This article was originally published in ChicagoBoothReview
The hundreds of millions of dollars that US corporations give through political action committees have long raised red flags about special interests buying influence over elected officials. But research suggests that companies hand out even more money through charitable foundations to curry favor with lawmakers.
Companies spend almost three times the amount on politically motivated charitable giving than they spend trying to influence politicians through PACs, according to Chicago Booth’s Marianne Bertrand, University of British Columbia’s Matilde Bombardini and Francesco Trebbi, and Boston University’s Raymond Fisman—and the amount is almost half as large as their federal lobbying spending. “Our analysis sugggests that firms deploy their charitable foundations as a form of tax-exempt influence seeking,” they write.
Companies have historically set up PACs to raise money to direct at campaigns and politicians. They’ve been around since 1944, when the Congress of Industrial Organizers formed one to help reelect President Franklin D. Roosevelt.
But companies also have charitable foundations, through which they fund philanthropic efforts. These efforts can help the for-profit side by burnishing the company’s reputation and showcasing its socially responsible activities. Moreover, companies get tax breaks for donating to foundations.
Laws exist to trace the influence of companies and other special interests in politics, but researchers attempting to track and measure this influence have grown concerned about dark money, shadow lobbying, and other covert forms of influence—which apparently includes corporate philanthropy.
When a congressional representative obtained a seat on a committee important to the company, corporate foundations gave more to charities in that congressional district.
To explore this channel, Bertrand, Bombardini, Fisman, and Trebbi analyzed tax returns of 320 foundations affiliated with Fortune 500 and S&P 500 companies from 1998 to 2015, covering the 105th to the 114th US Congresses. The researchers correlated the foundations’ charitable-giving patterns with congressional districts and committee assignments for members of Congress from the same period. They also used lobbying disclosure forms to identify issues important to companies.
The findings demonstrate that corporations increased giving to PACs that supported politicians who sat on congressional committees linked to the corporations’ interests. A power-generation company was likely to fund a PAC supporting a lawmaker who sat on an energy committee, for example.
And they suggest that corporate foundation giving bore striking similarities to PAC behavior.
When a congressional representative obtained a seat on a committee important to the company, corporate foundations gave more to charities in that congressional district. When a representative left Congress, there was a decline in charitable giving in that district. When a replacement representative gained seniority over time, corporate foundations were again more generous in that district.
The researchers, by considering turnover in committee membership and issues relevant to companies, rule out the possibility that companies were simply donating to like-minded representatives or had nonpolitical interests in mind. Rather, they write that the activity of charitable foundations mimics patterns in PAC spending.
The foundations also gave more to charities that had a politician on the board. A nonprofit was four times more likely to receive grants from a corporate foundation when a politician sat on its board, according to the data. And a foundation was more likely to give to a nonprofit with a politician on the board if that politician was on a relevant congressional committee.
Foundations appear to be spending a lot on influence. In 2014, there were $18 billion in total corporate charitable contributions, the researchers report. They estimate that 7 percent of that corporate charity, or $1.3 billion, was politically motivated. That amount is 280 percent higher than PAC contributions made that year, and represents 40 percent of the $3 billion in total companies spent on lobbying.
Because companies receive tax breaks for their charitable giving, taxpayers are essentially subsidizing the politics of special interests.
Politically minded foundation giving is, the researchers suggest, problematic. It can lead to less-than-optimal policies for voters, and because it’s opaque, voters can’t monitor or take into account information passing through back channels. Shareholders can’t monitor it either, to make sure the giving serves their interests. And it may lead politically connected charities to be funded rather than more-efficient ones.
Moreover, because companies receive tax breaks for their charitable giving, taxpayers are essentially subsidizing the politics of special interests. “Unlike lobbying or campaign contributions, charitable giving potentially represents a tax-advantaged and hard-to-trace form of influence,” write the researchers.
They note that while their data is from the United States, the phenomenon is global. They cite Israel’s Holyland affair, where a real-estate developer donated to a charity founded by former Jerusalem mayor Uri Lupolianski.
“Given the lack of formal electoral or regulatory disclosure requirements, charitable giving may be a form of political influence that goes mostly undetected by voters and shareholders, and which is directly subsidized by taxpayers,” write the researchers.
But the researchers sound a note of caution about crackdowns on money in politics: attempts to limit the influence of companies that are lobbying or giving through PACs could merely send the influence peddling to channels harder to see and document.