Lobbying and its Effects

Posted on December 11, 2012

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© Josh Sager – May 2012

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In a post-Citizen’s United V. FEC political landscape, lobbying has become a multi-billion dollar industry. The floodgates were opened by the Supreme Court – which decided that money was speech, thus made political donations constitutionally protected – and we are now seeing more money in politics than at any other time in recent history. With the gigantic amounts of money being spent by corporations on lobbying, those who study politics are faced with answering three questions, the answers of which are vital for understanding the new political landscape:

  1. What are the policy results of lobbying?
  2. How do the results of lobbying affect the rest of society?
  3. Should citizens work towards getting money out of politics?

Only by understanding the results of lobbying, both on the politicians as well as the rest of society, do we understand why many Americans have begun pushing to separate money in politics. This is an uphill fight, against an adversary with virtually unlimited resources, and will likely take years to complete, if ever.

What are the Policy Results of Lobbying?

As a corporation’s only goal is to make a profit, and close to $3.32 billion (according to OpenSecrets.org) was spent by corporations to lobby the government in 2011 alone, the only logical conclusion is that corporations receive billions in benefits from their lobbying campaigns. The type of benefits of lobbying vary based upon the corporation doing the lobbying, but a majority of these benefits come in the form of reductions in taxes or regulations, government contracts, and sometimes favorable consideration under the law.

While the base corporate tax rate in the USA is relatively high (35%), most corporations pay only a small percent of this rate due to loopholes and subsidies. These loopholes and subsidies are protected (or even increased) by politicians who receive money from corporate lobbyists; the more lobbying a company does, the more likely it is to receive tax breaks and loopholes.

According to a 2010 study by the Daylight Foundation, which used tax data to correlate increases in lobbying with decreases in real taxes paid for corporations, many of the top corporations in the USA have utilized millions in lobbying to save billions in taxes. As calculated in this study, between 2007 and 2009, the top 8 lobbying spenders (Exxon Mobil, Verizon, GE, At&T, Altria, Amgen, Northrop Grumman, and Boeing) spent approximately $540 million in lobbying; by 2010, these companies had seen a reduction in taxes of approximately $11 billion. The potential return on investment demonstrated here is over 2000% – this is higher rate of return than most any investment other than a winning lottery ticket.

Regulatory laws and agencies are under the control of politician, many of whom take money from lobbyists. In a manner virtually identical to tax rates, regulations decrease as corporate lobbying goes up. Corporate interests which cause pollution or pose a risk to public safety can reduce regulations, thus decreasing their costs, by lobbying politicians who control their regulations.

Tobacco and extraction (oil, coal and gas) companies are the largest beneficiaries from reduced regulations, mostly due to the fact that their products are toxic to consumers and bystanders. Over the years, regulations have been slowed or suppressed totally by lobbying from these industries, increasing these industries’ profits by billions; a perfect recent example of this phenomenon is that of hydraulic fracturing (“fracking”). Due to regulatory loopholes, put in place by politicians – who received thousands from extraction lobbyists – fracking companies don’t even need to disclose what chemicals they are pumping into the ground. Despite evidence that these chemicals are toxic to humans and animals, can pollute groundwater or even render it highly flammable, and sometimes cause earthquakes, this loophole persists; there is no possible rationale for this continued lack of disclosure other than the effects of corporate lobbying swaying politicians (exploding water, higher cancer rates, and random earthquakes should sway even the most recalcitrant politician to action, barring the interference of money).

While Americans would like to believe that the law is applied equally, regardless of race, gender, or money, this is not always the case. Corporate lobbying is sometimes directed at preventing legal action against a company for illegal acts. The largest, and most consequential, example of a corporation mitigating legal consequences with money is that of the Wall Street banks. In 2008, the US economy crashed, largely due to the systemic fraud perpetrated by the top 5 banks. Despite clear proof of their crimes, banks received bailouts to save themselves, avoided any new regulations, and have yet to encounter any prosecution for fraud. These banks came within a hairbreadth of destroying the world economy and caused trillions in damage, yet there has been no accountability for those responsible. There can be only one of two explanations for this lack of legal accountability: Either bankers and banks managed to evade responsibility through targeted “donations” and lobbying to key legislators, or these same officials are merely so incompetent and spineless that they are unwilling to take on the banks.

While the previously mentioned benefits are the most common goals of lobbying, there are many other ways that corporations benefit from their lobbying. Government contracts are often given out to corporations which have spent significant amount of money in lobbying (Ex. Boeing). Lobbying can obtain corporations increased access to information and allow for them to take advantage of opportunities which those without access would miss (Ex. JP Morgan execs being briefed about the impending bailouts). The limits on what lobbying can get a corporation are only limited by willingness to sell out of the politician in question and the money spent by the corporation. As lobbying has an exceptional investment return rate and some politicians have been known to support virtually anything for the right amount of money, it is likely that lobbying will continue for as long as it is legal for huge amounts of money to interfere with politics.

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How do the Results of Lobbying Impact the Rest of Society?

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Virtually nothing in society or politics happens in a vacuum – policies which regulate or tax one group have a ripple effect which impacts the lives of many other member of society. Since lobbying has such a pronounced effect on policy aimed towards the welfare of those with lobbyists, it stands to reason that there will also be a significant impact on the rest of society.

Lobbying affects those who lack the resources to lobby, as well as those who voluntarily abstain from lobbying in several negative ways: As tax revenue from those who lobby decreases, services are cut, taxes are increased on everybody else, or the national deficit increases; regulations which could benefit society are not passed, causing people to needlessly suffer from avoidable injuries such as toxic chemical exposure; our government eventually moves away from a system which respects the will of the people, and becomes a society where only the rich have a say in the public policy which is created.

Tax revenue is required by any government to sustain its operations. When tax revenue is lowered on a single segment of society, there is a ripple-effect on policy which affects the rest of society. When tax cuts are given to some in society, taxes can increase on other groups (imagine a pie where there are fewer slices, causing all slices to be larger if the pie is to remain the same size). In addition to tax increases on others, a reduction in overall spending and services by the government can be used to compensate for tax cuts obtained by those who lobby (imagine a pie where slices have been removed, thus reducing its volume). If, in the face of lobbied tax cuts, the government wants to sustain its spending, while not increasing taxes or the government, it can take out a debt (deficit) in order to operate. A deficit can be used to fund the government in the short term, but sustained and growing deficits are a serious risk to the integrity of a government (Ex. Greece).

As corporations and the wealthy in the USA have used lobbying in order to lower their taxes, national and state tax revenues have been gradually depleted. The US government has compensated for decreased revenues from those who lobby politicians with a combination of austerity aimed at the middle class and poor, combined with massive deficit spending. Throughout the national and state governments, public institutions have been receiving decreased funding (Ex. cutting the budgets of schools and police departments), particularly if their services are geared towards those who have no lobbying presence; this makes sense, as those with lobbyists wouldn’t let their services be cut when there are ways to offset the costs onto others. Cuts have simply not been deep enough yet to fill the gaping hole in our tax revenue, so the government has been required to drastically increase the national debt. The unwillingness of some politicians to tax those who supply them with lobbying money and campaign donations is slowly strangling the government, and rendering our taxing/spending policies unsustainable in the long run.