Introduction
Mandated disclosures are omnipresent in the United States. Doctors must provide patients with HIPAA disclosures regarding the use of health histories. Members of Congress must publicly disclose details about their personal finances. It is easy to see why such policies are attractive. “Sunlight is said to be the best of disinfectants,” wrote Justice Louis Brandeis famously.
Yet, as Ben-Shahar and Schneider write, “‘Mandated disclosure’ may be the most common and least successful regulatory technique in American law.” This paper explores one form of mandated disclosure— of donors to nonprofit organizations—and assesses the benefits and costs of these types of policies.
Since the U.S. Supreme Court’s decision in Citizens United and a U.S. Circuit Court decision in SpeechNow, campaign finance reformers have focused their attention on disclosure as a means to regulate money in politics. The rise of super PACs which are permitted to raise and spend unlimited amounts on politics made restrictions on contributions to candidates seem ineffectual.
Reformers coined the term “dark money” to refer to the fact that nonprofits organized under section 501(c)(4) of the Internal Revenue Code do not have to disclose their donors publicly (though some donor information must be reported to the Internal Revenue Service).
In recent years, there have been numerous state and federal efforts to change or create disclosure rules to force the public disclosure of donors to nonprofit organizations, with particular focus on 501(c)(4) social welfare organizations (with some attention also paid to 501(c)(3) charitable organizations). And, as the states and Congress consider, and sometimes enact, changes to disclosure laws, the jurisprudence around disclosure is evolving. This is seen most notably in the major U.S. Supreme Court decision Americans for Prosperity Foundation v. Bonta (AFPF), which struck down a California rule mandating that charities reveal many of their donors to the government. The AFPF decision has spurred subsequent litigation to address questions left unanswered by the decision.
The rhetoric around forced donor disclosure is heated. For instance, Senator Sheldon Whitehouse, in advocating for broadened disclosure requirements, refers to the “toxic flood of dark money” that has allowed the wealthy and interest groups to “rig the system secretly in their favor.” But, given the legislative and legal activity surrounding disclosure, it is important to move beyond such rhetoric and assess donor disclosure from a social scientific perspective, using the lens of cost-benefit analysis. This paper will show the benefits of forced donor disclosure fall far short of what its proponents claim.
The next section lays out the legal rationale for disclosure, with a focus on campaign finance disclosure (which is closely related to nonprofit disclosure). From there, it shows empirical research raises questions about the legal rationale for disclosure, focusing primarily on the purported informational benefits of disclosure. Then, it addresses the more limited empirical research on disclosure costs. Finally, it covers how one can understand disclosure laws through the lens of an economic theory known as public choice.
What Social Science Tells Us About Forced Donor Disclosure
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