More Money, More Problems

by Jeff Fleischer

(Mother Jones, December 3, 2004)

Jeff Fleischer Campaign Finance

The first federal election held after the McCain-Feingold campaign finance reform bill became law featured record amounts of spending, the rise of powerful new outside funding groups and the emergence of super-rich individual donors who spent millions to influence the outcome. Final filings were due yesterday, and while the official totals are still being certified, the best estimate puts the price tag of this election at $4 billion, with more than $1.5 billion of that spent on the presidential race. But assessing the finance landscape of the 2004 race — and gauging the success of McCain-Feingold — is more complicated than the spending levels make it appear.

McCain-Feingold, signed into law by President Bush in March 2002 as the Bipartisan Campaign Reform Act, was designed to put an end to the unlimited “soft money” contributions both parties raised from corporations, unions and individuals. The law’s language did not specifically address the kind of 527 groups that became so powerful and spent more than $400 million in the 2004 cycle. “The law had next to zero effect on these outside organizations. That’s the point that often gets missed,” explains Aron Pilhofer of the Center for Public Integrity. “McCain-Feingold was singularly focused on national party soft money. In that respect, it has worked and is working exactly as intended. These groups existed before McCain-Feingold, and they would’ve existed whether McCain-Feingold passed or not.” He adds that corporations, long a source of soft money for both parties, were mostly absent from the list of 527 contributors.

But some of the newest and largest 527 groups were able to raise record sums of money by exploiting a loophole in the new campaign-finance rules. Groups registering under section 527 of the tax code are by definition tax-exempt political organizations, a category with no shortage of members. “If you’re looking at the Republican National Committee, it’s a 527,” explains Fred Wertheimer of Democracy 21, a group advocating campaign finance reform. “Or if you’re looking at President Bush’s or Sen. Kerry’s campaign committees, those are 527 committees.” Well-known advocacy groups like the Sierra Club, Emily’s List, the Club for Growth, the AFL-CIO and the League of Conservation Voters have also operated 527 committees to handle election activity, such as issue advertising, get-out-the-vote drives and other efforts.

The difference between those longtime 527s and the likes of Progress for America and The Media Fund, two organizations that came to prominence in this election cycle, is that these latter groups didn’t register with the FEC as political committees designed to influence federal (as opposed to state and local) elections. In this way, they raised funds above the contribution limits set by federal campaign-finance laws; wealthy individuals were able to contribute as much money as they wanted. The dominant new 527s refrained from expressly calling for one candidate’s defeat or election in their ads, but it was hard to argue they weren’t designed to influence federal races. “Only in this election have we seen these types of 527s formed not just around a general set of elections but around a specific election, the presidential race,” Pilhofer adds. “We haven’t really seen a group like ACT [America Coming Together] before. We haven’t seen a group like Media Fund before. These were groups that clearly formed for one purpose and for one purpose only, and that was to elect or defeat George Bush.”

By bypassing contribution limits, the anti-Bush 527s raised and spent enough money early on to offset Bush’s vaunted fundraising advantage (the president had raised roughly $186 million by the end of March). “The most visible and important groups, including MoveOn and the Media Fund, approached the 2004 cycle with the assumption that the anti-Bush side — they started this before there was a Democratic nominee — would need help in the March through August period,” says David Magleby, dean of the political science department at Brigham Young University. “Having watched previous presidential cycles, they correctly anticipated that a presidential candidate would emerge largely broke from the primary election phase…So in many ways, this was an election in which politics was a team sport, and the team on the advertising included these other groups, which denied the Republicans the knockout punch they expected to get in the March to August period.”

It took the pro-Republican side longer to make the same sort of impact, but this approach to fundraising was a bipartisan effort. The Progress for America Voter Fund ran its first television ad in July, and went on to spend more than any other 527 on the pro-Bush side. Just after the Democratic National Convention made Kerry’s service in Vietnam a selling point for his candidacy, Swift Boat Veterans and POWs for Truth launched its first ad in August. Andy Horne, the group’s secretary, says the organization first started coming together during the Democratic primaries, when it appeared Kerry might win the nomination. As Magleby explains, “they were disciplined and organized. They held their fire until the moment was ripe; then they acted and had an impact on the race. At a minimum, they changed the rhythm of the campaign.”

The FEC hasn’t yet announced how much 527 groups wound up spending on the presidential race. “But if you take ACT and Media Fund on the Democratic side and Progress for America and Swift Boat Veterans for Truth on the Republican side, you’re going to get well over $150 million in four groups,” predicts Steve Weissman of the nonpartisan Campaign Finance Institute. “And that’s likely to be half or more than half of all 527 spending.”

Both McCain and Feingold argue that the success of 527s in raising money beyond federal contribution limits is a failing of enforcement on the part of the FEC. In May, the FEC chose not to rule on whether 527 groups could accept unlimited contributions from individuals. “We believe the current federal election law requires these groups to register as political committees and stop raising and spending soft money,” Feingold said in September, when he and McCain introduced a new “527 Reform Bill” they hope to pass in the next Congress. Both senators have also supported Reps. Christopher Shays and Martin Meehan — who sponsored the House version of what became the BCRA and will do the same with the 527 bill — in a lawsuit brought against the FEC in September accusing the agency of subverting the law by failing to enforce it — to make groups like The Media Fund and Swift Boat Veterans register as federal committees. Wertheimer and others argue the unlimited fundraising of 527s is already illegal under existing laws. “The soft money system was really illegal in the first place; the FEC adopted improper regulations that created it,” he says. “But we needed to pass a law to overcome what they were authorizing illegally. It’s the same situation. Frankly, what we have to do here is get a law that already says this is illegal activity, we have to either get a court interpretation, or we have to re-enact it. Which is absurd, but is what you wind up with when you’re dealing with the FEC.”

A certain percentage of the old soft-money contributions likely went to the 527 groups, and a successful effort to close that loophole would prevent that. But it’s not as if all the old soft money simply got redirected to 527s in this election. “It isn’t that the same people who gave before are now using the 527 loophole,” Weissman says. “Nor is there a very strong relationship between the people who are giving to the 527s and what they gave to the parties through soft money. I was looking up George Soros. He gave about $27 million to the 527s. And he and his family hardly gave $1 million over the past few elections to the Democrats.” Certainly, the increased interest in this election drove fundraising on both sides; Soros himself declared he would spend his entire $7 billion fortune if it guaranteed a Kerry victory.

As for “hard money,” BCRA allowed the parties themselves to raise more money in this election cycle, since the law raised giving limits from $1,000 to $2,000 for an individual contribution to a candidate, and from $25,000 per year to $95,000 per two-year cycle to candidates, PACs and party committees combined. CFI estimates both the Democratic and Republican parties raised more overall in hard money than they did in hard and soft money combined in either the 2000 or 2002 elections, for an estimated total of $1 billion, 12 percent more than when they were able to gather six- and seven-figure soft-money checks (though some party committees saw dropoffs).

Perhaps more important — and much harder to gauge — is the impact of another category of tax-exempt groups: those filing under sections 501c of the tax code. Unlike 527s, these non-profit groups do not exist primarily to influence elections, but can (depending on the type of organization) spend money on issue ads, get-out-the-vote drives, and lobbying efforts. Examples include social welfare groups, unions and business organizations like the Chamber of Commerce. Unlike 527s, they are required to get their status okayed by the IRS and they have to meet various compliance standards. And unlike 527s, those that choose to participate in politics don’t have to disclose where the money comes from.

“If you want to spend big, to affect the election by spending money beyond contribution limits, right now you have two choices,” says Taylor Lincoln of Public Citizen, who released a recent report on 501c activity in the two previous elections. “One is a 527. The pro of that is it’s the more accepted way to affect elections. They don’t have to be cute about how they’re spending money; they’re admitting what they’re up to. The downside is you have to say who you are. Or you give to a 501. The advantage is there’s no fingerprints on your money. The disadvantage is it’s conceivably sort of murky in getting around the law.” If Congress manages to close the 527 loophole, he cautions, that could make 501cs more attractive. “Politically, the 501s occupy something of a strange space. Those who want to get 527 legislation through aren’t very eager to take on 501s, because 501cs are a whole other kettle of fish with their constituency and there’d be a great deal of resistance to regulating the 501cs.”

What happens next? It’s hard to say. Some of the other 527 groups active in this election will likely disappear, while others will probably stick around. “My guess is ACT and MoveOn will continue,” Magley says. “I think they’ve also learned some lessons of things they can do well, and that those in the effort and funded the effort will likely want to continue those goals of voter registration, voter mobilization, the marriage of the Internet and politics. Those are big-picture agenda items that I think groups like ACT and MoveOn will continue to want to do.” As for the Swift Boat Veterans, spokesperson Jennifer Webster says the group isn’t sure if it will remain together, though it might continue “working on educating the public about the POWs from the Vietnam era.” Obviously, any changes to the regulation process would impact how those and other outside groups participate in the next election, and there’s always the possibility that a future race without George Bush would automatically cut down on fundraising by both sides. The BCRA took soft money away from the parties, but this election proved taking big money out of a politics is a much larger challenge.

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