In 2000, the late Washington Post journalist David Broder spoke to the Cato Institute about his recent book, Democracy Derailed: Initiative Campaigns and the Power of Money. He said some interesting things, like: the initiative process was imported from Sweden a century ago, it worked for about 25 years leading to important progressive legislation, and “from World War I until the famous Proposition 13 in 1978, it was not a dominant form of lawmaking.” Who knew?
A main purpose of initiatives was, as Broder notes, “to break the power of interest groups.” But as they say, the road to hell is paved with good intentions.
The Center for Public Integrity has some new figures out about the amount of corporate money dumped in 2014 state initiative campaigns. They note, for example:
In 2014, two [California] initiatives attracted considerable cash. Propositions 45, on insurance rate approval, and 46, which would have raised the state’s cap on medical malpractice damages and forced doctors to be drug tested, faced more than $90 million worth of opposition from insurers, hospitals and doctors.…
Anthem [which shelled out $12.8 million against Proposition 45] was aided by other health industry organizations also willing to give millions. Kaiser Foundation Health Plan, another of California’s largest health insurance plans, gave $12.4 million to defeat both 45 and Proposition 46.
Medical malpractice insurers Norcal Mutual Insurance Company, The Doctors Company and the Cooperative of American Physicians each gave more than $10 million to fight the health measures in California.…
Giving tens of millions of dollars to ballot measure contests was worth the investment for the health care companies, according to Wendell Potter, a former insurance executive-turned-whistleblower who writes an opinion column about health care for the Center for Public Integrity.
“These insurers have enormous amounts of money,” he said. “The largest companies make billions of dollars in profits every year. They have the money to spend, and they’re quite willing to spend it to prevent any legislation or regulation that they have reason to believe might in some way cost them money or have a negative impact on profitability.”
So I wonder what they’re going to do about this problem: Right now a tax loophole permits companies “to save millions of dollars by deducting any court-ordered punitive damages as an ordinary business expense. The result, critics say, is that taxpayers are in effect subsidizing corporate misconduct.” For example:
The rating agency Standard & Poor’s, which was accused of helping to cause the financial crisis with its inflated assessments of mortgage investments, is eligible to deduct half of the $1.37 billion settlement with state and federal prosecutors it agreed to this week, according to the U.S. Public Interest Research Group, a consumer-oriented nonprofit. The result would be a roughly $245 million reduction in its tax bill, the research group calculated.
At least 80 percent of the more than $42 billion that BP has paid out because of the 2010 Deepwater Horizon rig explosion that killed 11 people and spewed oil into the Gulf of Mexico qualifies for a tax deduction, according to U.S. PIRG. That has saved an estimated $10 billion to $14 billion for the company. The exact amount is uncertain because of the lack of transparency, the group complained.……
The same day in 2013 that JPMorgan Chase announced a $13 billion deal with the Justice Department, for example, the bank’s chief financial officer emphasized that $7 billion of the total would be deductible. And $11.63 billion of Bank of America’s record $16.65 billion settlement in August is eligible for a tax break, experts said.
Now, some in Congress on both sides of the aisle - and the White House - are trying change the law to prevent this outrage. In fact, writes Kelly Philips Erb at Forbes,
The President’s proposal would disallow a deduction for punitive damages paid or incurred by the taxpayer, whether upon a judgment or in settlement of a claim. If covered by insurance, damages would be included in the gross income of the insured.
My prediction: I stashed this under small business because while this is a clear swipe at corporate taxpayers like Bank of America who are perceived as having taken advantage of existing rules that allow deductions for damages, it could have significant consequences for small businesses. This could pass with some modifications.
We shall see. Never underestimate the power of big corporate money.