposal, it could be characterized as a penalty on protected speech.153
The Supreme Court has upheld provisions that provide disfavorable tax treatment to a taxpayer’s
campaign activities under the rationale that there is no requirement for the federal government to
subsidize the constitutional rights of taxpayers. In Cammarano v. United States,154 the Court
upheld the validity of a tax regulation that disallowed a business deduction for lobbying
expenditures. The taxpayers had been denied a deduction for amounts paid to a professional
organization to lobby against a state initiative that would have had dire consequences for their
business. They argued the disallowance violated the First Amendment, relying on a previous case,
Speiser v. Randall.155 In Speiser, the Court had struck down a state property tax exemption that
required taxpayers take a loyalty oath on the grounds that the state’s tax administration
procedures did not afford adequate due process. In striking down the provision that was clearly
“aimed at the suppression of dangerous ideas,” the Court emphasized its chilling effect on the
proscribed speech and equated it to a fine for engaging in that type of speech.156
In Cammarano, the Court rejected the claim that Speiser was controlling, reasoning that the
nondiscriminatory disallowance of a deduction for lobbying expenditures was different because,
unlike the provision in Speiser, it was not intended to suppress dangerous ideas.157 Instead, the
Court explained, the taxpayers “are not being denied a tax deduction because they engage in
constitutionally protected activities, but are simply being required to pay for those activities
entirely out of their own pockets, as everyone else engaging in similar activities is required to do
under” the tax laws.158 The Court further explained that the disallowance “express[ed] a
determination by Congress that since purchased publicity can influence the fate of legislation
which will affect, directly or indirectly, all in the community, everyone in the community should
stand on the same footing as regards its purchase so far as the Treasury of the United States is
concerned.”159
In a subsequent case, Regan v. Taxation With Representation of Washington,160 the Court
addressed a similar issue in upholding the federal law that limits the lobbying of § 501(c)(3)
organizations to “no substantial part” of their activities. The Court rejected the argument that the
153 See, e.g., Grosjean v. American Press Co., 297 U.S. 233, 250-51 (1936) (striking down a state tax that applied only
to large newspapers, because “in the light of its history and of its present setting, it is seen to be a deliberate and
calculated device in the guise of a tax to limit the circulation of information to which the public is entitled in virtue of
the constitutional guaranties” and has “the plain purpose of penalizing the publishers and curtailing the circulation of a
selected group of newspapers”).
154 358 U.S. 498 (1959).
155 357 U.S. 513 (1958).
156 Id. at 519 (internal quotations omitted).
157 See id. at 513.
158 Id.
159 Id.
160 461 U.S. 540 (1983).
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limitation infringed on the organization’s First Amendment rights.161 Rather, the Court, noting it
had held in Cammarano that the First Amendment does not require the federal government to
subsidize lobbying, explained that “Congress has merely refused to pay for the lobbying out of
public moneys” and stated that it “again reject[s] the notion that First Amendment rights are
somehow not fully realized unless they are subsidized by the State.”162
An excise tax on corporate campaign expenditures would not, in general, appear to be supported
by the non-subsidization rationale discussed in Cammarano. Instead, depending on the specifics
of the proposal, a court might find the tax to be a restriction on speech, perhaps comparably
onerous to the prohibition struck down in Citizens United, which would then place a heavy
burden on the government to justify the provision.163 It is not possible to say how a court would
analyze a proposal; however, characteristics that might affect the analysis could include the rate
of tax (e.g., a high rate might look more like a restriction or de facto prohibition); the scope of
taxpayers subject to the tax (e.g., a court might look less favorably at a tax limited to certain
taxpayers); the scope of activities subject to tax (e.g., a generally applicable tax might be less
scrutinized than one that applies only to campaign expenditures);164 and the purpose of the tax
(e.g., a court might look differently at a tax enacted as part of a campaign finance regulatory
regime than one with other regulatory or traditional revenue raising purposes).
Proponents of an excise tax on corporate campaign expenditures might point to the existence of
several taxes that apply to tax-exempt organizations making political expenditures for support of
the idea that Congress could enact such a tax, for example:
• IRC § 527(f) imposes a tax on § 501(c) organizations that make expenditures for
influencing elections or similar activities. The tax is imposed at the highest
corporate rate on the lesser of the expenditures or the organization’s net
investment income.
• IRC § 4955 imposes a tax on § 501(c)(3) organizations making campaign
expenditures. These organizations are prohibited under the tax laws from making
these types of expenditures. The tax equals 10% of the expenditures, with an
additional 100% tax imposed if the expenditures are not corrected in a timely
manner.
• IRC § 4945 imposes a similar tax on the political expenditures of private
foundations, although it covers a broader range of activities, some of which fall
outside the § 501(c)(3) campaign intervention prohibition. Private foundations
are § 501(c)(3) organizations that receive contributions from limited sources. Due
to fear of abuse, they are subject to stricter regulation than other § 501(c)(3)
organizations.
161 See id. at 546. The Court noted the organization had the option to set up a separate § 501(c)(4) organization that
could engage in the lobbying activities.
162 Id. at 545-46 (internal citations omitted).
163 See Minneapolis Star & Tribune Co. v. Minn. Comm’r of Revenue, 460 U.S. 575, 582 (1983) (“A tax that burdens
rights protected by the First Amendment cannot stand unless the burden is necessary to achieve an overriding
governmental interest.”).
164 The decision by Congress to not exclude campaign expenditures from a generally applicable tax might be supported
by the non-subsidization rationale expressed in Cammarano.
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• IRC § 6033 imposes a proxy tax on tax-exempt organizations that fail or choose
not to notify their members of the non-deductible portion of dues used for
political purposes.
• IRC §§ 4911 and 4912 impose a tax on § 501(c)(3) organizations that have
lobbying expenditures exceeding certain limits.
It could be argued that the § 527(f) tax and § 6033 proxy tax are similar to a corporate campaign
expenditure tax in that all three would tax the political expenditures of entities which are
otherwise permitted to engage in the activities. The other taxes might be characterized as penalty
taxes, and thus could support an argument that an excise tax would be permissible even if it had
some penalizing features. However, as discussed below, there are characteristics of the existing
taxes that might undermine an attempt to draw support from them for an excise tax on corporate
campaign expenditures.
It could be argued that the § 527(f) tax and § 6033 proxy tax could be upheld, in at least some
contexts, under the non-subsidization rationale expressed in Cammarano. While they may look
like taxes imposed on entities engaging in protected speech, it might be more appropriate in
certain situations to characterize them as the mechanism to avoid federal subsidization of political
activities.165 This is because the effect of both is that the organizations are not exempt from
federal income tax on otherwise exempt income to the extent funds are used for certain political
activities. Thus, the two taxes are arguably the functional equivalents of a disallowed deduction
under § 162(e), although this comparison might not support the taxes in all circumstances. Such
an argument would not appear to apply to the proposal to tax corporate campaign expenditures.
The taxes imposed under §§ 4955, 4945, 4911, and 4912 could be characterized as penalty taxes
on § 501(c)(3) organizations for engaging in campaign and lobbying speech, thus suggesting that
the subsidization rationale cannot fully justify their imposition. The taxes imposed under §§ 4955,
4911, and 4912 are imposed on activities that § 501(c)(3) organizations are restricted under the
tax laws from engaging in. Assuming these limitations are constitutional, the taxes may be an
appropriate mechanism for enforcing them. If the limitations were found to be unconstitutional,
then that might call into question the constitutionality of the taxes as well. The § 4945 tax is
different in that it also applies to certain expenditures that are otherwise permitted under the tax
laws. Thus, to the extent the § 4945 tax is imposed on such activities, it might be characterized as
penalizing behavior that is otherwise lawful, and therefore might be compared to a proposal to tax
corporate campaign expenditures. However, the two circumstances might be distinguished.
Private foundations are heavily regulated due to fear of abuse, and thus the § 4945 tax could be
seen as a part of an overall regulatory scheme, separate from campaign finance. Whether a
comparable rationale would exist for a proposal to tax corporate campaign expenditures would
appear to depend on the specific proposal and its context.
Finally, one could point to the fact that the existing taxes apply to tax-exempt organizations, thus
perhaps permitting the argument that any burden on their speech could be avoided by
165 See, e.g., American Soc’y of Ass’n Execs. v. Bentsen, 848 F. Supp. 245, 249 (D. D.C. 1994) (upholding the § 6033
proxy tax regime, explaining that “[u]pon close examination of this case it becomes obvious that this is less an instance
of penalizing the exercise of a fundamental right than a case of Congress deciding not to subsidize the exercise of that
right. The United States is not obligated to subsidize any person’s lobbying.”).
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restructuring their activities.166 It seems difficult to fully extend a similar rationale to a tax on
corporate campaign expenditures.
Public Financing For Congressional Campaigns167
Proposals to enact public financing for congressional candidate campaigns have been introduced
in the 111th Congress.168 Public financing programs are generally voluntary and traditionally offer
grants or matching funds in exchange for candidates agreeing to limit spending. It appears that
legislation establishing such public financing programs, requiring compliance with spending
limits, would pass constitutional muster on the condition that they are voluntary.
In the 1976 landmark case of Buckley v. Valeo,169 the Supreme Court held that spending
limitations violate the First Amendment because they impose direct, substantial restraints on the
quantity of political speech. The Court found that expenditure limitations fail to serve any
substantial government interest in stemming the reality of corruption or the appearance thereof,
and that they heavily burden political expression.170 Reaffirming Buckley, in Citizens United v.
FEC, the Court reiterated this determination finding that truly independent expenditures, with no
prearrangement and coordination with a candidate, not only lessen the value of the expenditure to
the candidate, but also mitigate any danger that expenditures will be made as a quid pro quo for
improper commitments from the candidate.171 As a result, spending limits may only be imposed if
they are voluntary.
In Buckley, the Supreme Court upheld the constitutionality of the voluntary public financing
program for presidential elections.172 The Court concluded that presidential public financing was
within the constitutional powers of Congress to reform the electoral process, and that public
financing provisions did not violate any First Amendment rights by abridging, restricting, or
censoring speech, expression, and association, but rather encouraged public discussion and
participation in the electoral process. According to the Court:
Congress may engage in public financing of election campaigns and may condition
acceptance of public funds on an agreement by the candidate to abide by specified
expenditure limitations. Just as a candidate may voluntarily limit the size of the contributions
he chooses to accept, he may decide to forgo private fundraising and accept public
funding.173
166 See, e.g., American Soc’y of Ass’n Execs. v. United States, 195 F.3d 47, 50 (D.C. Cir. 1999) (upholding the § 6033
proxy tax regime, finding that “[a] § 501(c)(6) association can avoid any alleged burden on its First Amendment rights
by splitting itself into two § 501(c)(6) organizations—one that engages exclusively in lobbying on behalf of its
members and one that completely refrains from lobbying.”).
167 This portion of the report discussing public financing was written by L. Paige Whitaker.
168 For further discussion of public financing, see CRS Report RL33814, Public Financing of Congressional
Campaigns: Overview and Analysis, by R. Sam Garrett.
169 424 U.S. 1 (1976).
170 Id. at 55.
171 Citizens United, slip op. at 41 (quoting Buckley at 47).
172 For further discussion of presidential public financing, see CRS Report RL34534, Public Financing of Presidential
Campaigns: Overview and Analysis, by R. Sam Garrett.
173 Buckley, 424 U.S. at 57 n. 55.
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Although public financing proposals contain an incentive for compliance with spending limits—
the receipt of public monies or other benefits—it does not appear that such incentives jeopardize
the voluntary nature of the spending limitation. That is, a candidate could legally choose not to
comply with the spending limits by opting not to accept the public benefits. Therefore, it appears
that a proposal establishing a voluntary public finance program for congressional candidates,
requiring compliance with spending limits, would likely be upheld as constitutional.
Constitutional Amendment174
In Citizens United v. FEC, the Supreme Court invalidated two provisions of the Federal Election
Campaign Act (FECA), codified at 2 U.S.C. § 441b, finding that they were unconstitutional under
the First Amendment. It struck down the long-standing prohibition on corporations using their
general treasury funds to make independent expenditures,175 and Section 203 of the Bipartisan
Campaign Reform Act of 2002 (BCRA), which amended FECA, prohibiting corporations from
using their general treasury funds for “electioneering communications.”176 BCRA defines
“electioneering communication” as any broadcast, cable, or satellite communication that refers to
a clearly identified federal candidate made within 60 days of a general election or 30 days of a
primary.177 The Court determined that these prohibitions constitute a “ban on speech” in violation
of the First Amendment.178
As a result of the Court’s decision being one of constitutional interpretation—not statutory
interpretation—amending the Constitution is an option for overturning the ruling directly. In
order to restore FECA provisions that were in effect prior to the Court’s ruling, it appears that a
proposal to amend the Constitution would need to allow, at a minimum, enactment of legislation
that prohibits corporations and labor unions from using their general treasury funds to make
expenditures for communications that expressly advocate election or defeat of a clearly identified
federal candidate and for electioneering communications.
In the 111th Congress, proposals have been introduced that would amend the Constitution. In
accordance with Article V of the Constitution, such joint resolutions would require approval by
two-thirds of each House, would become effective upon ratification by the legislatures of three-
fourths of the states, and specify that approval is required within seven years from the date of
submission.179
174 This portion of the report discussing a constitutional amendment was written by L. Paige Whitaker.
175 Citizens United, slip op. at 20-51.
176 See id.
177 2 U.S.C. § 434(f)(3).
178 Citizens United, slip op. at 22.
179 U.S. CONST. art. V (“The Congress, whenever two thirds of both Houses shall deem it necessary, shall propose
Amendments to this Constitution, or, on the Application of the Legislatures of two thirds of the several States, shall call
a Convention for proposing Amendments, which, in either Case, shall be valid to all Intents and Purposes, as Part of
this Constitution, when ratified by the Legislatures of three fourths of the several States, or by Conventions in three
fourths thereof, as the one or the other Mode of Ratification may be proposed by the Congress…”) It has been accepted
that Congress may, in proposing an amendment, set a reasonable time limit for its ratification. Beginning with the
Eighteenth Amendment, save for the Nineteenth, Congress has included language in all proposals stating that the
amendment should be inoperative unless ratified within seven years. Specifically, seven-year periods were included in
the texts of the proposals of the 18th, 20th, 21st, and 22nd Amendments. In proposing the 23rd Amendment, it appears that
Congress concluded that including a time limit in the text merely cluttered up the amendment, and therefore in it, and in
(continued...)
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Proposals to amend the Constitution vary. Some would provide Congress with the expansive
power to regulate the raising and spending of money in federal elections, including setting limits
on expenditures made in support of or opposition to federal candidates.180 Such an amendment to
the Constitution would not only appear to allow Congress to enact legislation restricting corporate
and labor union expenditures, but also limiting independent expenditures by candidates, political
parties, political action committees (PACs), and individuals. In contrast, other proposals take a
more direct approach and would expressly prohibit corporations and labor unions from using
general treasury funds for advertisements in connection with a federal office campaign, regardless
of whether the advertisement expressly advocates the election or defeat of a clearly identified
federal candidate.181 In addition, as Citizens United appears to invalidate state laws that restrict
corporate expenditures—in addition to the federal statute—some proposals to amend the
Constitution would also provide states with the power to enact laws regulating corporate
expenditures in connection with state elections.182
Author Contact Information
L. Paige Whitaker
Jack Maskell
Legislative Attorney
Legislative Attorney
lwhitaker@crs.loc.gov, 7-5477
jmaskell@crs.loc.gov, 7-6972
Erika K. Lunder
Michael V. Seitzinger
Legislative Attorney
Legislative Attorney
elunder@crs.loc.gov, 7-4538
mseitzinger@crs.loc.gov, 7-7895
Kate M. Manuel
Legislative Attorney
kmanuel@crs.loc.gov, 7-4477
(...continued)
subsequent amendments, included the time limits in the authorizing resolution. Following the extension debate
regarding the Equal Rights proposal, Congress once again inserted into the text of the amendment the time limit with
respect to the proposal of voting representation in Congress for the District of Columbia. See Congressional Research
Service, THE CONSTITUTION OF THE UNITED STATES OF AMERICA ANALYSIS AND INTERPRETATION 943 n. 26
[http://www.crs.gov/conan/default.aspx?mode=topic&doc=Article05.xml&t=1|2|3]
180 See, e.g., S.J.Res. 28 (111th Cong.).
181 See, e.g., H.J.Res. 68 (111th Cong.).
182 See, e.g,, H.J.Res. 13 (111th Cong.); H.J.Res. 74 (111th Cong.).
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