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Lawmakers Set Back Years of Campaign Finance Reform Efforts in Spending Deal

Author: 420 Times
Created: 17 December, 2015
Updated: 18 October, 2022
5 min read

Early Wednesday morning, Congress announced it had reached an agreement on an omnibus spending bill. While much of the 2,009-page document relates to regular budgetary matters, it includes several riders that temporarily prevent the federal bureaucracy from enacting reforms regulating political spending.

One rider prohibits the Securities Exchange Commission (SEC) from taking any steps to mandate that corporations disclose their political spending to shareholders and the public. A second does not allow the IRS to "issue, revise, or finalize any regulation, revenue ruling, or other guidance" related to a category of nonprofit entities known as 501(c)(4)s or so-called "dark money" groups, which are not required to disclose their donors.

The first stalls an effort, begun in earnest in 2011 by corporate law experts, to persuade the SEC to require corporations to be transparent about their political spending. Campaign reform activists argue that mandating such disclosure is only fair to shareholders, who have a right to know how their firm is spending their money.

While many large companies such as Microsoft and Wells Fargo already disclose their political contributions, such disclosure is currently only voluntary. In 2010, Target upset its shareholders after they learned that the company had contributed $150,000 in support of a Republican gubernatorial candidate in Minnesota who opposed same-sex marriage.

Reform activists also argue that such a requirement is a necessity following the Citizens United decision from 2010, which allowed independent entities such as corporations, labor unions, and Super PACs to raise and spend unlimited amounts of money for political purposes.

In his opinion on the ruling, Justice Anthony Kennedy acknowledged that disclosure was necessary not only because it would allow shareholders to "determine whether their corporation’s political speech advances the corporation’s interest in making profits," but also because it would permit citizens to see "whether elected officials are 'in the pocket’ of so-called moneyed interests."

In recent weeks, Kennedy has commented that such disclosure has not been forthcoming, telling an audience at Harvard Law School that transparency in political spending is “not working the way it should.”

The second rider ends a two-year effort on behalf of the IRS to clarify how much money 501(c)(4)s, or social welfare organizations, can spend on political efforts.

According a 1959 regulation, 501(c)(4)s are classified as groups that are “primarily engaged in promoting in some way the common good and general welfare of the people of the community.”

This definition allows them to engage in activities such as lobbying and even overt political activity, but such political activity cannot be their "primary purpose." Tax lawyers have interpreted this to mean that nonprofit social welfare groups cannot spend more than half of their money on political efforts.

Campaign reform activists point to recent controversies to highlight the need for the IRS to clarify the legal issues surrounding 501(c)(4)s.

In 2012, the law department of the Federal Election Commission (FEC) found that the nature of the political expenditures by Karl Rove's 501(c)(4), Crossroads GPS, merited an investigation based on its spending in 2010. While the social welfare organization claimed that overt political spending amounted to only 38.8 percent of its total expenditures, the FEC's legal counsel calculated its political spending to exceed the 50 percent threshold.

Though internal gridlock prevented the FEC from investigating and adjudicating the matter, other 501(c)(4)s have been accused of breaking the rules of their tax-exempt status, including the American Action Network, which states that its "primary goal is to put our center-right ideas into action."

Because 501(c)(4)s can raise and spend unlimited amounts of money without having to disclose their donors, such groups have become increasingly popular in recent years. It is this surge in applications, especially since the emergence of the tea party, that caused IRS employees to "be on the lookout" for groups with explicitly political names – such as those that included the words "Patriot" or "9/12 project" – to identify those that might be too political to qualify as social welfare organizations.

Since 2013, when the IRS controversy erupted, the federal agency has proposed new regulations to clarify the legal issues regarding the political activity of 501(c)(4)s, but the omnibus bill now puts this reform on hold.

While critics of the bill – such as Richard Hasen of the Election Law Blog and Trevor Potter of the Campaign Legal Center – single out these riders, they do point to a successful effort that killed a measure to increase political parties' spending power.

The measure, introduced by Senate Majority Leader Mitch McConnell (R-Ky.), would have allowed political party committees to spend unlimited amounts of money in coordination with individual candidates – such as to finance political advertising and other campaign-related expenditures – without extending that same cap removal to spending by political action committees, or PACs.

Democrats joined members of the House Freedom Caucus to defeat the measure, which the latter saw as an effort by the Republican Party establishment to strengthen its power relative to that of the conservative wing of the party.

This proposal's defeat stands in contrast to the passage of the 2014 omnibus bill, which included a rider that amended the Federal Election Campaign Act (FECA) – increasing the amount of money that individuals can donate to political parties.

The 2015 omnibus bill also nearly abolished the public financing system for presidential candidates. The money instead would have been set aside to help pay for the Republican and Democratic presidential nominating conventions in 2016.

Despite the inclusion of the SEC and IRS riders, some members of Congress believe their hard work prevented the 2015 omnibus bill from containing as many such riders as the 2014 bill.

"The difference between this year and last year," said House member John Sarbanes (D-Md.), "is we got organized and got organized early."

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