Why everyone was wrong about McCain-Feingold. ...

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April 25 2002 3:44 AM

Everyone Was Wrong About McCain-Feingold!

We all missed a giant loophole in the law.

 I was wrong about the McCain-Feingold campaign finance reform law. The New York Times was wrong. Peter Beinart was wrong. And E. J. Dionne was wrong, too!

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We all missed an important wrinkle in the new law—important because understanding it reveals a gaping hole in the bill, a hole the bill's legal defenders (if you ask them) freely admit exists.

Necessary background: Along with many others, I criticized McCain-Feingold for banning last-minute TV and radio ads sponsored by nonprofit advocacy groups even when those ads were paid for by individual citizens (and not by profit-making corporations or unions). This ban, it seemed to me, violated the principle—embodied in the Supreme Court's key Buckley v. Valeo ruling—that American citizens should be free to band together and spend their own money saying what they think about politicians when it matters most (i.e., just before an election).

It might be OK to restrict spending by corporations and unions, in this view. It might be OK to limit contributions to the campaigns of candidates. But if you want to spend your own money, independent of a candidate's campaign, to express your views—well, it's a free country. Or should be.

Here's the wrinkle: It turns out the new law's ban on last-minute ads only applies to corporations.  True, most nonprofit "advocacy" groups—such as the Sierra Club and the ACLU—are corporations. But (and this is the point I didn't understand) they don't have to be. It's perfectly possible to form a simple unincorporated association and still get nonprofit tax status. (You just have to show that your articles and bylaws meet IRS requirements.) And if you're not incorporated, then McCain-Feingold's ad ban doesn't apply.

Why is this important? Because during the McCain-Feingold debate, a great deal of fuss was made, by Sen. Paul Wellstone in particular, about the need to prevent last-minute ad campaigns like the one launched by Texas businessman (and Bush pal) Sam Wyly against John McCain on the eve of the Super Tuesday primaries. Wyly's nonprofit group, calling itself Republicans for Clean Air, paid for $2.5 million worth of ads charging McCain with voting against clean solar and renewable energy. McCain was outraged, although in his version of the campaign finance bill he didn't ban such ads. (McCain's version only required that the ads be funded by individuals, not corporations, and that their sponsors be disclosed.)

But Wellstone argued that it was important to go further and have a provision ensuring  that groups like Wyly's "can't do this 60 days before an election."  Wellstone successfully sponsored a provision that seemed to impose this ban. If it didn't pass, Wellstone warned, "your are going to have a proliferation of these organizations. Republicans for Clean Air. Democrats for Clean Air. People Who Do Not Like Any Party for Clean Air."

But now we learn that Wellstone's provision (now part of the law) doesn't actually stop Wyly. Wyly could still run his ads in future elections as long as his organization didn't incorporate.  Republicans for Clean Air lives! And Democrats for Clean Air, and all the other possible permutations feared by Wellstone. Wyly could even get a nonprofit tax exemption.

True, Wyly (and his brother, who also seems to have contributed) would have to use their personal funds, not funds from a corporation. Their group would also have to disclose where its money came from. But there's little reason to think either of these hurdles would have stopped the Wylys. They can almost certainly foot the bill for last-minute ads from their personal accounts—as can many rich and semi-rich Americans, especially if they join together in unincorporated associations. We can expect such unincorporated groups to spring up by the dozens, if not hundreds and thousands, in the first election after McCain-Feingold takes effect.

This is a big gap in the law—a "loophole," in the sense that, thanks to this "unincorporated interest group" possibility, the McCain-Feingold bill won't do what many of its backers, and many commentators, thought it would do. For example:

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