Mike Bloomberg, the Billionaire Loophole, Unilateral Disarmament, and a Wealth Tax

by Michael C. Dorf

A recent NY Times story bears the headline Seeing a Bloomberg Ad on Fox News, Trump Takes the Bait. The headline and the story bury the lede. The story focuses on Trump's characteristic lack of self-control. Despite advice to ignore Bloomberg, Trump has been rage-tweeting about the man he dubs "mini-Mike" in response to ads critical of Trump and in support of Bloomberg's candidacy for the Democratic presidential nomination. But the fact that criticism irks Trump enough to provoke a fit of pique is not news.

The real reveal in the story is this: Bloomberg is providing a potentially very helpful service by running ads attacking Trump on traditional and social media. That spending is unlikely to result in Bloomberg's securing the nomination. Fivethirtyeight.com currently gives him and all of the non-top-four candidates a combined 0.5% chance of winning the nomination. To be sure, the Fivethirtyeight model does not appear to take account of Bloomberg's deep pockets; as far as I can tell, it scores fundraising chiefly as a proxy for popular support, not for what money can do. And betting markets have Bloomberg doing considerably better, with a 10-15% chance of securing the nomination. I tend to think that's a bit high. Perhaps it reflects the fact that the sorts of people who bet on politics are more likely to be sympathetic to Bloomberg -- and thus to overestimate his appeal in the Democratic primary electorate -- than are most Democratic primary voters themselves.

In any event, whether Bloomberg's chances of securing the nomination are minuscule or merely small, his anti-Trump spending is a boon, especially if, as he has suggested, he continues to spend hundreds of millions on the Democratic nominee even if he is not that nominee. But that raises a question for the likes of Bernie Sanders and Elizabeth Warren, should either of them be the nominee: given their hostility to the influence of money in politics, can they in good conscience accept Bloomberg's support?

The good news is that neither Sanders nor Warren would have to make that choice--at least not officially. That's because the campaign finance loophole that allows Bloomberg to spend hundreds of millions of dollars to defeat Trump or to elect Sanders or Warren does not allow him to coordinate his spending with the nominee's campaign. In Buckley v. Valeo, recall, the Supreme Court allowed some restrictions on campaign contributions but none on spending. Candidates who spend their own money on their own candidacies or on "independent expenditures" are spending, not contributing, so they can spend unlimited sums. To prevent the "billionaire loophole" from undermining contribution limits, persons making such expenditures cannot coordinate with campaigns. That prohibition has not always been strictly enforced (to say the least), but we can put that problem aside for now. For present purposes, the important point is that even if a Democratic Presidential nominee expressly said she or he did not want Bloomberg to spend money in aid of the campaign, Bloomberg, acting independently, would remain free to spend as much as he wanted to.

Meanwhile, it's not at all clear that it would be wrong for a Democratic nominee to welcome (but not coordinate with) Bloomberg's aid. Let us stipulate that the Supreme Court gravely damaged our political system when, in Buckley and subsequent cases, it invalidated restrictions on independent expenditures (and expenditures more generally). It does not follow that one side in a political contest should forgo taking advantage of the existing system in order to gain office to change the existing system. If Bloomberg's support helps elect a President and Congress that will change the law and eventually the composition of the Supreme Court so as to render our system of campaign regulation more democratic, then his support seems worth taking. As Nathan Robinson observed in a different context, "the master’s tools seem like the ideal way to demolish his house."

Admittedly, when Buckley was decided, it garnered support from liberals as well as conservatives. And some unreconstructed liberals remain opposed to campaign finance regulation, including opposing restrictions on independent expenditures. As one otherwise very liberal/progressive law professor explained this position to me some years ago in the form of a question: How can the Constitution allow the law to permit wealthy people to spend their money on whatever frivolous pleasures they seek but forbid them to spend it on political speech?

My answer at the time, as now, is that the fact that campaign finance regulation distinguishes money spent on politics from money spent on other pursuits may indeed call for strict scrutiny, but aggressive campaign finance regulation should survive such scrutiny. Campaign finance regulation is necessary to prevent inequalities in the market--an inevitability in even highly-regulated capitalism--from creating severe political inequality by bleeding over into the marketplace of ideas. I recognize that my view was rejected by the Buckley Court, which said that "the concept that government may restrict the speech of some elements of our society in order to enhance the relative voice of others is wholly foreign to the First Amendment." It's that proposition with which I disagree.

Even if I've persuaded you that the Constitution should allow aggressive campaign finance regulation, it might not work. That's the concern that Professors Sam Issacharoff and Pam Karlan expressed over twenty years ago in a fascinating article called The Hydraulics of Campaign Finance Reform. Analogizing to water finding its level (and thus "hydraulics") they explained that there is demand for political influence, so that shutting down one avenue for money to enter politics will lead it to enter somewhere else. (You seal your doors and windows tightly, but the water enters through the basement.)

I'm not quite so pessimistic as Professors Issacharoff and Karlan were in their article, but I acknowledge that the risk they identified is real. It may well turn out that even if there is an acquiescent Supreme Court and political will sufficient to substantially tighten our system of campaign finance, money would still exert just as baleful an influence over our politics. I'd be willing to run the experiment anyway, but others might not be.

Thus, closing the billionaire loophole and enacting enforceable and effective campaign finance regulation more broadly must overcome three sorts of obstacles: Congress would need to act; the Supreme Court would need to change course rather dramatically; and the resulting regulation would have to work, despite the hydraulic pressure. Those are pretty substantial obstacles. Is there another way?

Maybe. Senator Warren has proposed a wealth tax chiefly as a means of raising revenue, but it has an upside for political economy as well--albeit one that her own pitch obscures. Senator Warren says on the stump that her wealth tax would only amount to two pennies out of every dollar that a wealthy person has beyond $50 million. Her website adds that there would be another four percent tax on each dollar over $1 billion, and she occasionally says that on the stump too. Still, in repeatedly saying she is only asking the wealthy to kick in "two pennies," Warren seeks to downplay the proposed wealth tax's impact on the wealthy. The message is: they can afford it; they'll still be fabulously wealthy.

And that's true. If the wealth tax limited individual fortunes to "only" $50 million per person, it would still allow for enormous wealth inequality and fabulous luxury. But here's the thing: From the  perspective of political economy, restricting individual fortunes to something in the neighborhood of $50 million would be a good thing--a feature of a wealth tax, not a bug. A person with a $50 million fortune might spend tens or even hundreds of thousands of dollars on politics in any given year, which gives that person outsized influence but does not grossly distort the system as a whole, in the way that multibillionaires' expenditures in the tens or hundreds of millions can.

Would Warren's wealth tax limit fortunes to roughly $50 million? Certainly not in the short or medium run. The tax must be paid annually, but even for a billionaire paying the higher rate, it is likely to roughly cancel out the gains on investment in an average year, not to eat into a fortune. Maybe the Warren tax would prevent such fortunes from keeping up with inflation, but if that's all it does, then it would take a very very long time for the tax to have a benefit from the perspective of campaign finance. Seen this way, the problem with Warren's wealth tax is that it's not large enough.

There are also practical obstacles to a wealth tax. Experience in other countries suggests that it's difficult to enforce. (Warren claims to have solved this problem; I'm not an expert in tax administration, so I can't judge.) A President Warren couldn't get a wealth tax through the Senate without a change in the cloture rule, and maybe not even with such a change. And the Supreme Court might strike it down as a "direct" tax that needs to be apportioned but isn't. (The Court shouldn't strike it down, but that doesn't mean it wouldn't.)

Still, so long as we are thinking about ideal policy rather than merely what can be accomplished (see Prof. Buchanan's most recent DoL essay on a related point), a wealth tax strikes me as an excellent alternative to direct campaign finance regulation.