The voices of Tax Policy Center's researchers and staff
A poll released today by the conservative Hudson Institute and the liberal group Public Citizen finds that nearly 9 in 10 voters surveyed favor clear rules that define political activities by non-profit tax-exempt organizations. The public’s desire for clarity is not surprising, given the amount of undisclosed campaign money that is flooding through tax-exempt 501(c)(4) social welfare organizations and the seeming inability of the IRS to regulate political tax-exempts.
But what would those rules look like? There is no consensus but a few intriguing ideas are surfacing, ranging from full disclosure of all campaign giving to a total ban on disclosure (an idea that is not as a crazy as it first appears).
In a new paper, Catholic University law professor Roger Colinvaux argues that Congress should create uniform disclosure rules for all political giving, whether through groups such as (c)(4)s or through more traditional political organizations.
Colinvaux is relatively agnostic about whether all gifts should be disclosed or none, but argues that if givers are subject to the same rules no matter how they give, they will lose the incentive to use social welfare groups to mask their contributions.
In his ideal world, Congress would turn over all disclosure issues to the Federal Elections Commission and get the IRS out of the business of regulating political giving. I made a similar argument in Tax Vox in May, 2013. The problem, of course, is that the FEC is a political laughingstock and incapable of reaching agreement on any major issues.
Congress (or perhaps even the IRS) could provide the sort of clarity the public wants by simply denying tax-exempt status to social welfare non-profits that engage in any political activity. Currently, the agency allows these tax-exempts to act as campaign finance conduits as long as their “primary” purpose is social welfare, a definition that is at best ambiguous and opens to door to gaming the rules.
But Colinvaux would not draw any bright lines, warning they could create troublesome unintended consequences both for social welfare groups and traditional political organizations. He asks what tax policy would be served by limiting political activity that is related to a group’s primary purpose. For instance, should the IRS curb the ability of the League of Women Voters to sponsor debates or distribute voting guides?
Another, more radical, idea was proposed earlier this month by political science professors Bertram J. Levine of Rutgers University and Michael Johnston of Colgate University. Their insight: You can’t purchase influence if the pols don’t know you are buying. They would make it a crime for a contributor to tell the recipient about any campaign gift (contributors could designate the cash for specific candidates but would have to make their gifts through the FEC).
There are problems with this idea too. There are the practical realities of enforcing a law against a private conversation (or even a private wink-and-nod). And there is the matter of the Constitutional protection for free speech. Can it be illegal for me to tell an elected official that I gave him money? Levine and Johnston think a law can be drafted to satisfy those Constitutional protections but I’m not so sure. After all, in Citizens United and other recent cases the High Court has expansively defined giving money as political speech. It is hard to imagine the same justices would permit the government to prohibit contributors from talking about giving money.
If Levine and Johnston are right, however, big-buck contributors would stop using (c)(4)s as money laundries since non-disclosure would not only be permitted for all forms of campaign giving, it would be required.
One thing is sure, in the wake of the Supreme Court’s 2010 Citizens United decision, undisclosed political giving has become an enormous problem. The Center for Responsive Politics estimates that as of late August, more than $50 million in dark money had already been spent in this year’s House and Senate races, nearly eight times as much as in the comparable period prior to the 2010 mid-terms. Since nearly all political spending occurs after Labor Day, that $50 million could translate into a staggering $730 million in undisclosed contributions this year.
While analysts continue to struggle with ways to address the problem, they do seem to agree on the importance of consistent disclosure. At the very least, we ought to be able to end the practice of using tax-exempts to avoid disclosure, which created the (c)(4) problem in the first place.
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