Statement of Leo Troy, Professor of Economics,
Rutgers University, Newark, New Jersey
Testimony Before the Subcommittee on Oversight
of the House Committee on Ways and Means
Hearing on Disclosure of Political Activities of Tax Exempt Organizations
June 20, 2000
1. Personal Information.
I appear here on my own behalf; my views are not those of my University nor of any other organization, nor have received any fees or grants from any organization in connection with this appearance. (1)
2. Unions' Political Contributions and Endorsements In Presidential Election Cycle Years.
Unions' cash political contributions, which are reported to the Federal Elections Commission, will be dealt with here as they help determine the larger and almost universally ignored unions' in kind political contributions. By in kind contributions, I mean any services and publications paid for by unions or provided by volunteer labor services on behalf of political candidates and a political party. Virtually all of these are expended on behalf of candidates of the Democratic Party. The most valuable of these contributions are the union press, labor services, and the structure of the union movement itself. (2) For the presidential cycle year 1995-96, I estimated the value of unions' in kind contributions at $300 million. (Refer to § 3 on my method of calculating the value of in kind contributions). Their cash contributions reported to the FEC in that cycle were about $100 million, bringing the total to $400 million.
The in kind contributions are made possible by unions' financial power. They receive a total income of about $14 billion and hold assets in excess of $10 billion. (Masters and Atkin, Table 1, Industrial Relations, Oct. 1997, p. 494, and data unreported to the Labor Department). (3)
The financial ability of unions to implement their in kind contributions is enhanced by the structure of the union movement. Contrary to popular and media notions, the union movement is not the AFL-CIO on 16th Street in Washington, D.C.; the Federation is the tip of the iceberg. The union movement consists of about 45 thousand local unions, some 2 thousand or so intermediate bodies distributed across the country, and under 100 large national and international headquarter bodies, many of which are located in the District. Unions' total income is nearly evenly divided among the 45 thousand local unions and their parent bodies. Locals control about 47 percent of unions' total revenue and assets, while the parent unions' share account for 40 percent of revenue and 42 percent of assets; intermediate organizations account for the balance. (All financial figures are for 1995. Masters and Atkin, Table 1, Industrial Relations, Oct. 1997, p. 494.). Hence, it is clear that unions' power to generate in kind contributions, which are beyond any financial accounting, is widely spread across the country and therefore in a position to benefit the Democratic Party at all political levels.
One of the most valuable in kind services provided by unions to the Democrats are the unions' publications. These are mailed out to over 16 million members of unions implying a minimum household audience exceeding 30 million potential consumers of the unions' political point of view. These publications go out monthly. Thereby, they become a constant and repetitive advocate of the leadership's political views and these are uniformly in favor of the Democratic party. Most of the publications are issued by the national and international unions (parent organizations), but by many local and intermediate unions also publish and distribute their own publications In addition, many unions maintain websites to transmit the official union line.
The union media is so biased in favor of the Democratic Party that it is no exaggeration to characterize the union media as a one-party press. The membership funds the union media from its dues and agency shop fees, but these are not the measure of their in-kind value. All in kind contributions must be construed in terms of what it would cost the Democratic Party to pay for this media.
Parenthetically, because the monies actually paying for the union media are collected almost entirely under compelled arrangements, the union or agency shop and the check-off, members and those represented by the unions are compelled to pay for political programs and candidates which they may not support, and in very many instances do not endorse. The managers, that is, the leadership, of unions contend that the political views expressed in the organizations media reflect the attitudes of a majority of its members, based on membership surveys. If this is so, why aren't the surveys' results, timing, methods including sampling techniques and margins of error and costs publicly disclosed? To date, I am unaware of any such disclosure. Most important, if these surveys are do represent the members' political views, why do individual members contribute so little to political campaigns? In fact, while organizationally the union movement contributed spent about $100 million in the last presidential cycle, appeals to individual members - of whom there are over 16 million - brought in a mere 2 cents per member, a grand total of $243 thousand. (Masters and Jones, Journal of Labor Research, 1998, Table 4). The minuscule voluntary cash political contribution of union members suggests that the claim of union management that they have the endorsement of members for their political endorsements is more rhetoric than reality. (4) Most important, this fact provides the strongest argument for the enactment of paycheck protection and full disclosure of what unions do with members' monies. Union managements' disregard, if not contempt for the views of substantial proportions of their membership, is especially egregious given that Ronald Reagan probably received a majority of private sector union members' votes in 1984, and close to that in 1980. To a very great extent, the term 'blue collar' Democrat of that era really meant and means to this day, blue collar unionists in the private economy. In 1996, Bob Dole won about one-third of all union households (meaning private and public combined), implying that perhaps 40 percent or more of the private sector workers probably voted for him. Although public sector unionists vote more for Democrats than private sector unionists, a poll of the membership of the National Education Association (NEA), the largest union in America, with a membership of 2.4 million, reported about 30 per cent of its members regarded themselves as Republicans and another 30 per cent considered themselves to be independents. If so, this means that a minority is committed Democrats, but the NEA's leadership devotes nearly all its resources from compelled dues and fees to supporting Democrats.
The counter argument to the compelled union members' payments to support causes and candidates they oppose is that corporations also make political contributions which some shareholders may oppose. However, this comparison is invalid: Any shareholder, who objects to company policies of any kind, can sell his (her) shares at any time. And they have done so frequently as demonstrated by actions taken to show disapproval of apartheid, environmental practices and health (tobacco) and safety practices of the corporation. In contrast, a worker covered by a union shop agreement is compelled to resign his (her) membership to seek reimbursement of that share of dues which the union spent for political purposes. This is a high price to pay for a union member. It is a high price because it must take into account those union benefits financed out of dues (many of the old line AFL skilled unions continue to have these benefits) which would then be forfeited or denied. The price must also take into account that the same union and its officers will continue to represent the objector in grievance bargaining and bargaining in general, and though nominally required to do so fairly, one must reckon with the world as is, not as thought to be. Moreover, the objector runs the risk of the disapproval of fellow workers for opting out and being "sent to Coventry." To be sent to Coventry can be more than ostracism; it is often also means threats, intimidation and harassment. In contrast, the shareholder may even make a wise investment change, so it is evident that equating the union member working under a union shop and a shareholder who object to what their respective institutions are doing politically is not comparable.
3. How I Determine the Value of In Kind Political Contributions.
Calculating the value of each in kind contribution in an accounting sense is not possible because we do not know the universe and because each must be valued in terms of what it would cost the beneficiary, the Democratic party, in cash. Where labor services are involved, the detailed figures on the number of personnel and their earnings are not available. Moreover, expenditures are so classified by the Labor Department's reporting forms that they often conceal the true purposes of unions' expenditures. The Labor Department's financial forms which unions must file are useless for measuring political spending because of the nature of the financial categories. If corporations used comparable forms in their financial reports, stock exchanges would not list them and the IRS would reject their tax reports. Even if the Labor Department forms were amended in an effort to elicit the relevant political information, unions would obfuscate the true purpose of these expenditures in a labyrinth of categories. Moreover, there are no comprehensive figures available as to how many employees unions have, how many are detailed for political work, how many union members volunteer to do provide political activity and what should be the earnings they forego in volunteering. One insight into the extent of potential union member involvement in political activity are the contracts of the Auto Workers with the Big Three auto makers and Delphi, the parts maker, which give the members a paid day off on election day. The number of workers covered by these agreements is about 400 thousand. While not all will spend the day working on behalf of the Democrats, the union leadership will expect a large number to do so. What is the value of this in kind labor service to the Democrats? Indeed, there really is a double value here: Because the members are being paid by their employers, it really constitutes their wage payments are a soft money contribution to the Democratic party. Finally, it should be noted that unions regularly assert that 'thousands' of members and union officials are active politically.
The unions' in kind contributions demonstrate how public policy went off course. Public policy - the National Labor Relations Act - intended to encourage unions and collective bargaining. Building on that policy, unions' have increasingly shifted from their historic trade union function to a political function. Meantime, as it makes the switch, the union bureaucracy discloses little to the public which underwrote labor law or to the members whom it is supposed to serve on the extent of their political activity.
Given that a direct accounting method of calculating the value of unions' in kind contributions is not possible, I rely upon an economic principle to arrive at an estimate. The key to valuing the unions' in kind contributions is my concept of the political multiplier. It is the analogue of the Keynesian investment multiplier in economic theory, a concept which has been established for more than six decades. Conceptually, the political multiplier postulates that a cash political contribution will generate a multiple dollar value of in kind political contributions. The cash expenditures used in this analysis are the Federal Elections Commission's reports that in 1995-96, unions' PAC disbursements totaled $100 million. (The actual figure was $99,769,350). The political multiplier, estimated to be 3, therefore probably produced in kind additional contributions worth $300 million. Hence, in the 1995-96 presidential cycle, the total value of unions' political contributions - nearly all of which went to Democrats - was worth $400 million!
The multiplier, a number without units, is derived as follows:
1/1 - mpc
Here, the acronym, mpc, means the unions' marginal propensity to consume (demand) additional political services of the Democratic Party which is associated with the unions' cash expenditures for political purposes. Put another way, the unions' mpc for Democrat political services asks, what proportion of each additional dollar of the unions' additional income will the unions spend on in kind political services? Assuming, the midpoint between 1 (all additional income) or zero, no additional income will be spent on in kind services, one-half (.5) of each additional dollar of income would be spent on in kind political purposes. The multiplier would then be 2. [ 1/(1-.5) = 2], and therefore that unions' in kind political contributions would equal $200 million in the presidential cycle of 1995-96. Together with their cash contributions of $100 million, this would bring the total to $300 million.
However, based on experience in the Beck (private sector; (CWA v. Beck 487 US 935, 1988) and the Abood (public sector; Abood v. The Detroit Board of Education 431 U.S. 209, 1977) cases, a political multiplier of one-half is clearly too small. Judicial decisions concluded in the Beck case that unions spent less than 20% of their income on collective bargaining and related purposes, and even less in the Abood case. The remainder, the bulk of unions' income was allocated to other purposes, including political expenditures. The exact share going to political purposes is not known. However, given the often stated and forceful intention of the unions' management to implement their political objectives, and the range of possibilities opened up by the Beck and Abood cases, it is reasonable to estimate that the unions' political multiplier would be larger than 2. I estimate it to be 3. This means that the unions' marginal propensity to demand (spend) about two- thirds of each dollar of additional income, or .67, for political purposes. [1/(1-.67) = 3]. Therefore, the unions' in kind political contribution had an estimated value of $300 million in 1995-96. Since total unions cash expenditures are likely to be no less than in the previous presidential cycle year, the political multiplier should be about the same, or perhaps slightly larger during the current cycle.
To critics who challenge my estimate of the unions' political multiplier, I call attention to additional millions of dollars in unions' cash contributions which I could justifiably have included in the base (the multiplicand) which is multiplied to derive the in kind total. Thus, in the 1995-96 election cycle year, unions spent $50 million on categories of political expenditures other than PAC spending. (Masters and Jones, Table 4, Journal of Labor Research, 1999, vol. XX, No. 3, p. 311). Beyond these funds is the remarkable 1995 financial arrangement between the AFL-CIO and Household International: In exchange for the right to issue an AFL-CIO emblazoned credit card, Household agreed to pay the Federation $75 million a year for 5 years for a total of $375 million. Should annual $50 million be added to the unions' political spending and thereby enlarge the value of their in kind contributions? To date, I am unaware of any public accounting of those funds - to what purposes they were put, and most importantly the apparent absence of any accounting to the public and to the members using the credit cards responsible for generating these payments to the AFL-CIO. The fact that a listing of the receipt from Household is reported by the AFL-CIO to the Labor Department hardly meets the goal of full disclosure: where did the money go?
Conclusions
In my judgment, there are numerous ethical and political problems with existing campaign finance legislation and policy. My recommendation, which I have consistently held, and presented in the past to the aforementioned Congressional Committees, is that contributions should be unrestricted for any domestic institution providing there is full and timely disclosure of the identity of the donor, the amounts contributed, and for which campaigns the contributions are made. This applies to both cash and in kind contributions. The most important reason for abandoning regulation of campaign finance is that the new regulation will surely fail just as it has in the past. Shrewd attorneys and clever judges will make Swiss cheese of any new legislation to regulate campaign finance. Finally, one may ask, are campaign finance matters the root of the perceived ills of the American political system? Free markets, albeit imperfect, have served this country's economy and society well. Why shouldn't they in the political market? To paraphrase Winston Churchill's comment on democracy, that democracy is the worst form of government - except for all the rest! Likewise, a free political market would be the worst form of raising contributions - except for all the rest, current and proposed.
Finally, irrespective of a whether there will be a free market in political giving, public policy should require full and timely disclosure to the public and to union members, in this particular instance, of the identity of the donor, the amounts contributed, for which campaigns, and must be applicable to both cash and in kind contributions.
Appendix
Major Democratic party services sought by the unions and referred to in the text are as follows: Restrictions on trade agreements, including extending most favored nation status with China; new labor law; minimum wage legislation, defeat of paycheck protection legislation; defeat of vouchers in education.
On these issues, just as on political expenditures the unions' managements often impose their own views despite the clash of interests between them and the membership and within the membership itself. The most notable is paycheck protection. Enactment of legislation which would require unions to obtain the signature of members before spending monies for political purposes would severely reduce the unions' management political power. Given the minuscule amount individual members voluntarily contribute is the strongest argument in favor of the legislation.
Another important union demand for Democratic Party services are restrictions on trade. The union leadership's demand that environmental and labor standards be included in trade agreements is actually intended to slow if not halt the importation of certain goods. These demands pretend that there are no such standards, when actually the International Labor Office has addressed them for years and the U.S. government is a signatory to these agreements. Moreover, as official members of the American delegation to the ILO, union representatives regularly participated in determining these standards.
The leadership's demand for separate American standards makes them the 21st century version of the Luddites. Adoption of these rules might benefit some private sector organized workers, but a far larger group of private sector workers organized and nonunion (who are 90 per cent of the labor market) would lose jobs, especially in the export industries. Needless to say, it will cost all consumers, reduce their standards of living, and reduce the output of the economy.
The position of the leaders of public sector unions on trade restrictions is even less defensible: The output of their members does not enter into the trade accounts, so they have no stake in protectionism. On the contrary, they have a stake in free trade. Trade restrictions will reduce their members living standards because they are also consumers. Similarly, this applies to the public sector members of private unions, a class of unions I have identified as the joint union. A particular case in point is the Service Employees International Union, the union once headed by John J. Sweeney, president of the AFL-CIO. About 75 per cent of its members are in the public sector, so their standards of living would be damaged by Sweeney's championing trade restrictions. If the U.S. has learned anything in the last two decades is the value of competition in furnishing goods and services, in this, the New Age of Adam Smith.
Another important example of the Democratic Party services which the teachers' unions in particularly wish to obtain is the rejection of educational vouchers. The power of the teachers' unions is rooted in their monopoly control of public education; vouchers are a competitive challenge to that monopoly. By acquiring the Democrat Party's opposition to vouchers, the teachers' unions can maintain the status quo. So, like their confreres in the private sector, they, too, practice a 21st century version of Luddism.
Organized labor's partnership with the Democrat Party will lurch further to the Left as the new century unfolds. Because of the future demographics of unionism, the dominant force within the union movement will become the public sector unions. Atop this group are the teachers' unions, the NEA and the AFT, and they are much further to the Left than most other unions. I expect the two to merge in the near term creating the largest union in the world. As part of that merger, the NEA will affiliate with the AFL-CIO, and in due course, will supply the leadership of the Federation. That development will further cement the close political relationship between organized labor and the Democrat Party and their interdependence will inevitably shift the political orientation of both further to the Left.
1. For nearly one-half century I have focused my research on unions, collective bargaining and labor markets. The results of my work have been published in all the major journals of industrial relations and by the National Bureau of Economic Research. These have dealt with major aspects of unionism including union finance, union philosophies and the differences between public and private sector labor in the U.S. and Canada. I pioneered the study of union finance, union philosophies, the distinction between public and private labor organization, and the development of union statistics by state and region. My statistical data have been republished by the U.S. Bureau of the Census. I have also written several books on these matters, the most recent (in 1999) is Beyond Unions and Collective Bargaining, published by M.E. Sharpe. My next book is titled, Twilight for Unions. Newspapers including the Wall Street Journal, have published my op ed articles, and in November 1999, Forbes Magazine did a feature article on me and my work. A Lexis-Nexis search reports more than 500 'hits' reflecting the number of times I have been contacted and interviewed by the news media across the country. In addition, I have appeared on television and have done numerous radio interviews. I have also testified before Congressman Thomas' House Committee on Oversight in 1996. A year later I also testified before Senator Thompson's Senate Committee on Campaign Finance Reform. In April 2000, I testified before the Senate Committee on Rules and Administration.
2. Examples of in kind contributions are labor services to promote the election of candidates; the services of union members who volunteer their time for campaign activities; union officials and staff who spend time on campaign activities and organize volunteers, whether or not they receive their regular pay; provision of data and telephone banks on voters; registering voters, voter tracking and polling; getting out the vote, including services to transport voters to the polls; subsidizing delegates or alternates to national political conventions; exchanging research and strategy decisions with the Democratic Party; direct mail to members in comparing candidates' voting profiles, which almost universally caricature Republican candidates, and providing platforms for public personalities sympathetic to the Democratic Party to make speeches endorsing Democrats. Valuable services which unions provide the Democratic Party are political operatives whose salaries are paid by the unions. The two teachers' unions, the National Education Association and the American Federation of Teachers are reported to field more political operatives than the combined number of the Republican and Democrat parties. (Myron Lieberman in a communication to me, April 2000). This is particularly significant because these are professional operatives and activists, not volunteers who may be amateurs.
3. Masters and Atkins' figures understate the totals because most public unions are not required to file financial reports with the Labor Department and, therefore, their figures, which are calculated from the Labor Department's data, necessarily understate the total. Thus, the state units of the National Education Association and the American Federation of Teachers (AFT), which do not report to the Labor Department, receive a combined income in excess of $700 million, and their locals account for more than $300 million in this time period. (Lieberman and Haar in a fax to the author). Taking these into account, the total income of the union movement is close to $14 billion. Figures of unreported assets are not available, but obviously unions as a whole have more than the $10 billion in assets calculated for 1995 by Masters and Atkin.
4. The counter argument that individuals with business related jobs contribute amounts far greater than union members, as FEC figures show, is a red herring: It compares different and higher paying professional and managerial occupations with occupational categories much lower in the wage structure. Even so, given the high wages of many union members, and the fact that they are paid more than comparable nonunion workers, and that there are over 16 million members, would one dollar per member be too much for political causes their leaders claim the members endorse?