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The Money Dodge

We knew back in 2002, when Congress passed the Bipartisan Campaign Reform Act, that it would have to be revisited, given the inexorable impulse of rich special interests to influence politics and the cleverness of lawyers in inventing ways to help them.

Well, the time is now. As opponents of BCRA predicted, the law’s ban on soft money and its meager limits on individual contributions to parties, candidates and political action committees have encouraged the growth of independent groups that often will say and do what parties and candidates won’t.

In the 2004 presidential cycle, groups such as Swift Boat Veterans for Truth, the Club for Growth and the Progress for America Voter Fund on the right and America Coming Together and The Media Fund on the left organized political committees under Section 527 of the Internal Revenue Code to collect unlimited amounts of money from individuals, corporations and unions and spend them to attack foes and support friends, supposedly avoiding only explicit advocacy of voting for or against any candidate.

Congress erred in failing to stipulate in BCRA what 527s could and couldn’t do, and the Federal Election Commission declined to issue regulations, insisting it would review their activities on a case-by-case basis — a policy upheld by the courts after it was challenged by the sponsors of BCRA.

Long after the 2004 elections were over, the FEC did slap some 527s with fines — puny ones, compared to their budgets — for acting like political committees and failing to register. The FEC rulings constitute belated regulation of 527s — they must disclose their donors, for example — and violators could be prosecuted for violating them.

So now the interests and their lawyers have found a new refuge in Section 501(c) of the tax code — the one supposedly reserved for nonprofit social welfare organizations. The Swift Boat Veterans are out of business, but the Club for Growth is back with a 501(c)4, along with a huge new conservative group, Freedom’s Watch, and liberal groups such as NARAL Pro-Choice America and the League of Conservation Voters.

Their lawyers are exploiting an exemption in a 1986 Supreme Court ruling allowing them to explicitly advocate election and defeat of specific candidates as long as politicking is not their major activity. But neither the Internal Revenue Service nor the FEC is policing their expenditures.

The 501(c)s need disclose nothing about their donors or outlays and there are no limits on what they can raise or spend, except that they can’t solicit from corporations and unions, only individuals. Unions and corporations are still giving lavishly to 527s, unions more than companies.

Also, new 527s have sprung up, like left-leaning The Fund for America. Run by former Clinton White House Chief of Staff John Podesta, the group already has raised $2.5 million from billionaire George Soros. SEIU also gave it $2.5 million late last year.

At a minimum, Congress needs to hold hearings on the consequences of BCRA. It’s obviously too late to pass any reforms for the 2008 election cycle, but the ground ought to be laid for 2010 and 2012. At a minimum, BCRA contribution limits need to be raised for parties, candidates and PACs to keep them in charge of American politics. And full disclosure needs to be applied to 501s as well as 527s.

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