Secret campaign money

Tuesday, October 12, 2010

THE GUSHER OF secret money pouring into the coming election is alarming. It should be plugged for future campaigns -- and could be, with the switch of a Senate vote or two. But the rhetoric about this development, from President Obama on down, is irresponsibly alarmist. And the popular understanding of how this mess arose -- generated by the president and other Democrats and abetted in part by media reports -- is ill-informed. The fundamental problem is not the Supreme Court's ruling in Citizens United, although that reflected wrongheaded judicial activism. The real problem lies in a tax code that permits too much political activity to take place in secrecy.

First, the alarmism. Mr. Obama and his administration have seized on a report from a Web site run by the liberal Center for American Progress to argue that the U.S. Chamber of Commerce -- one of the biggest players in the world of secret campaign cash -- is using "secret foreign money . . . to influence our elections," in the words of an over-the-top ad from the Democratic National Committee.

"Just this week, we learned that one of the largest groups paying for these ads regularly takes in money from foreign corporations," the president said last week. "So groups that receive foreign money are spending huge sums to influence American elections." But Bruce Josten, the chamber's chief lobbyist, told the New York Times that the chamber's 115 foreign affiliates pay less than $100,000 in membership dues, out of a total budget of $200 million. The foreign money is kept in segregated accounts. The White House seems willing to stoke xenophobia without any evidence for its accusations.

The real threat from the chamber's campaign activities is from secret domestic cash. The chamber expects to spend $50 million this election cycle, but where is the money coming from? Pharmaceutical companies? Oil companies? Banks?

As to why this information is secret, you'd think, from the rhetoric, that the Supreme Court is to blame. It's not. The Citizens United ruling concerned "independent expenditures" explicitly supporting or opposing federal candidates. Individuals have long been able to spend unlimited sums in this way. In Citizens United, the court extended that right to corporations and, implicitly, unions. That is dangerous, in two ways. First, because independent expenditures can be direct in advocating a candidate's election or defeat rather than coyly suggesting the same, the decision amplifies corporate voices. Second, and this is the link to secret campaign cash, it allows established or newly sprouted interest groups to take unlimited amounts of corporate or other money and use it for independent expenditures -- without revealing the underlying givers.

Nonetheless, corporations had ample ability to influence the political process -- and, if they wanted, to do so secretly -- even before Citizens United, and most of the activity about which Democrats are complaining involves such previously legal conduct. A 2007 Supreme Court ruling, Federal Election Commission v. Wisconsin Right to Life, was more damaging than Citizens United. In that case, the court invalidated a provision of the McCain-Feingold campaign finance law and allowed groups, including corporations, to run "issue advocacy" commercials naming particular candidates up through Election Day. As Loyola Law School professor Justin Levitt explains in a new paper for the Yale Law & Policy Review, "The day before the Citizens United decision, corporations had the constitutional right to spend unlimited funds telling voters that 'Candidate Smith hates puppies.' Citizens United added only protection for these corporations to convey an incremental 'Vote Smith out' exhortation."

The problem of this secret spending -- and the solution to it -- lies in the tax code and its enforcement. Nonprofit advocacy groups, known as 501(c)(4)s, are permitted to engage in political advocacy as long as that is not their primary purpose. Meanwhile, these groups do not have to reveal the identities of their donors. IRS regulations bar such organizations from "direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office," but as a practical matter, these limits have not made much difference. One such Republican-leaning group, American Crossroads GPS, has touted its ability to keep donor names confidential even as it runs ads in key races. Similarly, trade associations such as the Chamber of Commerce, organized under section 501(c)(6) of the tax code, are not required to disclose donors and are permitted even greater leeway to engage in political activity.

The Disclose Act would require that these groups reveal the funders of campaign ads; it would do so without intruding on the privacy of contributors to other efforts unrelated to campaigns. The 2010 flood of secret money can't be turned off. It's essential to act in time for 2012.

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