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Vol. 146 WASHINGTON, THURSDAY, JUNE 7, 2000 No. 70 |
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Mr. FEINGOLD. Mr. President, I thank the chairman of the committee. Mr. President, I begin our side of the debate. I rise in favor of the McCain-Feingold-Lieberman amendment. I hope we will have an overwhelming vote later this afternoon in favor of full disclosure of the contributions and expenditures of 527 organizations. As we discussed yesterday on the floor, these organizations are the new stealth player in our electoral system. They claim a tax exemption under section 527 of the Internal Revenue Code, a provision that was intended to cover political committees such as party organizations or PACs. At the same time, they refuse to register with the Federal Election Commission and report their activities like other political committees because they claim they are not engaged so-called express advocacy. In other words, these groups admit they exist for the purpose of influencing elections for purposes of the tax laws, but deny they are political committees for purposes of the election laws. That, my colleagues, is the very definition of evading the law. If it is legal, it is, as some have called it, the ``mother of all loopholes.'' I make one point crystal clear because our debates on campaign finance reform often get bogged down in arguments over whether someone is engaged in electioneering or simply discussing issues. These groups cannot claim that their purpose is simply to raise issues or promote their views on issues to the public. Why is that? They can't make that claim because to qualify for the section 527 tax exemption, they have to meet the definition of a political organization in the tax code. And that definition is as follows: The term ``political organization'' means a party, committee, association, fund, or other organization ..... organized and operated primarily for the purpose of directly or indirectly accepting contributions or making expenditures, or both, for an exempt function. And the term exempt function means: The function of influencing or attempting to influence the selection, nomination, election, or appointment of any individual to any Federal, State, or local public office or office in a political organization, or the election of Presidential or Vice-Presidential electors. These groups self-identify as groups whose primary purpose is to accept contributions or make expenditures to influence an election. These are by definition election-related groups. They refuse to register with the FEC, and they therefore can take any amount of money from anyone--from a wealthy patriotic American, or a multi-national corporation, or a foreign dictator, or a mobster. Indeed the groups seem to revel in the fact that their activities are completely secret. This chart we will be presenting in a moment shows a public statement by a 527 organization called ``Shape the Debate.'' This organization, according to news reports, is connected with our former colleague and the former Governor of California, Pete Wilson. On its webpage, Shape the Debate advertises for contributions. Contributions, it says, can be given in unlimited amounts, they can be from any source, and they are not political contributions and are not a matter of public record. They are not reported to the FEC, to any State agency, or to the IRS. Mr. President, the amendment we will vote on this afternoon won't change the fact that the contributions can be in any amount. It won't change the fact that the contributions can come from any source, even foreign contributions, even the proceeds of criminal activity. I regret that all it will do is address this third claim--that the contributions are not a matter of public record. If a group is going to accept money from a foreign government, the American people should know that. That's all we're saying here. This is something the Congress has to do. Now. It is clear that the FEC is not going to act on this issue this year. It held a meeting on May 25 to discuss a proposal by Commissioner Karl Sandstrom to get a handle on all the secret money that is now flowing into elections. The FEC voted to have the staff prepare a recommendation, but made it very clear that it is not going to act in time to have any impact on the upcoming elections. In fact one commissioner even said ``I want to speak in favor of secrecy.'' As Commissioner Scott Thomas said recently when the FEC deadlocked on whether it should pursue enforcement actions against the Clinton and Dole presidential campaigns for their issue ads in 1996: ``You can put a tag on the toe of the Federal Election Commission.'' The Commission is moribund, it is powerless even to address the most serious loophole ever to arise. This is why Congress must act. We don't know just how big
this problem will be. And we won't ever really know because these groups
don't even disclose their existence. Only enterprising news reporters have
been able to get information on these groups and their spending. Some
estimate Here are some of the examples that we know of so far. The executive director of the Sierra Club admitted that a handful of wealthy anonymous donors have given about $4.5 million to the group's 527 organization. Shape the Debate, the group whose website advertisement I cited earlier, has said it expects to raise $2 to $3 million for phone issue ads. It has already run ads against Vice President GORE. We know that Republican for Clear Air, with money from the Wyly brothers who are big contributors to Governor Bush ran over $2 million in ads attacking Senator MCCAIN in the New York primary election earlier this year. And a report in Roll Call a few weeks ago indicates that a groupcalled Council for Responsible Government has formed a 527 and will Braise over $2 million and target 25 races this fall. Mr. President, I ask unanimous consent that newspaper articles about 527 organizations be included in the RECORD following my statement. The PRESIDING OFFICER. Without objection, it is so ordered. (See Exhibit 1.) Mr. FEINGOLD. Mr. President, I do want to emphasize that there is no constitutional problem with this bill. First, there is no constitutional right to a tax exemption, the Supreme Court has made that abundantly clear. This amendment simply requires disclosure as a condition of receiving a tax exemption. If a group doesn't want to make these disclosures, it can simply pay taxes on its income like any other business in the United States. Second, we don't have a problem of vagueness or line drawing here that might implicate first amendment rights. The disclosure requirements are not triggered by any particular action or communication that a group might make. It is triggered by its decision to claim a tax exemption under section 527. Thus, as I said before, these groups self-identify. They make the decision whether they are 527 and if they do, they have to disclose. There is a simple
principle at stake here. It is a question of disclosure versus secrecy. I
say to all my colleagues who have argued here on the floor that we do not
need reform, we do not need a soft money ban, that all we need is
disclosure: Now is the time to put your money where your mouth is. If you
vote against this amendment--if you vote against this amendment for
disclosure, you will never again be able to argue with any credibility
that you support full disclosure. The time has come to put an end to
secret money funding secret organizations. As I said yesterday, the
combination of money, politics, and secrecy is a Exhibit 1
The 2000 Campaign: The
Money Factor; a Political Voice, Without Strings
WASHINGTON, Mar. 28.--The tiny remnant of the American peace movement had a little money and was looking for a voice in the political process. The pharmaceutical industry had a lot of money and was looking for a bullhorn. Both found it in an obscure corner of the Internal Revenue Code known as Section 527, a provision that opens the way for groups to raise and spend unlimited sums on political activities without any disclosure, as long as they do not expressly advocate voting for a candidate. Section 527 has become the loophole of choice this year for groups large and small, left and right, to spread their messages without revealing the sources of their income or the objects of their spending. The provision was written
into the tax code more than 25 years ago as a way of protecting more
income of political parties from taxation. But only recently, after court
rulings and Internal Revenue Service opinions broadened its scope, has it
been exploited by Republicans for Clean Air, the group that broadcast advertisements critical of Senator John McCain in several states before the Super Tuesday primaries, was established under Section 527 by Sam Wyly, a Texas businessman and big contributor to Gov. George W. Bush. Business Leaders for Sensible Priorities, which is led by Ben Cohen, a founder of Ben & Jerry's Homemade ice cream, has set up a 527 committee to agitate in 10 Congressional races for less spending on weapons and more spending on schools, Duane Peterson, vice president of the group, said last week. He declined to say which races the group planned to focus on. And on Monday, a Section 527 entity calling itself Shape the Debate began running television commercials in California, New York and Washington that call Vice President Al Gore a hypocrite and ridicule his positions on campaign finance reform and tobacco. The group, which expects to raise $2 million to $3 million this year, was formed by allies of Pete Wilson, the former Republican governor of California. Two of Shape the Debate's officers are $1,000 contributors to Mr. Bush, but the group's founder, George Gorton, said the organization had no ties to the Bush campaign. Following an I.R.S. ruling
last year that essentially endorsed the practice, conservative lawmakers,
liberal interest groups, rich individuals and large corporations have
begun to quietly pour tens of millions of dollars into the political
cauldron. The organizations Because there is no law requiring these groups to report their existence, neither the Federal Election Commission nor the Internal Revenue Service can say how many are in place. But lawyers who set them up and campaign finance specialists say that scores of 527's exist and more are being created every week. Their full impact will probably not be seen until the fall, when the airwaves will most likely be filled with advertisements from previously unknown organizations, mirroring the 11th-hour attack on Mr. McCain by Republicans for Clean Air. Citizens for Better Medicare, a group created last summer under Section 527 by major drug makers and allied organizations, expects to spend as much as $30 million this year to oppose legislation that the industry thinks will impose government price controls on medicines, the group's officers say. The group's plans include a national campaign of political advertising this fall, said Timothy C. Ryan, its executive director. Peace Action, the antiwar group once known as SANE/Freeze, created a 527 operation called the Peace Voter Fund late last year to try to influence the debate this year in eight Congressional races, including the Senate races in New Jersey and Michigan and contests for House seats in Michigan, California, Illinois, and the 3rd, 7th and 12th Congressional Districts in New Jersey. The fund's $250,000 in seed money came from a handful of wealthy benefactors who insisted on remaining in the shadows, said Van Gosse, organizing director of Peace Action. Mr. Gosse speaks rhapsodically of Section 527. It offers freedom from the requirements of Federal Election Commission reporting, he noted, and relief from the Internal Revenue Service rules on political activity by charitable organizations. Mr. Gosse said he would not reveal the names of his major donors. ``That's the whole point,'' he said. ``Unlike a PAC,'' he added, referring to political action committees, which are regulated by the election commission because they work directly on behalf of candidates, ``there's no cap on how much you can spend or accept. There's no I.R.S. gift tax or reporting. It's a thing of beauty from an organizing perspective. It gives one a lot of freedom and fluidity.'' As long as a Section 527
group does not expressly advocate the election or defeat of individual
candidates--by using the words ``vote for'' or ``vote against''--there is
no requirement to report to the Federal Election Commission. These groups
are free to The new Shape the Debate advertisement could pass for an attack ad sponsored by the Bush campaign as it concludes with the line, ``Al Gore has a lot to answer for.'' Advocates of campaign finance reform see the 527 loophole as a pernicious and proliferating vehicle for getting and spending tens of millions of undisclosed dollars. ``The new Section 527
organizations are a campaign vehicle now ready for mass production,''
Frances R. Hill, a professor of law at the University of Miami, wrote in a
recent issue of Tax Notes, a publication for taxation specialists. The
1996 election was Mr. Gore called for disclosure of the officers and finances of Section 527 organizations as part of his campaign finance proposal released this week. He called such groups, ``the equivalent of Swiss bank accounts for campaigns.'' Representative Lloyd Doggett, a Texas Democrat, is preparing legislation to regulate Section 527 groups, requiring, at a minimum, disclosure of contributors and expenditures. ``The problem is, our political system is being polluted with substantial amounts of secret contributions and secret expenditures used to attack candidates,'' Mr. DOGGETT said. Congress' bipartisan Joint Taxation Committee has recommended steps to open Section 527 groups to greater public scrutiny by publishing their tax returns, among other things. But Congress is not likely to act quickly on any proposal to rein in such groups, Mr. DOGGETT said. Representatives TOM DELAY
of Texas and J.C. WATTS of Oklahoma, both Republicans, have established
Section 527 funds to burnish their party's image and promote conservative
ideas on taxation, the military and education. Former
Representative Scott Reed, who managed Bob Dole's presidential campaign in 1996, has established a 527 group to attract Hispanic voters to the Republican Party. New Gingrich is affiliated with a 527 organization advocating Social Security reform and tax cuts. Recently, attention has focused on the Section 527 operations of conservatives. But the Sierra Club was one of the first nonprofit organizations to set up a 527 subsidiary, in 1996, and the League of Conservation Voters, which is generally partial to Democrats, followed a year later. ``We agree it's a loophole,'' said Carl Pope, executive director of the Sierra Club. He said a handful of wealthy, anonymous donors had given about $4.5 million to the Sierra Club's 527 committee to use during this year's elections. Mr. Pope said that his organization would support legislation to eliminate the loophole, but that until then the Sierra Club intended to keep using its 527 political fund. Karl Gallant, an adviser to Mr. DELAY, said conservatives began to get into the game in a big way after a San Francisco law firm that represents liberal nonprofit organizations announced last April that it had been successful in setting up a 527 political organization for one of its clients. Mr. Gallant set up Mr. DELAY's 527 group, the Republican Issues Majority Committee. The organization has begun hiring workers and has been spending to mobilize conservative voters in two dozen competitive Congressional districts, Mr. Gallant said. The group expects to spend $25 million this year, he said. Section 527 was added to the tax code in 1974, primarily to clarify the tax status of purely political, nonprofit organizations, including the Democratic and Republican national parties and PAC's. Under the provision, they do not pay taxes on contributions from donors, only on investment income. But the parties and PAC's are required to report donations and expenditures to the election commission. While these organizations are exempt from taxation, contributions are not tax deductible. The pure Section 527 organizations like those proliferating today operate in a protected niche of the tax code governing political groups, but because they do advocate on behalf of an individual candidate or candidates, they fall short of election-commission disclosure laws. That is what distinguishes them from a political party or a PAC. Donations are not tax deductible, but the groups' contributions and expenditures do not have to be disclosed to the I.R.S. or the F.E.C. By 1996, a convergence of factors caused many nonprofit organizations to embrace this kind of vehicle to cover their political activities, said Greg Colvin, a San Francisco lawyer who set up some of the first 527 organizations, for liberal groups. ``Donors were looking for a way to put large, anonymous money into organizations that would have a political effect,'' he said. He added that many groups were eager to flex their political muscle beyond what was permissible under their tax-exempt status without opening themselves up to a requirement to report their activities to the election commission. And last year the Internal Revenue Service issued an opinion in the case of a group Mr. Colvin represented, endorsing the use of Section 527 by a wide range of political organizations. Another factor in prompting the interest in Section 527 was a ruling last year by the I.R.S. denying tax-exempt status to the Christian Coalition because of its political activities. Lawyers who specialize in campaign and tax law have been approaching groups of all ideological stripes for several months, selling them on the benefits of Section 527. Grover Norquist, the executive director of Americans for Tax Reform, a conservative antitax group, said that a lawyer had recently offered to set up a 527 arm for him for $500. Mr. Norquist said that at first the new structure did not appear to offer any advantages over his current nonprofit status. But when the law was explained to him more fully, he said, ``Maybe I should have two.'' -- [From the New York Times, Apr. 2, 2000] A New Player Enters the
Campaign Spending Fray
LOS ANGELES, Apr. 1.--George Gorton is hardly a political novice. For 30 years, since he was a college student supporting James L. Buckley's campaign for the United States Senate from New York, he has worked for candidates from Richard M. Nixon to Pete Wilson to Boris N. Yeltsin. But even he had not thought much about Section 527 of the Internal Revenue Code--at least not until last year. ``I was walking around
complaining to everybody that I could find about the amount of money that
organized labor was spending on issue advocacy,'' said Mr. Gorton, who cut
his teeth as national college coordinator for Nixon's Committee for the
Re-election So Mr. Gorton, who runs a Republican consulting business based in San Diego, started Shape the Debate, a nonprofit political organization that, under Section 527, can raise and spend unlimited amounts of money, with no disclosure requirements for donors, as long as it does not expressly advocate the election or defeat of any candidate. Its inaugural television advertisement, which began airing this week in California and New York, accuses Vice President Al Gore of political hypocrisy, in a mock game show in which contestants answer questions on various topics, including Mr. Gore's support for campaign finance overhaul despite his appearance at an illegal fund-raiser at a Buddhist temple. ``Shape the Debate strongly believes that free enterprise and conservative ideas are more likely to become public policy when candidates and public officials honestly and publicly discuss their positions on them,'' according to the group's credo, which can be found on its Web site, shapethedebate.com. ``Shape the Debate will therefore use stinging ads of rebuke, where appropriate, or gentle praise to remind leading candidates and public officials to honestly discuss our issues, as a means to keep conservative and free enterprise issues uppermost in the minds of the American public.'' The group is among the latest entrants in a growing field of independent campaign expenditure efforts, spurred on by recent court rulings interpreting the tax law. The group's literature emphasizes that contributions are not a matter of public record, and Mr. Gorton said that was an appealing point for donors, most of them Republicans and many of them Californians who supported Mr. Wilson's past campaigns for governor and senator. So far the group has raised about $1.5 million, in chunks of multiple thousands of dollars; Mr. Gorton hopes to raise another $2 million to $3 million for advertising campaigns this year. ``In the atmosphere that's been created by the Clinton-Gore administration, where the secret F.B.I. files of Republican appointees turned up in White House hands, you have to wonder about retribution,'' he said. ``The heart of the First Amendment is that you can criticize your government without fear of retribution.'' Mr. Wilson, who was forced out of office by term limits last year, has helped raise money for the group. As governor, he tangled repeatedly with public employee unions that undertook campaigns opposing his policies, and former Wilson aides say they see the latest effort as a way of evening the score a bit. ``Television is what really does shape the debate,'' said Mr. Wilson, who since last fall has been working for Pacific Capital, an investment banking concern in Beverly Hills. ``The candidates certainly have that obligation, and sometimes they fulfill it and sometimes they don't. But the fact is, there are very definite limits on what they can reasonably expect to raise through their own efforts. Arguably, Bob Dole in 1996 was dead before he ever got to the convention in San Diego, because of the tremendous pummeling he took in the interim in independent expenditures directed against him.'' Mr. Wilson added, ``I think what you've got now is a situation in which most of the spending on television on both sides is going to be financed by independent groups and not the candidates themselves.'' State and national
Democratic officials swiftly denounced Shape the Debate's efforts as
``underground financing'' waged by ``George W. Bush's ally,'' in the words
of a Democratic National Committee news release. In fact, Mr. Wilson's
former aides say, Mr. Wilson, who battled a severe recession in his first term before presiding over a sharp recovery, nevertheless remains controversial in California, where his strong stands against affirmative action and illegal immigration provoked a backlash. Mr. Bush has not generally tapped the old network of Wilson advisers in his campaign here, and Mr. Gorton said he did not believe the two men had talked in months. ``I think Peewee's trying to find a way that George Bush will give him a call,'' said former State Senator Art Torres, the chairman of the California Democratic Party, using his party's derisive nickname for Mr. Wilson. ``The problem is, he's now created even more of a fire wall, because of the sensitivity he's created with this ad. They have no sense of subtlety and they never did.'' But Mr. Wilson said: ``I have gotten into this because I think George W. Bush should be president. I also think that had he faltered, John McCain should have been president. And I don't think the vice president should be. It's as simple as that.'' -- [From the Arizona Republic, May 11, 2000] Contributor ``Loophole''
Skirts Campaign Laws
In the frenzy of fund-raising leading to next fall's elections, an old form of political organization has found new life as the perfect vehicle for concealing who is giving and how much. Variously labeled ``the mother of all loopholes'' and ``black hole groups,'' the so-called section 527 committees are ``the brashest, boldest'' method seen to date for circumventing campaign-finance laws, Common Cause President Scott Harshbarger said. Arizona Sen. John McCain, who made campaign-finance reform the centerpiece of his bid for the Republican presidential nomination, has termed the groups the ``latest manifestation of corruption in Washington,'' The Section 527 committees
take their name from the section of federal tax code under which they are
organized, Section 527 dates from the early 1970s, when Congress wanted to
make clear that political parties, political-action committees and the
like Recent court and Internal Revenue Service interpretations of the law have given non-profit organizations free rein to engage in political advocacy while maintaining the privacy they otherwise are denied under election law. Activists of every hue on the political spectrum, from the Sierra Club to the Republican Issues Majority Committee set up by Rep. Tom DeLay, R-Texas, have hopped on the 527 bandwagon. Among 527 committees that have revealed themselves are one set up by Ben Cohen, co-founder of Ben & Jerry's Ice Cream, to focus on education issues, and another supported by the pharmaceutical industry to protect against limits on prescription prices. The stealth-funding groups have no obligation to reveal, to the Federal Election Commission or IRS, membership, contributors or expenditures. Even foreigners, otherwise prohibited from making political donations, may set up a secret 527 committee. About the only restriction on a 527 group is that it stop short of using explicit terms such as ``vote for'' or ``vote against'' in backing a candidate. Immunity from disclosure won't continue for long, advocates of campaign-finance reform vow. A bipartisan group of congressional lawmakers, McCain among them, joined with Common Cause last month in denouncing 527 committees and pledging to press for legislation to make them accountable. The committees are replicating at a pace that's impossible to track because of their secrecy. But the ones that have chosen to identify themselves are set to pour tens of millions of dollars--possibly more than $100 million--into political advertising this year. That, combined with more traditional forms of ``soft money'' controlled by political parties, is sure to produce a record volume of so-called issue ads, said Sean Aday of the Annenberg Public Policy Center at the University of Pennsylvania/ Spending for such ads ranged from $135 million to $150 million in the 1995-96 campaign, and the amount more than doubled for the congressional elections two years ago, Aday said. Many new 527 committees bear vague names, such as the Shape the Debate group, affiliated with former California Gov. Pete Wilson, that has sponsored ads attacking Vice President Al Gore. McCain himself felt the sting of a 527 committee when $2 million worth of television ads paid for by ``Texans for Clean Air'' were aired just before the Super Tuesday primaries in March. The ads assailed McCain's environmental record and extolled that of his opponent, Texas Gov. George W. Bush. Although nothing required them to do so, oil-rich brothers Sam and Charles Wyly revealed themselves as the backers of the ads. -- [From The Hill, May 17, 2000] New VA-based ``527'' Will
Target 25 Races; Starts in Idaho, NJ
The Council for Responsible Government joined the ranks of new ``527'' organizations two weeks ago when it incorporated in Virginia and immediately began running radio and television ads in Idaho against Republican candidate Butch Otter, accusing him of being soft on pornography. It also commenced a direct-mail campaign in New Jersey. The group, based in Burke, Virginia, intends to raise $2- to 2.5-million and target 25 races around the country this year, according to William Wilson, the group's registered agent. ``We want to promote free market ideas and traditional moral and cultural issues,'' Wilson said. ``We want true accountability to voters,'' which Wilson defined as making sure voters know what a politician's true record it. ``They speak to different sides of an issue with different audiences,'' he explained. ``That's developed a lot of cynicism [among voters].'' Wilson said the group does not engage in issue advocacy or endorse candidates. ``We engage in voter education,'' Wilson said. Section 527 of the tax code permits political committees to raise and spend unlimited funds without having to disclose their contributors, provided that those funds are not used to expressly advocate the election or defeat of a candidate. Organizations formed under Section 527 have come under fire from campaign finance groups and members of Congress for eliminating the line between issue advocacy and candidate support. One such group, the Republican Majority Issues Committee, a group close to House Majority Whip Tom DeLay (R-Texas), was sued last month by the Democratic Congressional Campaign Committee (DCCC). Wilson said the group registered in Virginia because ``there are some of the finest federal judges in the country, ``alluding to their strong record on First Amendment issues. Wilson said any time a group does something the ``powers that be'' don't like, they are likely to be attacked in court. ``I think it's wise to be afraid of the government,'' he said. Wilson said the group would not disclose its donors. ``We have a lot of donors, but we want to keep that to ourselves,'' Wilson said. ``We want them to be able to give without the fear of retaliation.'' The group has also started a direct mail campaign warning New Jersey voters that Republican candidate Joel Weingarten had cast votes in favor of tax increases. Weingarten's campaign has sued the group charging that the council is using soft money and coordinating its mailings with Jamestown Associates, a Princeton, N.J.-based media firm hired by Weingarten's rival Mike Ferguson. Larry Weitzner, president of Jamestown Associates, denied any connection with the council, dismissing Weingarten's claims as coming from a campaign that is ``desperate'' and ``behind in the pools.'' Gary Glenn, director of the Accountability Project, an arm of the council, also denied any coordination. ``I have no knowledge of the firm whatsoever,'' Glenn wrote in a statement. Glenn is also president of the American Family Association of Michigan, a Midland-based conservative organization. He said the project is not a separate organization, merely a ``marketing phrase.'' Wilson said the council will also target primary races in August and September, as well as several general election races. Wilson, who is listed on FEC records as being the political director for U.S. Term Limits, said the council has no ties with any other group. ``It's a volunteer organization. We have no connection with any other organizations,'' Wilson said. ``To the extent we're permitted, we share ideas, sure.'' Wilson said there is no paid staff, just a group of 40 to 45 volunteers around the country. He said the group does not intend to hold any fundraising events, but would rely on one-on-one meetings ``with like-minded people.'' Tom Kean Jr., who is running against Weingarten and Ferguson in New Jersey's 7th Congressional District, decried the mailing. ``We, as voters, deserve the right to know who is defining the candidates seeking this office as well as any office in this nation,'' Kean said in a press release. ``Unfortunately, I fear this is only the first of many such expenditures in this race.'' |
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