Politics & Policy

New Campaign-Finance-Reform Follies

527s? That's so over. Now, the big money is going somewhere else.

Although Democrats often maintain that their unprecedented outside-the-party campaign against President Bush last year, led by the so-called 527 groups, was a broad-based, grassroots effort, it was, in fact dependent in substantial part on just five donors: financier George Soros, Progressive Insurance chairman Peter Lewis, Hollywood mogul Stephen Bing, and the California investors Herbert and Marion Sandler. Together, they spent about $78 million in the effort to defeat the president–more than the $75 million in federal funds that each presidential candidate received to conduct his entire general election campaign. (It was also more than twice what the late-starting top five Republican 527 donors spent on their side.)

The rise of the 527s, and the diversion of money and power away from the political parties to outside groups like America Coming Together, was the direct result of the McCain-Feingold campaign-finance law. After supporting campaign-finance reform, ostensibly for the purpose of “reducing the influence of big money in politics,” in 2004 Democratic groups got the jump on Republicans in the 527 race. Anti-Bush 527s spent about $230 million in the effort to defeat the president–nearly two and a half times the amount spent by Republicans to reelect Bush.

Now, more reform is about to send all that money in another direction.

Next week the Senate Rules Committee is expected to consider the “527 Reform Act of 2005,” sponsored by Republican Sen. John McCain, which would impose on 527s the same contribution limits that now apply to other political-action committees. No longer would the groups be able to accept seven- and eight-figure, Soros-style contributions. And that will be the end of the 527s, at least as they existed during the 2004 campaign. “There is less and less enthusiasm for organizing 527s, since Congress is signaling that it is inclined to legislate them out of existence,” says election-law expert Jan Baran.

Under the immutable laws of political spending, however, the money is already going elsewhere. And this time, it is likely to go to 501(c)(4) organizations, known in short as C4s, named for the subsection of the Internal Revenue Service code which allows their formation. “The C4 is a tax-exempt vehicle that could be used as an alternative in most, if not all, cases,” says Baran.

C4s are allowed to engage in unlimited lobbying, and can also engage in partisan campaigning, as long as that campaigning is not the group’s “primary” purpose, according to the law. In the next few months and years, experts believe it is likely that new C4s will arise that engage in partisan political activity but which claim that such activity is not their “primary” purpose. “I would anticipate many more organizations to be formed as C4s, and that they will contend that their political activity is secondary to their lobbying,” says attorney Mackenzie Canter, an expert on nonprofit groups. Lawsuits and regulatory actions will no doubt hinge on the meaning of the words “partisan” and “primary.”

And one more thing. For megadonors, C4s have an enormous advantage over the old-style 527s: They are not required to disclose their contributors. One could give $10 million, or $20 million, or any sum, and remain anonymous.

It’s happening in the Social Security battle. A new group known as protectyourcheck.org, put together by Harold Ickes, the former Clinton deputy White House chief of staff who was one of the leaders of the anti-Bush 527 effort last year, is a C4. It plans to raise $15 million to fight Social Security reform. Where is that money coming from? Ickes is not required to say.

On the pro-Bush side, Republicans have created the Coalition for the Modernization and Protection of America’s Social Security (COMPASS), which is also a C4, and which also does not have to make public its donors.

So now, after years of campaign-finance reform, we are entering an era in which a donor can give an unlimited amount of money to an unaccountable group without any public disclosure. Before McCain-Feingold, big donors gave fully-disclosed money to the political parties, which, because they represented the entire coalition that made up the Democratic or Republican parties, were far more accountable to the public than the new, outside, groups became. Now, new C4s like protectyourcheck.org do not even have to reveal where they get their money–a central tenet of clean campaigning. And it was all done in the name of reform.

Byron York, NR’s White House correspondent, is the author of the new book The Vast Left Wing Conspiracy: The Untold Story of How Democratic Operatives, Eccentric Billionaires, Liberal Activists, and Assorted Celebrities Tried to Bring Down a President–and Why They’ll Try Even Harder Next Time.

Byron York is a former White House correspondent for National Review.

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