How profitable is lobbying?

January 15, 2012

With a number like 25.8 lobbyists per member of Congress (totaling 11,140 in Washington alone), lobbying has become a serious business. The  idea is to get regulations gutted or a tax loopholes and exceptions created to spare corporations of inconvenient profit losses. But getting those laws changed can be fairly expensive. And if so, how much money does a corporation get back from investing in a good lobbyist?

Fortunately there is a study conducted by Raquel Alexander, Susan Scholz and Stephen Mazza entitled “Measuring Rates of Return for Lobbying Expenditures: An Empirical Analysis under the American Jobs Creation Act” that provides some hard fact answers to this question.

The Abstract:

The lobbying industry has experienced exponential growth within the past decade. The general public, the media, and special interest groups perceive lobbying to be a powerful mechanism affecting public policy. However, academic research finds inconclusive results when quantifying the rate of return on political lobbying expenditures. In this paper we use audited corporate tax disclosures relating to a tax holiday on repatriated earnings created by the American Jobs Creation Act of 2004 to examine the return on lobbying. We find firms lobbying for this provision have a return in excess of $220 for every $1 spent on lobbying, or 22,000%. Repatriating firms are more profitable overall, but surprisingly, profitability is not a predictor of repatriation amount. Rather, industry and firm size are most predictive of repatriation. Cash on hand, a proxy for ability to repatriate, is not associated with the repatriation decision or the repatriation amount. This paper provides compelling evidence that lobbying expenditures have a positive and significant return on investment.

Alex Blumberg from Planet Money later interviewed Scholz and Alexander on this study and found them surprised about the high payoff as well:

Alexander: I was not expecting it to be that big at all. I thought I needed to go check my math. 
Blumberg: So after the fifth or sixth time checking you were like, oh, this is the number? 
Alexander: After the twentieth time of checking. 

During the interview, Scholz issues her concerns about the company-lobbyist-politician ecosystem, ultimately stating really all there is to conclude on the matter:

Scholz: 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. 

Sources: Number of Lobbyists per Congressman
SSRN:  R. Alexander, S. Scholz and S. MazzaMeasuring Rates of Return for Lobbying Expenditures: An Empirical Analysis under the American Jobs Creation Act
Planet Radio: Forget Stocks Or Bonds, Invest In A Lobbyist

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