In Dred Scott v. Sandford, 60 U.S. 393 (1857), the Supreme Court declared that, whether of not someone was a "person" within the meaning of the Constitution was to be determined solely by reference to the Constitution, and Congress and the States had no say in the matter. Specifically, a person descended from a person imported as a slave could never be a "citizen" or a "person" within the meaning of the Constitution.
The decision is widely regarded as one of the worst in the history of the United States. It perpetuated slavery, it lead to the Civil War, and it was directly refuted by the 14th Amendment, one of only four (at most) Supreme Court opinions to have been reversed by constitutional amendments.
The recent Supreme Court decision in Citizens United v. Federal Election Commission, 558 U.S. ___, No. 08-205 (1/21/2010), goes to the opposite extreme, because it holds that anything that a state declares to be a "person" is a "person" for all purposes of the Constitution, and Congress has no say in the matter.
The Dred Scott decision eviscerated the federal government by declaring that whether a slave was a "person" was determined solely by constitutional law and Congress was powerless.
The Citizens United decision eviscerates the federal government by declaring that whether a corporate is a "person" is determined solely by state law and Congress is powerless.
Let's hope that fewer Americans die this time.
Sunday, January 24, 2010
Taxing Political Expenditures
The Supreme Court's recent decision in Citizens United v. Federal Election Commission severely restricts the ability of Congress to regulate, much less prohibit, the use of corporate money to influence elections, but what about Congress's power to tax that money?
As it is now, corporations cannot claim expenses of attempting to influence elections or legislation as business expense (see Internal Revenue Code section 162(e)). So corporate profits that are spent on electioneering are effectively subject to income tax at the corporate level. The shareholders bear the burden of the tax, but very indirectly.
But what if the expenses of electioneering were considered a form of a dividend?
This is not unprecedented, because there are lots of places in the Internal Revenue Code in which something that looks like one thing is recharacterized as something else. To take just one example, IRC section 7872 says that if a corporation makes an interest-free loan to a shareholder, the loan is recharacterized as an interest-bearing loan at a market rate of interest, with imputed interest payments by the shareholder to the corporation and imputed dividend payments in the same amounts by the corporation to the shareholder. There are also many rulings and court decisions in which officers or shareholders who have used corporate money to pay personal expenses are held to have received either compensation or dividends from the corporation.
So it would not be unreasonable for Congress to say that, if a corporation uses its money to advance the personal political beliefs of the officers or shareholders, that money should be considered to be payments to those officers or shareholders. For most publicly-traded corporations, dividends are not tax-deductible by the corporation, so income paid out as dividends is taxed twice, once at the corporate level and again at the shareholder level.
But the really nasty part is that Congress could offer corporations a choice: If the political expenses are approved by the shareholders, then the expenses could be considered a dividend to those shareholders, but if the political expenses are approved only by the board of directors, then the income falls on the directors alone.
Neither alternative is going to be very appealing to corporations. Getting shareholder approval for political spending could turn shareholder meetings into political battles, and stock prices could suffer if investors decide that they don't want to own a stock that pays a dividend of $10 while the investor has $12 of taxable income. But directors are certainly not going to want to pay personal income tax on what might be millions of dollars of income they never actually received.
Taxing directors or shareholders on the money spent on corporate electioneering might not solve the problem of corporate influence, but it might make it more difficult and more painful.
As it is now, corporations cannot claim expenses of attempting to influence elections or legislation as business expense (see Internal Revenue Code section 162(e)). So corporate profits that are spent on electioneering are effectively subject to income tax at the corporate level. The shareholders bear the burden of the tax, but very indirectly.
But what if the expenses of electioneering were considered a form of a dividend?
This is not unprecedented, because there are lots of places in the Internal Revenue Code in which something that looks like one thing is recharacterized as something else. To take just one example, IRC section 7872 says that if a corporation makes an interest-free loan to a shareholder, the loan is recharacterized as an interest-bearing loan at a market rate of interest, with imputed interest payments by the shareholder to the corporation and imputed dividend payments in the same amounts by the corporation to the shareholder. There are also many rulings and court decisions in which officers or shareholders who have used corporate money to pay personal expenses are held to have received either compensation or dividends from the corporation.
So it would not be unreasonable for Congress to say that, if a corporation uses its money to advance the personal political beliefs of the officers or shareholders, that money should be considered to be payments to those officers or shareholders. For most publicly-traded corporations, dividends are not tax-deductible by the corporation, so income paid out as dividends is taxed twice, once at the corporate level and again at the shareholder level.
But the really nasty part is that Congress could offer corporations a choice: If the political expenses are approved by the shareholders, then the expenses could be considered a dividend to those shareholders, but if the political expenses are approved only by the board of directors, then the income falls on the directors alone.
Neither alternative is going to be very appealing to corporations. Getting shareholder approval for political spending could turn shareholder meetings into political battles, and stock prices could suffer if investors decide that they don't want to own a stock that pays a dividend of $10 while the investor has $12 of taxable income. But directors are certainly not going to want to pay personal income tax on what might be millions of dollars of income they never actually received.
Taxing directors or shareholders on the money spent on corporate electioneering might not solve the problem of corporate influence, but it might make it more difficult and more painful.
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