Remove tax code as cover for secret money

  • Article by: RUTH MARCUS , Washington Post
  • Updated: May 21, 2014 - 6:11 PM

A long-overdue proposal would remove the tax code as cover for groups that prefer operating with secret money in the dark.

Big money is destined to remain part of American politics, absent a legislative revolution or a constitutional amendment. But there is a crucial difference between big money and secret money.

Two differences, actually.

The first is chastening: Big money is troubling; secret money is toxic. Having millions of dollars from outside groups pumped into elections distorts the democratic process. Not knowing what interests are behind those millions magnifies that distortion.

The second difference is more hopeful: Big money, especially in the post-Citizens United campaign finance free-for-all, is not containable. Secret money, as underscored by the Citizens United case itself, continues to be amenable to regulation, even under a Supreme Court hostile to other forms of campaign finance rules.

“With modern technology, disclosure now offers a particularly effective means of arming the voting public with information,” Chief Justice John Roberts observed last month, in McCutcheon vs. Federal Election Commission.

Sure, touting the glories of disclosure offered conservative justices a convenient argument for dismantling long-standing limits on the aggregate amounts that individuals can contribute to candidates and political parties. Yet the court’s language stands as a useful precedent in judging the constitutionality of disclosure rules. And Roberts was correct in noting that limits on direct giving to candidates “encourage the movement of money away from entities subject to disclosure.”

Not that much encouragement has been needed. The Center for Responsive Politics estimates that the 2012 election saw more than $250 million in political spending by nonprofit groups organized under 501(c)(4) of the Internal Revenue Code, up from $86 million in 2008 and $3 million in 2004.

But 2014, the center recently reported, is making 2012 look positively sluggish, even though this is a midterm election. It found that spending by groups that do not reveal donors is almost three times higher than at the same point in 2012.

Which is why an effort now underway at the Internal Revenue Service is so essential — and so contested by interests on both sides of the political spectrum who would prefer to continue to operate in the dark.

The long-overdue proposal would dismantle the fiction that certain 501(c)(4) organizations — groups that run political advertisements and engage in other traditional political activity — are somehow exempt from disclosure rules that apply to political committees.

Such groups claim they are entitled to operate in the dark, using the tax code as a shield of secrecy, because it provides an exemption for civic groups “operated exclusively for the promotion of social welfare” — defined by regulation as “primarily engaged in promoting in some way the common good and general welfare of the people of the community.”

Note the loophole-expanding shift from “exclusively,” in the law, to “primarily,” in the regulations. This gap has allowed groups to meddle in politics so long as such activities stay short of half their spending.

The proposed regulations would help change that — which may be why they generated a record 150,000 comments that the IRS is now plowing through. The rules would make clear that promoting social welfare does not include “candidate-related political activity” — defined as communications that expressly advocate a candidate’s election or defeat or as communications 60 days before a general election, or 30 days before a primary, that “clearly identify a candidate or political party.” Yet the precise amount of such political activity that is permissible remains unclear, and the agency, in finalizing the rules, should set a low limit.

The proposal went too far in some areas, particularly reining in nonpartisan voter registration drives. Such a problem should be fixed as the IRS fine-tunes the proposal.

Conversely, the proposal wouldn’t cover every corner of dark-money spending in the tax code, in particular expenditures by trade organizations set up under a different provision, 501(c)(6). This is already a dark-money growth area for the U.S. Chamber of Commerce and other groups: No doubt, even more secret spending would migrate there if the nonprofit rules were tightened without simultaneously addressing these other forms.

It’s too late for 2014, and the pressure will be enormous on IRS Commissioner John Koskinen to junk the project entirely. Koskinen has signaled his intention to proceed. This would be the right outcome — for his agency, which without clear rules risks endless embroilment in fiascoes such as the scrutiny of Tea Party groups, and for the country, whose citizens at least deserve to know what interests are trying to buy their votes.

 

Ruth Marcus’ column is distributed by the Washington Post Writers Group.

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