This piece was prepared in collaboration with Ethan Phelps-Goodman.
In the last two decades, finance, insurance, and real estate have made many individuals quite rich, propelling them to stratospheric levels of wealth.
It’s also propelled these individuals into stratospheric levels of political giving. More than any other industry, individuals from the finance, insurance, and real estate (FIRE) sector, particularly those in securities and investments, are the key drivers of the overall growth of elite donors, or The Political One Percent of the One Percent.
An analysis of campaign contribution records by the Sunlight Foundation reveals that the number of donors in the FIRE sector giving at least $10,000 (in 2010 dollars) per cycle to political candidates, parties, and independent expenditure groups has increased from 1,091 in 1990 to 5,510 in 2010 (a 405% increase). These elite FIRE sector donors’ combined contributions have increased even more dramatically, growing by $162.8 million (a 700% increase, controlling for inflation) to $178.2 million in 2010.
As we detailed last month, individuals spending more than $10,000 on elections now contribute one quarter of all individual campaign contributions – even though they are less than one percent of one percent of the U.S. population. We dubbed these elite donors Political One Percent of the One Percent.
Nowhere, however, has the growth in elite spending been more dramatic than in the finance, insurance, and real estate sector.
In 1990, 1,091 elite donors in the FIRE sector contributed $15.4 million to campaigns – a substantial sum at the time. But that’s nothing compared to what they contribute today. In 2010, 5,510 elite donors from the sector contributed $178.2 million, more than 10 times the amount they contributed in 1990.
The outsized expansion of the finance sector as a source of major contributions makes some sense, given the increasing wealth of an already wealthy sector.
The financial sector is now 8.4% of the domestic economy, a percentage that has been steadily growing for decades, and is up from about 6% in 1990. But even faster than has been the growth in compensation in the industry. In 1990, industry employees took home $244 billion, according to the U.S. Commerce Department; Compensation in the industry is now almost double the average U.S. compensation, and at one point in the 2000s, the industry accounted for almost 40% of U.S. business profits.
Figures 1 and 2 below detail the changes in absolute dollar contributions since 1990, charting presidential and mid-term election years separately (since presidential years generally have twice the giving, the time trends are easier to see this way). What jumps out in the figures is how dramatically the FIRE sector is leaving everyone else behind. Figures 3 and 4 detail the growth in the number of donors from the FIRE sector as compared to other sectors. Again, we can see them pulling away.
As we can see, the finance sector was always a leading source of campaign funding. But over time, the gap between finance and other industries has grown into a chasm.
In 1990, the next most generous sector, lawyers and law firms, was home to 472 donors contributing $5.7 million (as compared to 1,091 elite donors from the finance sector contributing $15.4 million). By 2010, there were 2,211 elite lawyer donors contributing $59.6 million (as compared to 5,510 elite FIRE donors contributing $178 million)
Put another way, what began as an edge of 619 donors and $9.7 million for finance over law in 1990 grew into an edge of 3,299 donors and $118.4 million by 2010.
None of this is to minimize the increasing contributions by other leading sectors. Lawyers have likewise stepped up in impressive ways, also increasingly distancing themselves from the rest of the pack as key sources of big money. The Communications and Electronics sector has also shown impressive absolute growth in this area, driven largely by high-tech and Hollywood money. But the finance sector towers over everyone else.
Digging a little deeper into the financial sector reveals that the growth in finance is mostly in the securities and investment part of the sector, followed by real estate. In 1990, 412 of the 1,091 elite donors from the finance industry came from the securities and investment industry, followed by 328 from real estate; by 2010, it was 2,178 from securities and investments, followed by 1,468 from real estate. In 1990, elite donors from securities and investments contributed $6.1 million and elite donors from real estate contributed $4.6 million. In 2010 elite donors from securities and investments contributed $84.0 million, while real estate donors contributed $44.5 million.
Looking at the historical distribution of finance money, it has consistently been bipartisan, going to candidates and committees from both parties, though slightly favoring Republicans in most years. In 2010, the industry gave 54% of its candidate/party money to Republicans. In 2008, 51% of the money went to Democrats.
Party committees have been the biggest recipients of this money (53% of total contributions in 2010, 76% in 2008), then individual candidates (37% of total contribution in 2010, 21% in 2008) then independent expenditure groups (10% of total contributions in 2010, 3% in 2008).
Individuals can now give up to $5,000 per candidate ($2,500 in both the primary and the general), to $30,800 to a party committee, and unlimited money to independent expenditure groups such as SuperPACs. Though these big-ticket donors have historically given less to independent groups, there is plenty of room for them to grow their contributions. In 2010, FIRE donors gave a historical high of 10% of their contributions to these independent groups, indicating that they are starting to catch on to their potential.
Less than one percent of one percent of all Americans account for one quarter of all individual campaign donations. These elite donors all contribute at least $10,000 per election cycle, giving money to multiple candidates, party committees, and sometimes independent expenditure groups.
Within this select community of elite donors, individuals who work in the finance industry play a particularly special role. Of the $774 million in individual contributions given by this class of elite donors in 2010, $178 million (23%) came from elite donors in the finance, insurance and real estate sector. Perhaps more importantly, the ranks and total contributions from these donors have grown more dramatically and substantially than any other sector.
Though it’s very difficult to directly measure the influence that finance and other elite donors are having, it seems fair to say that, to the extent that candidates and parties are eager to court these donors, they will want to keep them relatively happy, since they know that without the support of these donors, raising the money needed to compete electorally is more difficult. At the very least, candidates and party leaders will be spending more time with these financial sector donors than anybody else, hearing them out sympathetically on regulation, taxation, and other issues of concern, again and again. At the aggregate level, it's hard to imagine this not having some impact.