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L. Paige Whitaker Legislative Attorney - page 25 / 31





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Legislative Options After Citizens United v. FEC: Constitutional and Legal Issues

Government contractors that are foreign governments, corporations, or individuals are prohibited from making campaign contributions or expenditures under a separate statute whose constitutionality has apparently never been challenged. 144

Taxation of Corporate Campaign-Related Expenditures145

Some have proposed that Congress enact an excise tax on the corporate campaign-related expenditures permitted under Citizens United. As discussed below, there are several existing taxes that apply to tax-exempt organizations, including those that are incorporated. For purposes of this discussion, it is assumed that any proposed tax would apply to both for-profit and non-profit corporations, and, in the case of incorporated tax-exempt organizations, be in addition to the existing taxes. It is also assumed that the expenditures would be non-deductible under IRC §

162(e) as a trade or business expense.146

Congress has broad powers to tax under the Constitution.147

In general, tax distinctions and

classifications are constitutionally permissible so long as “they bear a rational relation to a legitimate governmental purpose.”148 The rational basis standard is a low level of review by a court. In the tax context in particular, courts typically show great deference in recognition of “the large area of discretion which is needed by a legislature in formulating sound tax policies.”149 At the same time, not all exercises of Congress’ taxing power receive such deference. Sometimes, tax provisions are subject to higher levels of scrutiny. For example, tax provisions based on the content of speech are, like non-tax provisions, subject to strict scrutiny.150 A provision subject to this highest level of scrutiny must be necessary to serve a compelling government interest and be narrowly drawn to achieve that end.151 This is a heavy burden for the government to meet.

The decision by Congress to impose a tax on certain corporate expenditures would typically appear to be within its broad taxing powers and subject to minimal review by a court.152 It could,

(...continued) by statute to do so. See 48 C.F.R. § 37.104(b).



2 U.S.C. § 441e. This portion of the report discussing a corporate independent expenditure tax was written by Erika K. Lunder.

146 Under IRC § 162(e), taxpayers are generally not allowed to deduct campaign and lobbying expenditures as a trade or business expense. Additionally, § 162(e) denies a deduction for the portion of dues paid to a tax-exempt organization that is used for these purposes. The provision only applies if the organization notifies the taxpayer of the portion that is non-deductible. If an organization fails or chooses not to notify the taxpayer of the disallowed amount, then the organization is subject to a proxy tax on that amount under IRC § 6033.

147 U.S. CONST. art. I, § 8, cl. 1 (“The Congress shall have Power to lay and collect Taxes, Duties, Imposts and Excises ….”).

148 Regan v. Taxation with Representation of Washington, 461 U.S. 540, 547 (1983). 149 Id. at 547 (internal quotations omitted).

150 See Arkansas Writers’ Project, Inc. v. Ragland, 481 U.S. 221 (1987) (striking down a state sales tax that taxed general interest magazines, but exempted newspapers and religious, professional, trade, and sports magazines).


See id. at 231.

152 Cf. Comm’r v. Tellier, 383 U.S. 687, 693 (1966) (quoting Comm’r v. Sullivan, 356 U.S. 27, 28 (1958)) (“Deduction of expenses falling within the general definition of §162(a) may, to be sure, be disallowed by specific legislation, since deductions are a matter of grace and Congress can, of course, disallow them as it chooses …”).

Congressional Research Service


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