What's the point of disclosing campaign donations? Let's review.

Who's winning, who's losing, and why.
Oct. 14 2010 4:06 PM

Show Me the Donors

What's the point of disclosing campaign donations? Let's review.

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That is a far cry from the way disclosure is actually working. Since they haven't made real headway in court, groups that don't want to reveal the identities of their donors look for ways to avoid the mess of regulations that requires it. The Chamber of Commerce says it won't disclose the names of donors funding its multimillion-dollar political advertising blitz because it fears its members will be harassed. But the real reason is probably that the businesses that belong to the chamber don't want to lose customers for taking controversial positions, as Target recently experienced when it backed an anti-gay candidate in Minnesota.

The disclosure chase has become a kind of Whac-A-Mole whereby groups that want to avoid disclosure choose different organizational forms in the tax code to hide donors. Before Congress passed the McCain-Feingold campaign finance reforms in 2002, groups avoided disclosure by refraining from expressly advocating for the election or defeat of a candidate. For example, in the 2000 election, a group called "Republicans for Clean Air" spent money in the New York presidential primary knocking John McCain's environmental record to support the candidacy of George W. Bush. It turned out (and we know this thanks to some enterprising journalists) that Republicans for Clean Air was none other than Sam and Charles Wyly, two Texas supporters of Bush. Since their ads didn't say "don't vote for McCain," they didn't disclose their identities.

McCain-Feingold and other changes Congress made to the tax code at first put an end to this disclosure dodging. But the fixes only worked for a while. With the help of three Republican Commissioners at the Federal Election Commission, opponents of disclosure have found new ways around the law. This campaign season, the action has moved to 501(c)(4)s. This type of nonprofit generally must report contributions above $5,000 to the IRS—but that information is not made public. This really does open the spigot: For example, as I predicted, funding to the Rove political group American Crossroads skyrocketed when he opened up a 501(c)(4) affiliate, Crossroads GPS, to take anonymous donations. The Chamber, meanwhile, is a 501(c)(6) trade association, and it, too, does not have to disclose its members or their contributions publicly. 

All of these groups, and anyone else spending least $10,000 in TV or radio ads mentioning a candidate in the period close to an election, have to file public reports with the Federal Election Commission detailing their spending. But thanks to the FEC, no one needs to disclose who has contributed to pay for these ads, unless the donor is dumb enough specifically to direct the organization to use the money for a particular ad. This system just begs political operatives to set up innocuous-sounding front groups to launder contributions for ads.

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This is what pro-disclosure reformers are up-in-arms about. They are filing complaints alleging that the 501(c)(4)s with the bland names are violating tax law because their primary purpose is politics rather than whatever they've declared it to be in the IRS paperwork that got them nonprofit status. But there are two problems with these complaints. We don't know what a group's primary purpose is until it's had a chance to spend money over a year and we can see what share went for political activities. Also, the IRS rules are far from clear as to how to measure "primary purpose."

The bottom line is that the 2010 election will be over long before the IRS decides whether the Coalition to Protect Seniors and its ilk are breaking the law. The same thing happened in the 2004 cycle, when Republicans complained that certain Democratic-leaning organizations were really political committees that the FEC should have regulated. By the time the complaints went anywhere and the groups were ordered to pay fines, they had stopped being politically active.

Democrats in Congress have proposed tightening up these rules yet again in the DISCLOSE Act, but they larded up the bill with new limits on corporate political activities and no Republicans were willing to back even a straight disclosure bill. Even if the bill passed, it's not clear that it would solve the problem. It doesn't bar secret contributions to nonprofit veterans organizations, leading to speculation that they could be the new front groups.

This election season, enterprising journalists, especially at the New York Times, have been digging into the shell game of contributions and spending, including activities by the American Future Fund, Crossroads GPS, and Americans for Job Security. The most important piece the Times has run, by Mike McIntire, demonstrated in vivid detail just how hard it is to follow the money without disclosure rules strongly enforced by the government. * As McIntire explains, after his extensive investigation into the backers of the "Coalition to Protect Seniors" led him to P.O. boxes and unanswered e-mails, it looked as if the health care industry might be behind an ad the group ran attacking the president's health care plan. But in all likelihood, we'll never know for sure. That's how porous our disclosure rules have become.

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Correction, Oct. 15, 2010: This article originally misspelled Mike McIntire's last name. (Return to the corrected sentence.)

Richard L. Hasen is a professor of law and political science at the UC–Irvine School of Law and is writing a book on campaign finance and political equality. Follow him on Twitter.

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