Stanford GSB: Stanford Business February 2001

Stanford Business

February 2001, Volume 69, Number 2

Politics

PAC Contributions: Mistrust is Misplaced

In the 1998 election cycle, corporate PACs contributed only $78 million,
less than 10
percent of total contributions.

CAMPAIGN CONTRIBUTIONS from political action committees (PACs) are often painted in the press as the functional equivalent of bribes. The jaded voting public certainly seems to have a notion that corporate PAC donations, in particular, buy tax breaks and subsidies for special interests. Indeed, campaign finance reform was a strong theme in the 2000 presidential race.

But Graduate School of Business political economist Timothy Groseclose takes the unconventional view that the mistrust is misplaced. In research conducted with Jeffrey Milyo, an assistant professor of public policy at the University of Chicago, and Stanford political science doctoral candidate David Primo, Groseclose contends that there is a dearth of evidence to support the accepted wisdom that PAC money plays a nefarious role in American politics. "While reform advocates warn that the sky is falling, no one has asked, 'Is there really enough money being spent by PACs to influence congressional decisions?'" says Groseclose.

Groseclose and his colleagues argue that the familiar mantra of reform is a simplistic view that plays on public ignorance about PACs, especially corporate PACs. Total campaign contributions in the 1998 election cycle, including primary elections, totaled approximately $1.5 billion. Of that, $740 million came from individuals whose giving is limited by law. An estimated $560 million came from unlimited, "soft money" sources including political parties and so-called issue advocacy campaigns that typically pay for television advertisements that focus on an issue but indirectly support a candidate. Finally, $220 million came from "hard money" PAC contributions, which are restricted. Considering only PAC spending, which includes that of unions, companies, and various interest groups, corporate PACs contributed only $78 million, less than 10 percent of total contributions.

Yet, says Groseclose, a recent survey by the Center for Responsive Politics revealed that only 4 percent of its respondents were aware that corporations are prohibited from giving directly to candidates. In fact, only their PACs can contribute. These PACs can raise money only from individuals. None can come from company revenues. And individual giving directly or through PACs and political parties is strictly limited. Individuals may give only a maximum $1,000 to a candidate per election, $20,000 to a national party committee, and $5,000 to a PAC, up to a total $25,000 annual limit on contributions.

While Groseclose is skeptical that corporations really are buying influence, he acknowledges that soft money, not PAC money, would be the vehicle for doing so. In contrast to hard money, soft money donations are unrestricted and difficult to estimate. And while PAC spending remained level between 1992 and 1998, soft money spending more than doubled over the same period. It was expected to double again in the 2000 election.

The authors acknowledge previous research showing that highly regulated industries are more likely to form PACs, that PAC money flows disproportionately to incumbents and members of powerful committees, and that PAC contributions are certainly "interested money." But Groseclose, Milyo, and Primo argue that even the whole $1.5 billion in campaign spending is not enough to buy votes. "A billion dollars just isn't that much," says Groseclose, who has done previous research examining how much of a payoff it would take to dissuade an incumbent from seeking reelection (see Stanford Business, February 2000). The assumption is often that if an interest group like the National Rifle Association makes a contribution to a member of Congress, it will buy the representative's vote on a gun issue. Groseclose and his coauthors say that it is not so easy to make that leap. "The causality can be reversed," he says. For example, a member of Congress may represent a district populated by NRA-friendly hunters. The representative may indeed support NRA-backed legislation because he does not wish to alienate voters, not necessarily because the NRA made a contribution.

As a comparison, the researchers also examined lobbying expenditures and corporate philanthropy. At $2.6 billion, lobbying expenditures in the 1998 election cycle outstripped both PAC spending and soft money. They also found that corporations donated about $17 billion in charity during the 1998 election period—more than six times what they spent on lobbying and more than 200 times what corporate PACs spent on campaign contributions. The authors conclude that the attention given to PAC contributions is far in excess of their actual importance.

—BARBARA BUELL

Corporate PAC Campaign Contributions in Perspective, Jeffrey Milyo, David Primo, and Timothy Groseclose, Business and Politics, Vol. 2, No. 1, Spring 2000