Income Disclosure Bill Becomes Law


The legislature has now passed, and the governor signed, allegedly groundbreaking “ethics reform” legislation on the investigation of lawmakers and income disclosure.

Why does income disclosure matter? Currently, state lawmakers are required to disclose almost nothing about their sources of income. That means, among other things, that they can be paid by special interests to support and promote legislation without the public knowing anything about it – and do so without breaking the law.

Any reform to the state’s disclosure requirements should aim to expose conflicts of interest. That is the whole point of disclosure, and that is what the bill signed by the governor mostly doesn’t do. In fact, under the new law, a whole lot of income will still remain undisclosed.

The law’s two main problems are these:

(1) The LLC loophole

The law doesn’t get rid of a loophole in current law that allows public officials to set up a limited liability company, or LLC; direct all their private income into that account; and “disclose” that they’re paid by the LLC. That tells the public nothing about where the money actually came from: which lobbyist principals paid them, which special interests paid them, etc.

The problem, in essence, is that the law’s definition of “private income” is weak: “anything of value received, which must be reported on a form used by the Internal Revenue Service for the reporting or disclosure of income received by an individual or business.”

That sounds tough, but the IRS isn’t especially concerned with conflicts of interest at the state level. The IRS is concerned with taxable income. The public has no interest in knowing what bank accounts lawmakers pay themselves with. They want to know the actual source of the income in order to discern whether there is a conflict of interest. The new law does very little to ensure that the public will have access to that information.

In fact, one longtime senator actually urged his colleagues on the Senate floor to pass the

"Next year, regardless of what version we pass, you won't know anything more about me than what you know now." –Sen. Brad Hutto (D-Orangeburg)
“Next year, regardless of what version we pass, you won’t know anything more about me than what you know now.” –Sen. Brad Hutto (D-Orangeburg)

bill specifically on the grounds that they could set up LLCs and refrain from disclosing anything important. Another senator, Brad Hutto, correctly predicted during debate that, if the bill passed, voters wouldn’t know any more about him, Hutto, than they do now.

(2) The government income loophole

Many lawmakers draw far more government income than the $10,400 to $32,000 they’re allotted as state lawmakers. The same is true of other key government officials. One important source of de facto government income involves subcontracts. If a state lawmaker owns a company that subcontracts with another company that does work directly for the state, the lawmaker doesn’t have to count that as government income – even though it’s a result of the state paying for the service, and even though the lawmaker may well be in a position to steer that contract to the firm with which is company does business.

Consider the case of Sen. Hugh Leatherman’s concrete company, for instance.

Till now, all of this would be considered “private” income and therefore wouldn’t have to be disclosed. Under the new law, it would have to be disclosed as private income, but then we are back to point (1) above: All the official has to report is how much he was paid by his business, and no one would know how much his business was paid by government contracts or subcontracts.

What should have been done?

The point of an income disclosure law is to make it possible for the public to see conflicts of interests when they occur. An effective law, therefore, would first need to require the actual sources of the money, not necessarily the IRS information. And second, an effective law would need to explicitly require the disclosure of all money flowing to the public official from government entities.

What H.3186 requires, in short, is a lot of gesturing but not much disclosure.

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