Debate over transparent and non-transparent contributors obscures funds that wind up in politics. Will new guidelines change anything?
WASHINGTON — In recent weeks, broad-based opposition has strengthened to a landmark, if overdue, proposal from the Obama administration to limit avenues for anonymous political funding.
In late November, the U.S. Treasury and the Internal Revenue Service (IRS) proposed new guidelines to redefine a category of tax-exempt groups that, in recent election cycles, have become massively important, working to funnel huge amounts of private and corporate contributions to political candidates despite legally being barred from engaging in outright political activities.
Known by their tax code designation as 501(c)(4) “social welfare” organizations, over the last three years these groups have largely redefined modern political electioneering in the United States. Currently such groups, on the left and right, are pumping tens of billions of dollars into issue-based campaigning ahead of the mid-term elections, with spending expected to approach new records for off-year polls.
Conservatives have received the lion’s share of 501(c)(4)-related spending, and Republican lawmakers and advocacy groups have pushed back hard to the new proposals. Their frustration has been significantly amplified by revelations last year indicating that the IRS had improperly targeted certain, particularly conservative, groups for special scrutiny. Republican-sponsored bills are currently pending in the House and Senate to delay or bar outright the Treasury’s proposals.
“On Black Friday, Treasury released proposed rules regarding 501(c)(4)s that would essentially remove conservative groups from the public square. The rationale of the IRS and Treasury was that the rules, which have been in place for more than 50 years, created ‘confusion,’” Rep. Dave Camp (R-MI), the head of the powerful House Ways and Means Committee, said last week when the committee considered and passed Camp’s bill to halt the Treasury rulemaking process for a year.
“Under these proposed rules, activities such as candidate forums, get-out-the-vote efforts and voter registration would now be considered ‘political activity’ for 501(c)(4) groups.”
Camp’s proposal has yet to come up for a vote on the House floor, and a companion bill is currently pending in the Senate. The issue will likely receive increased traction over the coming week, as the House Republican leadership, fresh off a round of strategizing, has dubbed the last week of February “Stop Government Abuse Week.”
Yet in recent days, liberal groups, too, have started offering new resistance to the Treasury proposal, suggesting that the rule would infringe on free speech guarantees. The American Civil Liberties Union (ACLU) has submitted a lengthy comment to the IRS, warning that “social welfare organizations praise or criticize candidates for public office on the issues and they should be able to do so freely … Such advocacy is at the heart of our representative democracy. To the extent it influences voting, it does so by promoting an informed citizenry.”
Other liberal groups have expressed similar concerns, with some clearly worried that their own operations could be impacted upon by a new rule. (On Wednesday, the New York Times published an editorial calling on the IRS to ignore both the conservative and liberal complaints.)
“I haven’t been surprised at all by hearing opposition from Democratic- and Republican-aligned groups to the Treasury Department’s rulemaking, because both parties are playing the game of unlimited money in politics,” Paul Ryan, a senior counsel at the nonpartisan Campaign Legal Center (CLC), a watchdog group here, told MintPress. “At the end of the day, this really comes down to whether the money being spent gets disclosed to the public or not.”
Ryan says the CLC strongly supports much of what’s in the Treasury’s proposal, though his office will be formally pushing for some tweaks. But he notes that much of the opposition to the new rule is mischaracterizing its impact.
“One of the most frustrating aspects is the current widespread misrepresentation of this rule as an effort to shut down political speech,” he says.
“In reality, even if the Treasury were to go forward with the rule as currently proposed, no one would be prevented from speaking in any way. Groups would simply have to choose the appropriate tax-exempt status – they could then raise and spend unlimited amounts, but they would also have to disclose donors.”
While enforcement has long been subject to official interpretation, 501(c)(4)s are hardly supposed to be involved in politics at all. Nonetheless, they have been able to use a legal ambiguity – and years’ worth of debate and negotiation – to become the vehicle of choice for large, politically minded donors in the aftermath of the U.S. Supreme Court’s 2010 Citizens United case, which opened the doors to a flood of new anonymous corporate political spending.
These groups have the enticing position of having some wiggle room in how politically involved they can be, while also being able to keep their contributors largely private. On the contrary, as Ryan notes, the IRS allows other such groups to engage wholly in the political process, but these are required to disclose their donors’ identity.
According to official estimates, some $300 million was funneled into the 2012 presidential election from anonymous donors through tax-exempt organizations (others have pointed out that this figure is relatively small compared to the $7 billion that was spent cumulatively in the 2012 election). Activists today refer to such secret funding as “dark money,” some 85 percent of which is estimated to have gone to conservative groups in 2012.
In November, the Treasury and IRS moved to rectify the growing disconnect between decades-old legal guidelines and new realities on the ground, offering potential new definition of what activities are and are now allowed under a tax-exempt status.
A broad spectrum of typical activities would now be banned for 501(c)(4) groups, including voter education and voter registration activities. The new rules would also disallow these groups from engaging in any advertising that mentions a particular candidate during the 60 days ahead of an election, and would offer overall percentages for how much these groups would be able to engage in certain political activities.
The Treasury is currently collecting public comments through the end of the month. The agency has already received nearly 25,000 comments, reportedly a new record for a Treasury rule.
“There’s an organized effort being made by tea party groups to get comments into the IRS, but our side is also getting in comments,” Fred Wertheimer, a widely respected campaign finance activist and head of Democracy 21, a Washington advocacy group, told MintPress.
“The bottom line is that this rule is more than a half-century old, has now been completely outdated and needs to be rewritten. We joined with other groups and brought a lawsuit against the IRS calling for a new rulemaking process, and if for some reason this rulemaking does not proceed to a conclusion we’ll refile that lawsuit.”
For its part, the Treasury says the process is ongoing. “Treasury and the IRS issued the proposed guidance as a first step in a careful, thoughtful process to clarify the rules governing social welfare and other tax-exempt organizations, consistent with the recommendations of the Treasury Inspector General for Tax Administration,” a Treasury spokesperson told MintPress in a statement.
Following the public comment period, the next step in the rulemaking will likely be a formal public hearing.
It remains unclear whether the current legislative attempts to halt the Treasury attempt will be successful or will at least garner some significant Democratic backing, though many observers feel this is unlikely. Nonetheless, close observers of the rulemaking process say the push to redefine 501(c)(4)s will remain an uphill battle.
“We could easily end up at a point where everybody is stymied. In some ways, Rep. Camp and his camp could win because it becomes so hard to move this forward,” Meredith McGehee, the policy director at the Campaign Legal Center, who’s been working on the issue since the mid-1990s, told MintPress.
“Even if this proposal is revised, it’s unclear it will ever get finalized, or whether it will just bounce around in court, unless President Obama shows some real leadership. I do believe that this could move forward more quickly if the administration sticks to its guns, listens to some of the proposals and then comes up with a reasonable proposal.”
President Obama has spoken out about money in politics during his time in office, McGehee says, but he has yet to act substantively on that rhetoric.
“But hope springs eternal that this may be the one area where he would decide to spend some political capital,” she says, “due to the danger the current system poses to our political system.”