Corporations don't lobby Congress for fun. They lobby because it helps their bottom line. Getting a regulation gutted or a tax loophole created means extra cash for the corporation. But getting laws changed can be very expensive. How much money does a corporation get back from investing in a good lobbyist?
It's a messy, secretive system so it was always hard to study. But in 2004, economists found a bill so simple, so lucrative, that they could finally track the return on lobbying investment.
The American Jobs Creation Act benefited hundreds of multinational corporations with a huge, one-time tax break. Without the law, companies that brought profits earned abroad back to the U.S. had to pay a tax rate of 35 percent. With the law, that rate dropped to just over 5 percent. It saved those companies billions of dollars.
In a recent study, researchers Raquel Alexander and Susan Scholz calculated the total amount the corporations saved from the lower tax rate. They compared the taxes saved to the amount the firms spent lobbying for the law. Their research showed the return on lobbying for those multinational corporations was 22,000 percent. That means for every dollar spent on lobbying, the companies got $220 in tax benefits.
That high of a payoff surprised even Alexander:
RA: I was not expecting it to be that big at all. I thought I needed to go check my math.
AB: So after the fifth or sixth time checking you were like, oh, this is the number?
RA: After the twentieth time of checking.
The American Jobs Creation Act is just one example. Not every lobbying effort has a return of 22,000 percent. There are companies that probably lose money lobbying — they spend limited resources on lobbyists and see no benefit in return.
But the company-lobbyist-politician ecosystem, Scholz says, is a problem:
We have a situation where we, in essence, invite corporations to buy their own tax rate through lobbying... which ultimately corrupts both the companies and the politicians.
STEVE INSKEEP, HOST:
Some economic news, next. New unemployment numbers are out this morning, and the Labor Department says the unemployment rate fell again, slightly, to 8.5 percent. That is the lowest level in almost three years. Another survey finds employers added about 200,000 jobs. We'll have analysis through the day on NPR stations. In addition to hiring, many businesses are spending billions of dollars on lobbying this year – as in every year. Businesses could spend their money on many other things, so that raises a question: what's the payoff? Here's Alex Blumberg of NPR's Planet Money team.
ALEX BLUMBERG, BYLINE: What you get in return for the money you spend on lobbying is a difficult question to answer with precision.
RAQUEL ALEXANDER: We know that people lobby for a reason. We know that they're successful many times. But we haven't really been able to quantify what's the return on their lobbying investment.
BLUMBERG: Raquel Alexander is a tax professor at the University of Kansas. Couple of years ago, she and her colleagues set out to answer this question. It's a tricky one because there are a lot of reasons people lobby, and you can't always put a dollar figure on what they get out of it. The NRA lobbies for gun rights. The Sierra Club lobbies for environmental issues. If they get some regulation strengthened or loosened, there's no easy way to tally up what it's worth.
But in 2004, Alexander and her colleagues finally got something that could help them add up lobbying costs and benefits - the American Jobs Creation Act. This was the piece of legislation that lots of multi-national corporations spent a lot of money lobbying for, because it got them a huge one-time tax break. It allowed them to bring profits held abroad back into the country, and instead of paying the normal rate of 35 percent, they paid just over five percent.
ALEXANDER: So we found 450 firms, that reported in their financial statement, that they were taking advantage of this tax holiday to bring money back home. And of those, 93 we identified as being involved in lobbying.
BLUMBERG: Alexander and her colleagues compared the amounts these firms spent lobbying with the amount they saved on their taxes, and came up with a figure - a figure they called The Return on Investment to Lobbying. Now, return on investment is a term you may have heard: how much do I get back in return when I put my money somewhere. Money in a regular old savings account, you'd be lucky to get a one percent return on investment.
On the other end of the spectrum, Bernard Madoff advertised annual returns of just over 10 percent. So, if you want to come up with a big, impressive-sounding lie, a 10 percent return on investment is what you say.
The Return on Investment to Lobbying, in the case of Alexander's study...
ALEXANDER: Twenty-two thousand percent; so for every dollar, on average, that these firms spend on tax lobbying, they received $220 in tax benefits from this repatriation provision.
BLUMBERG: Were you expecting it to be that big?
ALEXANDER: I was not. I was not expecting it to be that big at all. I thought I needed to go back and check my math again.
(SOUNDBITE OF LAUGHTER)
BLUMBERG: So, after the fifth or sixth time checking you were like, oh, this is the number.
(SOUNDBITE OF LAUGHTER)
ALEXANDER: After the 20th time of checking.
BLUMBERG: There were $3.5 billion spent on lobbying in 2010, and it's hard to imagine that every one of those dollars got a 22,000 percent return. There are certainly companies out there that spent a lot of money and didn't get what they wanted, they just lost the money.
But Raquel Alexander says that since that tax holiday passed in 2004, the amount of corporate profits held in offshore tax havens has tripled.
ALEXANDER: Because people that weren't doing this before, are doing it now; and the ones that were doing it, are doing even more.
BLUMBERG: What do you make of that?
ALEXANDER: I make of that, that everyone agreed, basically, that it wasn't going to be a one-time provision. They knew it was coming again and that they would be able to bring some of this money back home.
BLUMBERG: And, in fact, in May of last year the Freedom to Invest Act of 2011 was introduced in the House, setting up a one-time tax rate of five percent for offshore earnings. In October, a bill doing the same thing was introduced in the Senate.
Now, when it comes to the corporate income tax, there is a healthy academic debate about how high it should be. Many experts say we'd be better off if corporations paid a lower income tax - the money they saved on taxes they could put into investment, which would ultimately lead to more jobs.
And as it happens, Raquel Alexander and her co-author on the study, Susan Scholz, come down on separate sides of this debate. Alexander thinks the 35 percent corporate tax rate is about where it should be. Scholz would like to see it lowered, considerably. But Scholz has a lot of problems with the way it got lowered in this case, through lobbying.
SUSAN SCHOLZ: We have a situation where we, in essence, invite corporations to buy their own tax rate through lobbying; making their own deals with Congress, which I think ultimately corrupts both the companies and the politicians.
BLUMBERG: The coalition of companies lobbying for the new tax holiday has spent around $50 million so far. Companies in the coalition are estimated to have over $200 billion in profits parked offshore.
For NPR News, I'm Alex Blumberg.
INSKEEP: It's MORNING EDITION from NPR News. Transcript provided by NPR, Copyright NPR.