Tax-Exempt Political Parties Have Money and Resources to Keep Elections Rigged

Created: 08 October, 2014
Updated: 15 October, 2022
4 min read

Nonprofits have been in the news lately, and it isn’t necessarily because of the good they’re doing.

For starters, more than 412,000 people have signed a Change.org petition to revoke the National Football League’s 501(c)3 tax-exempt status, which the organization maintains despite reportedly raking in billions of dollars in revenue.

Others are calling for the federal government to roll back coveted tax exemptions for faith-based organizations, with The Washington Post reporting that one secular humanist group found taxpayers provide roughly $82 billion in subsidies.

But what about the nonprofit entities that allow people to organize political parties?

Like anyone else who does business in the United States, Democratic and Republican leaders have to formally organize and represent themselves under a legal structure.

For their parts, the Democratic and Republican National Committees — the head organizations for the two parties in Washington — are classified as 527 tax-exempt, nonprofit organizations. That means taxpayers subsidize their activities without collecting taxes from their income.

That’s a lot of untaxed money. For this year’s midterms alone, the Democratic and Republican parties brought in more than $595 million and $461 million, respectively, according to OpenSecrets.org.

However, the two parties aren’t exempt from reporting to the federal government.

Not unlike their better-known 501(c) counterparts, 527s have to periodically file their income with the federal government. The IRS used to require that political organizations file the standard Form 990 like other nonprofits, but cut through a lot of red tape for state and local candidates with lean revisions it made in 2000.

But — as many unhappy voters would likely agree — the two parties aren’t your run-of-the-mill nonprofits.

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‘Outside of the Law’

Their 150-plus-year role in American politics means most states grant the two parties a favored-son status, with many public offices and financial accounts bound up in knots with the institutions in ways sources speaking with IVN have periodically called “murky,” “uncertain,” and “gray.”

“These organizations do to some extent step outside of the law,” Dave Wakeman, the Washington, D.C.-based principal of Wakeman Consulting Group, said in an interview for IVN.

Concrete federal regulations exist to prevent certain 527s, like ongoing campaigns or other political action committees, from working together too closely in order to stave off the misuse of public resources.

Even so, Wakeman, who’s been in politics for approximately 20 years, suggested he’s seen entities crossing possible boundaries.

“There some cooperation between groups when there shouldn’t be, and not in the spirit of the law,” he explained.

Firewalls may serve to keep political parties and their candidates from mixing the oil and water of public and private monies at the federal level, but there’s nothing that says state governments can’t also do their part to cushion the two major parties.

Layering subsidies on subsidies, most states also backstop private primary elections for the entities with public funds.

For instance, Texas taxpayers forked over $13 million for the two parties’ primaries in March, with much of it reimbursing county clerks and poll administrators.

In New Jersey, where voters have to participate in closed primaries — forcing them to affiliate with one of the two major parties in order to participate — taxpayers fronted $12 million for special elections to fill the seat of the late Senator Frank Lautenberg.

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Past sources criticized the glove-in-hand approach to the two entities as inherently undemocratic. Still, not everyone sees a problem with it.

Candice Nelson, a professor with American University’s government department, balks when asked whether states should do anything to restrict funding, tax-exempt or not.

“[I]t costs money to put on elections — to have a voting booth and have a place to go and vote,” Nelson said. “I don't think it's unreasonable for states to pay for the funding of those elections.”

No Third Wheels

The status quo is quite different from the nation’s early years, when now-extinct parties like the Whigs and Federalists — absent formal and rigorous reporting requirements for their latter-day 527s — regularly died out so new ones could step up.

Flash forward to today, and most states maintain stiff signature requirements for third parties and give little to no money to those interested in holding their own primaries. Experts say these laws help keep third parties like the Libertarian Party, Green Party, and others down and out of luck in a two-party game.

“That’s kind of taken the enthusiasm for those parties out of the system,” Nelson said.

Without some form of competition, sources say the two parties are also more likely to follow the same electoral strategies. Democratic and Republican state parties filed litigation to overturn open primary systems and keep others closed in 6 states over the last decade.

The same certainly seems to go for their fundraising records.

According to analysis conducted with OpenSecrets.org data, the 61 Democratic and Republican lawmakers seated on the influential House Financial Services Committee received a fourth of their combined campaign funds — about $48 million — over the last year from the financial services industry and their 527 organizations.

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Only eight of those lawmakers netted their single-biggest political contributions from sources other than financial services groups. Over that time, the same committee drafted some 18 bills designed to gut financial reform laws that many industry trade groups see as bad for business.

“Something has to be done,” Wakeman said. “Firewalls need to be strengthened rules need to be clearer about what should happen between 527s.

“By the same token, it’ll be tough to get things done like that because there’s so much money being invested into these campaigns,” he added.

Photo Credit: Elena Yakusheva / shutterstock.com

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