The Internal Revenue Service, seemingly out of the blue, has announced a misguided rule change that will give even more cover to big spenders seeking to manipulate the political system to their own ends while remaining anonymous.
It comes, coincidentally, amid the brutally competitive midterm elections, as Republican President Donald Trump is fighting to keep his party’s control of Congress. Under the rule change, organizations designated 501(c)(4) no longer will have to regularly disclose their donors — large or small — to the IRS. That includes some of the most powerful political nonprofits in the country, which have been ardently lobbying for just this rule change.
Called “dark money” because of the secrecy that surrounded it even before the rule change, these donations are used by groups to affect the outcomes of elections, often through corrosive attack ads. The amounts that wash through the U.S. political system have grown exponentially ever since the disastrous Citizens United Supreme Court decision that opened the floodgates in 2010 by equating money with free speech.
This is not money that flows through political parties or individual candidates, who continue to labor under some campaign finance restrictions, modest though they be. Dark money groups can take unlimited amounts of contributions and keep their donors secret. Under the old rule, they at least had to disclose to the IRS, if not the public. Now even that is gone.
In another striking coincidence, the rule was changed on the day that an accused Russian agent was arrested for her attempts to infiltrate and collaborate with the National Rifle Association. The NRA’s 501(c)(4) arm, the NRA Institute for Legislative Action, dropped a staggering $35.1 million in the 2016 election cycle, making it the top-spending political nonprofit in the country that year, according to the campaign finance tracking website Open Secrets. Investigators are looking at possible money laundering activities in connection with accused Russian spy Maria Butina.
The 501(c)(4) designation “was supposed to be a way for social welfare organizations to advocate on issues,” said Ian Vanvewalker, senior counsel in the democracy program at the Brennan Center for Justice. “Not a way for nonprofits to launder money for campaigns.” The rule change, he said, takes a valuable tool from law enforcement at a time when the question of foreign involvement in the nation’s elections is under scrutiny. That makes little sense from the perspective of those who prize clean elections.
Even more suspect was the reasoning presented by the Treasury Department in issuing the change. The department cited the cost of enforcement and the inconvenience to those having to list the information, and then, in a departure for what typically are dry releases about rule changes, pointedly noted that “conservative tax-exempt groups were disproportionately impacted by improper screening in the previous administration.”
This despite the fact that an inspector general’s report documented that both conservative and liberal groups have been inappropriately targeted in the past and that such actions happened under Democratic and Republican administrations alike. Those transgressions should not have occurred, but neither is that a reason for throwing out one of the few tools government has to detect abuses of this special tax status.
It’s worth remembering that every dollar sheltered from taxation is a dollar that must be made up somewhere else in the economy, either by cutting a service or shifting additional taxes onto those already paying them. Tax exemptions for certain types of organizations have their place, but should be carefully weighed and held to high standards. The American taxpayer should not have to make up the difference so that wealthy special interests and possibly foreign governments can have an outsized impact on this nation’s elections.
The IRS rule change is a mistake and opens the door to even more skulduggery and greater amounts of cash tipping the scales against ordinary citizens. Congress, which already has abdicated too much of its power, continues to fail in its responsibilities to rein in such excesses.