Lobbying

 

Why has lobbying grown and made DC rich?

The news that seven of the ten highest income counties in the U.S. are in the Washington, DC area has prompted Wonkblog’s Dylan Matthews to investigate why the DC wage premium has grown. In digging through the data, he finds that the growing wage premium correlates most closely with growth of lobbying spending that “The rise of influence-peddling more broadly, more than just lobbying, is likely what’s driving this correlation.” Sounds quite probable to me.

Ross Douthat is likewise convinced that DC’s increasing wealth comes “from the growing armies of lobbyists and lawyers, contractors and consultants, who make their living advising and influencing and facilitating the public sector’s work.” And Matt Yglesias, with a nod to Will Wilkinson, believes that “the area's rising affluence seems clearly to be linked to the rising investment in influence peddling that characterizes American politics and the economy”

All of this begs the question, however, as to why lobbying would have taken off now, in this last decade or so? This was the question that I tackled in my Ph.D. dissertation (and soon, ahem, eventually, book).

The short answer is that over the last two decades, corporate America came to see the value of politics and learned to play the Washington game.

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Sunlight Goes Back to School

It’s August and that means soon it’ll be back to school for students and teachers. Even if you have long put away your TI-84 Calculator or finally paid off your student loans, it’s still never too late to pick up a new skill.

Get ready to sharpen your figurative pencils and sign up for Sunlight Academy, our new interactive training portal that provides instructional and educational resources to make government more transparent and accountable. So whether you are an investigative journalist trying to get insight on a complex data set, an activist uncovering the hidden influence behind your issue or a congressional staffer in need of mastering legislative data, our transparency training program will teach you how to better connect the dots and make our tools and resources work for you.

The modules on offer at the Sunlight Academy are diverse. Ever wondered how to create a pivot table to analyze government data? Need help understanding the different lobbying reports? Or what exactly are APIs (and why do we talk about them so often)? Watch this tutorial to find out. After you have finished a lesson, don’t forget to mark the module as “completed” to earn prizes and other rewards.

Online courses are a popular, helpful and low-cost (zero, for Sunlight Academy!) way to boost your knowledge in the workplace or classroom. In fact, the John S. and James L. Knight Foundation just released a new report indicating that newsrooms are eager for digital learning opportunities.

Sunlight Academy aims to share the knowledge and expertise of the Sunlight Foundation, but we need your help to keep the courses fresh and relevant. Email tutorial suggestions to  training@sunlightfoundation.com.

In the meantime, sign up for an account at Sunlight Academy and check back often for new training lessons and events.

Never stop learning!

Lawmakers, Executive Branch officials honored for about $19 million last year

Companies, associations and the lobbyists employed by them contributed almost $19 million to charities in honor of federal officials last year, the vast majority of it for members of Congress, according to a new report I wrote over on the Reporting Group blog. The report parsed messy disclosures that all lobbying entities have to file every six months ever since 2008, when a law aimed at shining a light on lobbyist influence in Washington came into effect.

To find out which lawmakers and cabinet members were honored most, or to see which interests paid the most in honorary expenses last year, search the interactive graphic below. You can even filter the graphic for lawmakers from your home state.

To embed the graphic on your site, just use this code: <iframe frameborder="0" height="605" scrolling="no" src="http://assets.sunlightfoundation.com/honorees_update/index.html" style="overflow: hidden; margin=10px" width="590"></iframe>

One interesting finding is that the amount of honorary contributions has declined ever since 2009.  The campaign finance lawyer I spoke with, Brett Kappel, said that transparency has made lawmakers less likely to ask for donations--especially when it comes to their own charities--and companies are less likely to give if they are publicly scrutinized. Still, the companies continue the honorary giving, doling out hundreds of thousands of dollars to some lawmakers' pet causes, and for charity galas where lawmakers receive awards. Even though it goes to good causes, it also gives them good access to powerful officials--sometimes as good as sitting at the same dinner table.

 

The above graph also shows that most of the money went to honoring lawmakers. Here is the 2011 breakdown:

  • Individual members of Congress: $9.6 million
  • Congressional caucuses or delegations: $5.7 million
  • Executive branch officials: $3.5 million
  • Legislative branch staff and federal candidates: $158,000

It was also striking to discover how narrow the disclosure rules are. There are plenty of ways to honor lawmakers without having to disclose that you did, and you can read all about them in the "Loopholes" section of the report.

Another important part of the story is just how unfriendly the data is. As with a lot of congressional ethics data, this kind is messy. It may be because Congress writes rules for itself that the end result is information that takes a lot of time and effort to make any sense of. It took weeks to standardize the names of officials and delete duplicated and erroneous reports, and that's after already being familiar with the data after writing a similar report last year.

The report focuses on the increased honorary giving by lobbying giants Google and General Motors. It also explores the connections between the cosmetics industry and a charity associated with Senator Orrin Hatch of Utah.

To read more details about how the analysis was done, head here.

 

(Graphics by Jacob Fenton and Kevin Koehler)

Survey says: congressional staffers want more online communications with lobbyists

When it comes to being lobbied, the results are clear: congressional staffers want to be e-mailed. According to the new Lobbyists.info “Congressional Communications Report,” two-thirds (67.0%) of the staffers interviewed prefer to be contacted by e-mail. Fewer than one in ten (9.5%) of staffers prefer in-person visits. But half (49.9%) of lobbyists prefer the in-person meeting, which is more than the 39.0% who prefer to correspond by e-mail.

Part of the this, no doubt, is because staffers tend to be younger than lobbyists, and more comfortable with technology generally. Almost two-thirds (62.7%) of the 2,200-plus lobbyists surveyed were 46 years of age or older, while only one in six (16.8%) were under 35. By comparison, the vast majority of congressional staffers are under 35.

I spoke with the survey’s authors last week and asked them about their findings.

“Part of this is you are looking at a different approach to communications and relationship building,” co-author David Rehr, Ph.D., told me. “If you’re looking at millenials, they are far more comfortable forming digital relationships than their older peers in the lobbyist community. They are a much more digitally savvy demographic than the lobbyists trying to reach them, and they don’t think twice about things being digital only.” (Rehr has served as President and CEO of both the National Association of Broadcasters, and the National Beer Wholesalers Association. He is now CEO of TransparaGov, which describes itself as “a privately held corporation that helps state and local governments improve their management processes.”)

“The data show that one of the risks for lobbyists is that they have been doing things the way they have because of a cultural and generational divide,” Rehr continued. “This should lead them to rethink the tools and approaches they are using. It’s clear that the information sources and communications channels they’ve used aren’t the ones that are most effective and resonant.”

It is, of course, understandable why lobbyists would prefer the face-to-face meetings. The survey found that the average congressional staffer gets 134 e-mails a day, and only 18% of staffers say they read all their e-mails. One staffer reported getting 1,400 e-mails a day.

“So, if I’m a lobbyist, I want a face-to-face meeting,” survey co-author John Kagia told me. “I don’t want to worry whether or not my e-mail got through.” (Kagia is the director of strategy and research at the consulting group ORI, and has a background in marketing.)

“There are different incentives here,” Kagia added, “For staffers, there is so much going on, and you want information and you want it quickly, and you want to move on because your boss is demanding 50 other things you do. The incentive for lobbyists is to be able to report back to their superiors that they had a face-to-face meeting. That shows a lot more gumption than saying you just sent an e-mail.”

But Kagia also envisioned the case of the staffer working on a policy memo late into the evening, and “they will go on the Internet.” Lobbyists need to make sure policy information is available there.

“Staffers use the Internet,” said Rehr. “I worked as a lobbyist for 30 years, and I thought about our website. But now we’re working with a generation of people who want it so quickly, and whatever comes out on top gets the click.”

All this should highlight the importance of providing an online system for staffers (and others) to access lobbyists’ and constituents’ perspectives with a few clicks of the mouse. I’ve proposed a transparent online clearinghouse (see here) that would accomplish this, making it easy for lobbyists to provide the most up-to-date information about their policy positions, accessible for all to see. The excellent website PopVox.com has made steps to make this a reality.

According to the survey, the three most important contributions that lobbyists say they provide members of Congress are “Impact on Business/Industry/Nonprofit of legislation” (43.5%), “Economic impact to Member’s state/congressional district” (24.5%), and “Background information on legislation” (22.8%). All three could easily be communicated through an on-line clearinghouse in a way that would meet the needs of the increasingly digitally-oriented congressional staffer.

We at Sunlight also support the Lobbyist Disclosure Enhancement Act, introduced by Rep. Mike Quigley as well as the Real-Time Online Lobbying Disclosure Act. For a full list of the Sunlight Foundation’s lobbying reform proposals, click here.

 

Other findings

The report covers other areas as well. One is influence. Measuring the influence of lobbyists in Washington is often a subjective project, So it’s no surprise that, when surveyed, lobbyists think that they are more influential than congressional staffers think lobbyists are.

But it is telling is that four in ten staffers say lobbyists are “moderately influential,” three in ten say they are “influential,” and eight percent say lobbyists are “very influential.” Just 14% say they are only “slightly influential.”

By contrast, 29% of lobbyists say they are “very influential” while 48% call themselves merely “influential,” and 21% say they are “moderately influential.”

The survey did not push respondents to define what they meant by “influential.”

Also of interest: 21.4% of the lobbyists said that “recent lobbying reforms” had decreased their effectiveness as a lobbyist.

“I suspect that since lobbyists on average have more than 15 years on the job, this means not being able to take staffers out to lunch,” Rehr told me. “The gift ban changed the way they interacted with newer staffers.”

Finally, it’s worth noting that only 0.2% of the lobbyists interviewed said that that their ability to raise money was the most important contribution they could provide to members of Congress. While it makes sense that few lobbyists would want to identify fundraising as the most important thing they do, it is a strikingly low percentage of the total. Still, the fact that so many lobbyists continue to do it means that it probably ain’t irrelevant either.

 

Do lobbying and campaign contributions help corporate fraudsters?

Though those of us who study money in politics tend to focus on its effects on legislation and regulation, two recent research papers suggest another way in which money might have an effect: it helps companies and executives who commit fraud evade detection and avoid harsh penalties.

In one paper, “Corporate Lobbying and Fraud Detection,” Frank Yu and Xiaoyun Yu find that firms that lobby evade detection for fraud almost four months longer than non-lobbying firms and are 38% less likely to be detected for fraud as compared to non-lobbying firms.

In another paper, “Political Contributions and the Severity of Government Enforcement,” Sarah Fulmer and April Knill find that executives at firms who made PAC contributions get lighter sentences than those who don’t.

In other words, being politically engaged appears to help firms and individuals get away with fraud for longer and, even when they are detected, reduce the severity of punishment.

The “Corporate Lobbying and Fraud Detection” paper studied lobbying from 1998 to 2004, comparing the 239 firms that had committed financial fraud with those who hadn’t. The researchers found a few very interesting things:

  • On average, firms that committed fraud spent $3.48 million lobbying a year between 1998 and 2004, as compared to $1.97 million for firms that did not commit fraud. (So fraudulent firms spent 77% more, on average.)
  • Firms that committed fraud increased their lobbying expenses after committing the fraud, by about 29%, on average.
  • Overall, 17% of the frauds were detected by regulators (as opposed to analysts, stakeholders, insiders, etc.). But among the firms who lobby, just 12% of the frauds were detected by regulators.

Yu and Yu “conjecture that lobbying has a strong effect on detection by regulators.”

The “Political Contributions and the Severity of Government Enforcement” paper looks at punishment instead of detection: How harshly are perpetrators of financial fraud dealt with?

Fulmer and Knill find that “contribution from a PAC in the first year of the fraud results in the accused individual being banned for 2.90 fewer years, having probation for 4.99 fewer years, being imprisoned for 5.81 fewer years and 75% less likely to receive both prison time and an officer ban.”

If the executive gives directly, the punishment is also going to be lighter, according to the calculations of Fulmer and Knill. The ban from being an officer will be 3.64 years less, probation will be 1.59 years less, prison time will be 4.11 years less, and the probability of both prison and a fine will be 56% less.

CEOs who contribute the largest amounts of money get off even lighter.

Both papers offer striking findings, though it’s hard to pinpoint whether it’s the lobbying and contributions that are affecting regulatory enforcement, or whether companies and executives who are politically active also tend to be companies and executives who are the most sophisticated in dealing with government generally.

There’s certainly more research to be done in looking at how these companies' lobbying and contribution activity changes around the time they commit fraud. For example, do they start lobbying on SEC issues? Do they start giving more to members on committees who have budgetary authority over the SEC?

Still, the correlations are strong enough to be troubling. They highlight yet another reason why we ought be concerned about the role of money in politics.

 

News Without Transparency: Albany Lobbying is Recession Proof

Lobbying is big business in New York. Earlier this year, the Legislative Gazette highlighted the record $220 million that lobbyists spent in 2011 to influence the state government. That amount marked a 175 percent increase in lobbying spending since 2001. The story would not have been possible without New York’s Joint Commission on Public Ethics’ 2011 annual report. In addition to spending information, the report revealed that the Commission opened 134 investigations into alleged ethics and lobbying violations and issued 19 notices of reasonable cause last year. The Joint Commission is responsible for policing state lawmakers and candidates, legislative and executive branch employees, political party chairs, lobbyists, and their clients. It also maintains ethics and lobbying disclosure databases. New York’s Attorney General Eric T. Schneiderman utilized the Joint Commission’s lobbying database for the recently launched NYOpenGovernment.com. The site provides a one stop shop for public access to state campaign finance, lobbying, and contract data. The Joint Commission on Public Ethics was created as part of the state’s ongoing efforts to track and police political influence and integrity. It was instituted under the Public Integrity Reform Act of 2011 (S.5679/A.8301). It fills the role of the now defunct Commission on Public Integrity, but has broader oversight authority. The original Commission on Public Integrity was created in 2007 and merged the powers of previous ethics and lobbying commissions. It was involved in several high profile investigations during its short existence, but lacked oversight powers over New York’s notoriously corrupt legislature. ----- "The News Without Transparency" shows you what the news would look like without public access to information. Laws and regulations that force the government to make the data it has publicly available are absolutely vital, along with services that take that raw data and make it easy for reporters to write sentences like the ones we've redacted in the piece above. If you have an article you'd like us to put through the redaction machine, please send us an email at rsibley@sunlightfoundation.com.

Companies who lobby outperform companies who don’t lobby

The more a company lobbies, the better its publicly-traded shares perform. At least, that’s the conclusion of an academic research paper that analyzed share prices and corporate lobbying from 1999-2006.

“Lobbying firms significantly outperform non-lobbying firms,” write professors Matthew D. Hill, G. Wayne Kelly, G. Brandon Lockhart, and Robert A. Van Ness in a paper entitled “Determinants and Effects of Corporate Lobbying.” (the paper is not yet published). They also note that “Excess returns are directly associated with the number of years that firms lobby.”

So the more years a firm lobbies, the better it does. The professors’ statistical analyses led them to estimate that if a company lobbied for five years, its stock price would be 3.9% higher than if it had not lobbied at all. Which is a pretty remarkable return, when you think about it. And among the firms that lobby, those who spend more get an even better return.

They also find that, in particular, 2001, 2002, and 2005 were good years to be lobbying. The pay-off to lobbying was generally higher in those years.

Interestingly, though, only about 15% of publicly-traded firms in the United States spend any money on direct lobbying (though many do contribute to trade associations). This seems surprising given what seems like very high returns.

But there may be at least two reasons for this.

First is that lobbying successfully may require a serious commitment to playing the Washington game. The research suggests that to really get their money’s worth, companies have to to seriously invest for the long term. This may prevent smaller companies with limited cash flow from bothering to engage. “Lobbying appears not to be lucrative for all firms,” the paper concludes. “Still, results suggest that an increasing number of firms recognize the improved prospects that lobbying potentially provides.”

Second, it may be the case that not all companies would benefit from lobbying. Some industries and some companies may have more to gain from changes in policy than others, and thus they lobby the most aggressively. For certain companies in certain industries, there may simply be not much they can get out of Washington, and thus any lobbying would be wasted.

Still, the results are pretty compelling. And they are in line with more and more research showing that companies that lobby more tend to enjoy higher share prices. Last fall, for example, The Economist reported that a stock index of the 50 companies with the highest lobbying intensity (i.e. lobbying expenditures as a percentage of assets) had outperformed the S&P 500 by 11% a year since 2002, a pretty remarkable finding. I’ve also found that companies who lobby the most pay less in taxes (see here and here).

I’ll be writing about more other research into the pay-off to lobbying in the next few weeks. Safe to say that this study is not alone in finding that lobbying seems to pay off, and the companies that do it the most tend to get the best returns for the lobbying buck.

 

 

Tariff bill opens the floodgates for lobbyists

In the three months before congressional leaders announced that they are once again opening the process to suspend tariffs, at least 71 private companies have already lobbied to get their own exemption and nine more have registered. Each one has a product they’d like to import a little more cheaply. So far this year, the companies report lobbying expenditures of $14 million on issues including this one – but if history is any guide, it may be well worth the expense.

The last time Congress passed a miscellaneous tariff bill (MTB), in 2010, it cost taxpayers $298 million in lost revenue over three years, according to the Congressional Budget Office.

Members have until tonight to send in provisions they want included in this year’s legislation, according to House Ways and Means Committee Chairman Dave Camp, R-Mich., and Senate Finance Committee Chairman Max Baucus, D-Mont.

In short, the MTB is legislation written for corporations, by corporations to save them money on products they import and use in manufacturing. The companies solicit members of Congress to introduce bills reducing their tariffs and those bills eventually get rolled into the MTB, a long green eyeshade document that few members of Congress likely will take the time to read. Call it “nearmarking.” With earmarks now banned, critics say the tariff bill offers members of Congress an alternate route to get special favors for pet concerns at taxpayer expenses. Republican Sens. Jim DeMint, R-S.C., and Claire McCaskill, D-Mo., have introduced legislation would send all tariff requests directly to the International Trade Commission (ITC), cutting Congress out of the process.

“There is no good reason why businesses go to members of Congress and not directly to the International Trade Commission with their petitions,” said DeMint spokesman Wesley Denton.

But guess who’s pushing the tariff bill? Sixty freshman Republican lawmakers –who generally have been among the loudest voices against special dealing and for deficit reduction -- recently wrote to House Speaker John Boehner, R-Ohio, and House Majority Leader Eric Cantor, R-Va., urging favorable treatment of the MTB. They argued that it’s a bill that will spur American jobs.

Lobbying

Congress considers tariff legislation almost every two years. And while heavy corporate lobbying on it is typical, it's hard to compare historic spending trends because lobbying records weren't digitized until 2008 and congressional lobbying records didn't begin tracking lobbying specifically on the miscellaneous tariff bill until the last few years.

Lobbying disclosure information reported to the Senate Office of Public Records.

But the number of tariff suspensions enacted by Congress appears to be on the upswing. In 2004, Congress passed an MTB with 433 tariff suspensions. Two years later, the MTB that passed two years later suspended duties on 280 products and generated a tariff savings of about $660 million for corporations according to a study conducted by Capital Trade, Incorporated, an economic consulting firm that focuses on international trade. But later that year, Congress approved a second bill suspending duties on another 580 products. During the 111th Congress, which ran from 2009 through 2010, lobbying records on file with the Senate show 192 companies with $385 million in lobbying expenses on tariff issues. Of that amount, $205 million was spent in the final six months before passage of H.R. 4380, the United States Manufacturing Enhancement Act of 2010. The bill included duty suspensions on 665 products, benefiting 113 corporations, according to data provided by the House Ways and Means committee.

An examination of the 2010 bill and lobbying records related to the MTB provides vivid examples of how members of Congress use the tariff legislation to do favors for home-state businesses.

Bayer

Rep. Emanuel Cleaver, D-Mo., submitted 28 requests to suspend duties on products for Bayer. All but three made it into law. Overall, Bayer got a remarkable 62 duty suspensions from 15 members of Congress, making the German drug manufacturer the top beneficiary of the bill. Mary Petrovic, Rep. Cleaver's press secretary, defended the support, noting that Bayer employs a number of people in his home district in Missouri.

Bayer and its subsidiaries spent $8.3 million lobbying the bill and other issues in 2009 and 2010 according to records disclosed with the Senate. The corporation has reported spending $7.2 lobbying the issue and others this session so far.

Cleaver also received $5,500 in campaign contributions from employees of Bayer and their family members during the 2007-2008 and the 2009-2010 election cycles. So far this cycle he’s received $2,000 from people associated with Bayer, according to InfluenceExplorer.com.

Michelin

An examination of lobbying records disclosed in 2010 showed that the tire manufacturer Michelin lobbied on 21 bills introduced by Senator Lindsey Graham, R-S.C., to reimburse duties they paid on tire products. Michelin, which operates a number of plants in Graham’s state, reported spending at least $1.1 million on issues including tariffs and was the only company that reported lobbying on the 21 original bills dealing with tariff reimbursements that Graham introduced. The provisions Michelin wanted made it into the final bill.

Tracking which corporations benefit from provisions that originated on the Senate side is harder than the House side, because the Senate traditionally has not revealed which members requested each provision. It’s not clear whether the Senate will adopt the House transparency process this time around. That potentially could shed more light on relationships between senators and the corporations they help through this bill.

Dan Ikenson, an expert in trade issues at the Cato Institute, favors reducing all tariffs unilaterally. But he called the MTB a good thing even though it only temporarily suspends duties on a limited number of products. He described the measure as “gradual progress” towards creating more competition in the markets.

Ikenson, however, doesn’t agree with all of the rules that go into writing the MTB. Only allowing import products to be considered if they are not produced in the United States is bad for competition., he said. Magnesium, for instance, is only produced by one company in the United States and therefore has little incentive to make prices competitive, Ikenson said. He argued that lifting duties on imported magnesium would allow U.S. manufacturers to get better prices.

“We’re picking winners and losers in our markets by placing duties on certain items,” Ikenson said.

Lobby more, pay less in taxes

If you think you wound up paying too much in taxes this year, maybe you ought to hire a lobbyist. Or two. Or 20. After all, it’s a strategy that seems to be working well for some of the nation’s biggest corporations.

As Americans prepare for tax day 2012, a new Sunlight analysis of lobbying and corporate tax rates finds that among 200 of the largest U.S. companies, the companies that spent the most on lobbying most effectively reduced their reported tax rates between 2007 and 2010.

On average, companies we examined reported paying a slightly lower overall tax rate in 2010 than in 2007 (average tax rate of 29.3 percent in 2010 as compared to 29.9 percent in 2007), with a decline in the median reported tax rate from 31.8 percent to 31.6 percent. Fifty-five percent of the companies paid a lower rate in 2010 than in 2007.

But of the eight companies that spent the most on federal lobbying between 2007 and 2009, seven decreased their overall tax rate between 2007 and 2010. And six of the Big Eight enjoyed a decrease of at least seven percentage points.

Table 1. Changes in reported tax rates

Company 2007-2010 decline 2007 rate 2010 rate 2007- 2009 lobbying (in millions) Estimated tax reduction (in millions)
Exxon Mobil -1.1% 41.8% 40.7% $81.92 -$565.32
Verizon Communications -7.9% 27.4% 19.4% $77.58 -$1,005.51
General Electric -7.6% 15.0% 7.4% $73.17 -$1,082.70
At&T -40.4% 34.0% -6.4% $70.96 -$7,359.95
Altria +0.2% 31.5% 31.7% $63.31 none
Amgen -7.1% 20.1% 13.0% $58.33 -$377.16
Northrop Grumman -11.4% 32.9% 21.5% $57.56 -$296.08
Boeing -7.1% 33.7% 26.5% $56.99 -$321.5
Median among 200 companies -0.6% 31.8% 31.6% $5.48 -$13.08

 

Combined, the Big Eight spent $540 million on lobbying between 2007 and 2009. In total, they filed 332 lobbying reports that mentioned taxes, naming 491 different tax bills over the three-year period we investigated (see table 2).

 

Table 2. Lobbying on tax bills

Company Lobby reports mentioning taxes, 2007-2009 Tax bills mentioned in lobby reports, 2007-2009
Exxon Mobil 51 112
Verizon Communications 88 93
General Electric 48 72
AT&T 52 81
Altria 66 75
Amgen 10 14
Northrop Grumman 7 24
Boeing 10 20
Median among 200 companies 8 8

 

Compared to what their taxes would have been if their 2007 tax rates were applied to their 2010 income, we estimate that the seven companies that lowered their taxes saved a combined $11 billion on $120 billion in reported 2010 profits. If we assume that the entire reduction was due to their lobbying, the return on investment would be 2,069%.  Of course, this is probably not the case. Without a detailed analysis of these companies’ taxes, it would be impossible to tell why their rates fell. But we can observe that it is very unlikely that the eight companies that lobbied the most between 2007 and 2009 all would have seen such significant drops in their tax rates by random chance alone.

Statistically, the likelihood of that seven of eight firms that ran up the biggest lobbying tabs all lowering their reported tax rates by chance alone is about seven percent, which makes it highly unlikely but within the real of random possibility (assuming we take the overall probability of an individual company lowering its taxes at 55 percent). Moreover, only 19 of the nation’s 200 highest earning companies reduced their tax rate by more than seven percentage points. Within this universe of companies, the likelihood of six of the Big Eight lowering their rates by at least seven percentage points purely by random chance is less than 1 in 100,000.

Of course, the Big Eight were not unique in lobbying on taxes. More than two-thirds of the nation’s 200 largest companies lobbied on at least one tax bill in the last three years. Of the 182 large companies that reported at least some lobbying during the period, 73 percent lobbied on taxes. Combined, the 182 companies filed 2,405 unique reports mentioning tax lobbying, with a total of 3,600 unique tax bill mentions.

Companies lobby so much because Congress is constantly making changes to the tax code. Between 1987 and 2011, the number of pages in the CCH Standard Federal Tax Reporter (one measure of the growing complexity of the federal tax code) more than doubled, growing from 33,030 pages to 72,574 pages. More than half of those pages have been added since 2001.  In 2005, the President’s Advisory Panel on Tax Reform counted approximately 15,000 separate changes to the tax code since 1986 (more than two a day). “Each one of these changes had a sponsor,” wrote the panel in its report, “and each had a rationale to defend it. Each one was passed by Congress and signed into law.”

It’s not surprising then, that we recently found that a committee seat on the House Ways and Means Committee (which has jurisdiction over tax rates) is worth an estimated $258,000 in extra fundraising. After all, a substantial number of companies appear to be after highly-prized tax benefits. And PAC and employee contributions to committee members are generally an effective way of gaining access. 

Regression analysis

Taking the 200 companies as a whole, we estimate that for each additional $1 million that companies spent lobbying between 2007 and 2009, their 2010 tax rate fell by 7/100ths of a percent. While that might not sound like much, for a $2.5 billion company at the median in our sample of large companies, each $1 million spent on lobbying translates into an estimated annual tax savings of $1.8 million – almost double the original investment, with benefits likely to continue in the future. Table 3 reports the results of a OLS regression estimating companies’ 2010 tax rate as a function of their lobbying totals between 2007 and 2009, controlling for size, industry, and 2007 tax rate. The estimate of a decrease of 7/100ths of a percent is statistically significant, though just slightly.

Table 3. OLS regression results of effect of lobbying on tax rate

Estimate Std. Error
(Intercept) 0.05945 0.07879
2007 Tax Rate 0.71663 0.06103
2010 Income 0.00000 0.00000
Total lobbying 2007-2009 -0.00072 0.00043

(coefficients for industry at 2-digit NAICS code not reported) Adjusted r-squared: 0.4697

However, the result appears to be largely driven by the eight companies that lobby the most. If we remove those companies from the sample, the estimated effect of lobbying on tax reduction drops to 5/1000ths of a percent per $1 million spent on lobbying, with a 35.5% chance of being zero (the absolute minimum for statistical significance is a 10% chance of being zero).

 

Conclusion

When it comes to paying less in taxes, having an army of lobbyists appears to be helpful. Many companies lobby on taxes, but those who spend the most report the largest and most consistent declines in tax rates. Of the eight companies who spent the most money lobbying between 2007 and 2009 seven saw their 2010 tax rates decline from what they paid in 2007. While it is difficult to show causality, the likelihood of this happening by random chance is less than 1 in 100. And of those eight companies, six reduced their tax rates by at least seven percentage points. Given the larger patterns we’ve observed, the likelihood of this happening by random chance is less than 1 in 100,000. At the very least, we know that the companies that lobby the most are also the  companies who have figured out some way to pay millions less in taxes than they did just a few years ago.

 

Methodology and sample

Our set of 200 companies includes the largest 200 U.S. companies (ranked by 2010 pre-tax income) that met the following criteria: in both 2007 and 2010 they reported tax rates that ranged between -50% and 50% both years, and their income in 2007 was positive. We did this because we wanted to eliminate cases in which tax rates were likely to be driven by one-time events. This is admittedly not a perfect approach, but we wanted tax rates to be appropriately comparable between the two years and to eliminate outliers.

We calculated the base tax rate using Compustat data, and thus we rely on what companies reported in their financial statements as their pre-tax income and their income tax paid (in this, we follow the approach of Richter et al. 2009, who also find that companies that lobby more pay less in taxes). Our decision to look at the cumulative lobbying over three years is based on the assumption that tax lobbying takes place over multiple years and tax benefits do not always kick in immediately.

The list of companies and their tax and lobbying data can be found here.

Special thanks to Alison Rowland for her help in preparing this analysis.

Correction: Altria's tax rates were originally reported incorrectly. The post has been updated to reflect Altria's correct tax rates.

Listen and Share This American Life’s “Take the Money and Run for Office” Episode

If you haven’t already listened to This American Life’s episode, “Take the Money and Run for Office,” I encourage you to set aside 45 minutes in your busy life so you can listen to it uninterrupted. It’s a brilliant piece of storytelling that goes far and beyond my most optimistic dreams for how long-form journalism can illuminate how money affects politics (and governance) in our nation. (Plus, this Brooklyn-born Woody Allen fan was especially delighted with the clever headline This American Life used, a play on one of Allen’s earliest feature films, “Take the Money and Run.”)

As Communications Director at Sunlight, I work nearly every day with reporters to better understand our work, how government works and how to follow the money in our elections to know who and what influences our elected officials. I can’t express to you how proud I was to hear how Sunlight’s Party Time site and on-going work helped inform the narrative expertly created by This American Life, Planet Money and NPR’s congressional team. Breakdown of types of political fundraisers, created by NPR's Planet Money team

From the episode’s gripping intro of my own representative, Eleanor Holmes Norton, pleading for donations to the deft editing of appropriate music clips to keep the story moving, they did a superb job in translating the wonky details to something any listener could understand. They went above and beyond to show how we can use data to create transparency around how members of Congress raise money and the impact their fundraising has on their policy work and relationships with lobbyists. We worked with NPR's teams in their reporting, and are thrilled their work is already elevating public dialogue about an issue Sunlight (and you, dear reader), has cared about for years. It is definitely worth listening to, reading and sharing with your friends.

This episode has also taught me patience - as a PR professional, that’s not something that comes to me naturally. Nearly four years ago, Sunlight launched Party Time, the first centralized, free site where anyone could monitor the fundraising circuit that keeps members of Congress flush with cash for their re-elections--a persistent activity that keeps lawmakers busy hobnobbing with lobbyists and donors morning, noon and night. While reporters instantly began citing Party Time’s data to provide context on their reporting on political fundraising, I longed for a feature-length news piece that would create the ‘a-ha’ moment needed to really bring home why understanding the site’s data matters.

The Federal Election Commission releases campaign finance disclosures months after the money is raised and cashed; Party Time collects information on fundraisers that are happening today—and next week, and in some cases months ahead. When we created it, we thought that even though it could never be as comprehensive as we’d want since we rely upon the kindness of political insiders to leak the invitations they receive [hint, anyone can upload an invite]. But we always hoped Party Time would prove to be a useful early warning system for tracking influence in Congress, especially since it is the only data source that provides real-time and prospective insight into the fundraising activities of federal candidates. It may not be a site that attracts a lot of online visitors, but it does document daily how members of Congress chase donors, proving to be a powerful, unique resource for disclosure where no disclosure is required by law.

And, with news accounts like This American Life’s episode, I hope more people become interested in tuning into how Washington truly operates and joining Sunlight in our work to continue to shine a light on it all.

This is our democracy, after all, not one just for the one percent.

**Graphic of Party Time data by Lam Thuy Vo, NPR | Planet Money