The Influence Industry: Legality of ‘Super PACs’ a test for campaign finance law

May 25, 2011

A year after the Supreme Court’s landmark Citizens United ruling allowed unfettered election spending by corporations and unions, a new phenomenon is taking shape: interest groups that are trying to claim the imprimatur of the Republican and Democratic parties.

The groups are officially independent but are run by former party operatives. The Republican Super PAC, for instance, is run by three members of the Republican National Committee.

Now, some of these quasi-official independent groups want to have Republican and Democratic lawmakers help them raise money.

There’s a debate, however, about whether the practice is legal.

Part of the 2002 McCain-Feingold campaign finance law banned lawmakers from raising contributions that aren’t regulated by federal laws — part of the curb on corporate “soft money” that was a hallmark of the legislation.

Two Democratic interest groups have asked the Federal Election Commission to weigh in on the idea, saying that the law does not appear to allow elected officials to raise money for their groups. But, they said, they’d like to do so if the FEC doesn’t explicitly say that it is illegal.

In the meantime, on Wednesday, lawmakers got a warning in their e-mail inboxes from Democracy 21 and the Campaign Legal Center, two groups that advocate for limits on money in politics.

“This scheme for federal candidates and officeholders to solicit unlimited contributions is plainly illegal under federal campaign finance law,” the e-mail reads. The proposal “would lead to an absurd and obviously corrupting result that a president or member of Congress could solicit a $5 million donation for a super PAC with the understanding that the PAC will spend the money on ‘independent’ expenditures to benefit that particular federal officeholder or candidate.”

James Bopp Jr., a lawyer and founder of the Republican Super PAC, says the e-mail misinterprets the law. The “super PAC” contributions are regulated, and therefore fine for candidates to solicit, because they’re reported to the FEC, he said. He added that the e-mail is part of a “threat and chill operation” meant to scare lawmakers out of raising the money.

The election commission will probably deadlock on the issue, given recent partisan splits on similar matters. That means both parties will proceed with their plans, and you’ll probably see a lot of lawmakers raising big money for next year’s campaign.

IRS weighs the gift tax

The political world took special notice of recent news that the Internal Revenue Service is looking into contributions to so-called “social welfare” nonprofit groups, which have played an increasing role in political spending in recent years.

A redacted letter from the IRS, released by a California lawyer, shows that the agency is trying to enforce the gift tax — now at 35 percent and soon rising to 55 percent — for contributions to nonprofit groups that don’t qualify for tax-deductible contributions.

That could mean that many rich donors could be forced to pay levies on donations to such political nonprofits as American Crossroads and the American Action Network.

There might be less to this development, however, than appears.

For one thing, gifts from corporations are not affected by the tax. That excludes much of the political spending that was prompted last year by Citizens United and related cases.

There’s also no evidence that the contributions under review at the IRS are political in nature. The agency says that it has begun five audits but that they’re not part of a broader effort. There are thousands of social welfare groups in the United States, and the number active in political campaigns is small by comparison.

Further, it’s not even clear that the IRS could apply the gift tax to a political contribution. The last court case on the matter found that a political contribution is not the same as a gift, said Paul Caron, a tax professor at the University of Cincinnati College of Law.

“You can make the argument that when a businessman gives money to an organization like Karl Rove’s American Crossroads, he’s not giving a gift to Karl Rove the same way a parent is giving a gift to a child,” Caron said. “There’s not the donative intent to the contribution; it’s just a business person hoping to further their business interest through these entities.”

Even if the gifts were subject to the tax, there’s a $5 million lifetime exemption, which means only the wealthiest contributors would be subject to it.

The biggest impact of the IRS investigation is likely to be on the willingness of donors to open their wallets, given their fear of an audit from the tax agency.

Comments
Show Comments
Most Read Politics