At issue are social-welfare groups under section 501(c)4 of the tax code. The social-welfare exemption was originally designed for groups operated, as the law said, “exclusively for the promotion of social welfare.” In 1959, regulators declared that the groups had to be “primarily” engaged in social welfare but could conduct some politics. The threshold was defined in recent years as no more than 49 percent of spending for political activity. The logic was that groups such as renters’ associations or firefighter units could be allowed to do some politicking while not giving up their central social welfare purpose.
Until now, the 501(c)4 groups did have to identify to the IRS those who donated more than $5,000, but the donors were not disclosed to the public, making these groups an increasingly attractive vehicle for channeling hidden money to campaigns. By contrast, donations to political action committees, regulated by the FEC, must be disclosed. The social-welfare groups became a vehicle for dark money in politics in a way that was not originally intended.
But the IRS clearly had no stomach for this fight, which caused it so much grief during the tea party scandal. The Treasury Department announced on July 16 that the tax agency would no longer ask for donor identities from these groups and some others. (The disclosure rules for a different type of charity, 501(c)3 organizations, are set in law and will not change.) The IRS said it didn’t need the donor identity information and that not collecting it would save budget funds. That may be true, but it also moves the country still further down the road toward a murky politics influenced by dark money.
Perhaps it was too much to expect the IRS to be the lone government cop on this beat. But that should not mean giving up. Ideally, Congress ought to step in and clarify the law to require full disclosure for all money going into politics, including cash being pumped into the battle over a Supreme Court appointment. But the reality is that Congress benefits from the dark-money tide and has failed to act on bills that would boost transparency, such as the Disclose Act.
Hidden caches of money are just the first half of corruption. The second half comes when politicians do the bidding of the secret fat cats and vested interests. Both are a cancer on democracy that ought to be excised.