[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]



 
         HEARING ON FEDERAL ELECTION COMMISSION AND 527 GROUPS

=======================================================================

                                HEARING

                               before the

                   COMMITTEE ON HOUSE ADMINISTRATION
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                               __________

              HEARING HELD IN WASHINGTON, DC, MAY 20, 2004

                               __________

      Printed for the Use of the Committee on House Administration



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                   COMMITTEE ON HOUSE ADMINISTRATION

                           BOB NEY, Chairman
VERNON J. EHLERS, Michigan           JOHN B. LARSON, Connecticut
JOHN L. MICA, Florida                  Ranking Minority Member
JOHN LINDER, Georgia                 JUANITA MILLENDER-McDONALD, 
JOHN T. DOOLITTLE, California            California
THOMAS M. REYNOLDS, New York         ROBERT A. BRADY, Pennsylvania

                           Professional Staff

                     Paul Vinovich, Staff Director
                George Shevlin, Minority Staff Director


                           FEC AND 527 GROUPS

                              ----------                              


                         THURSDAY, MAY 20, 2004

                          House of Representatives,
                         Committee on House Administration,
                                                    Washington, DC.
    The committee met, pursuant to call, at 4:30 p.m., in room 
1309, Longworth House Office Building, Hon. Robert W. Ney 
(chairman of the committee) presiding.
    Present: Representatives Ney, Ehlers, Mica, Doolittle, 
Larson and Brady.
    Staff Present: Jeff Janas, Professional Staff Member; Paul 
Vinovich, Staff Director; Matt Petersen, Counsel; George 
Shevlin, Minority Chief of Staff; Tom Hicks, Minority 
Professional Staff Member; Charles Howell, Minority Chief 
Counsel; and Matt Pinkus, Minority Professional Staff Member.
    The Chairman. The committee will come to order. I want to 
thank the Chair and the Commissioners for coming today. The 
committee is meeting today to hear from four members of the 
Federal Election Commission about the legal and regulatory 
framework governing nonparty political organizations, more 
commonly known as the 527s, so called because of the section of 
the Tax Code under which they are registered.
    Earlier this year the FEC commenced a rulemaking to 
determine whether its current regulations needed to be revised 
so as to apply to political organizations like 527 groups that 
had heretofore claimed to be exempt from Commission rules.
    The committee does look forward to hearing directly from 
the Commissioners regarding last week's developments on the 
rulemaking, but before we do, I first want to look back at the 
developments, I think, that led to the proliferation of 527 
groups in the first place.
    Over 2 years ago Congress enacted, as we all know, 
Bipartisan Campaign Reform Act, or BCRA, which the President 
signed into law. Among other things, BCRA prohibited the 
national political party committees from soliciting and 
receiving soft money, the unlimited and largely unregulated 
contributions from labor unions, corporations and wealthy 
individuals. In addition, BCRA placed restrictions on issue ads 
mentioning candidates for Federal office that run in the days 
leading up to an election.
    Those who champion BCRA on both sides of the aisle asserted 
that the new law was necessary to cleanse the Federal campaign 
finance system from the allegedly corrupting influence of soft 
money. I say allegedly, because obviously I didn't support BCRA 
then, and I wouldn't support it today, and wouldn't support it 
tomorrow.
    And in fact, I worked with my friend Al Wynn, a Democrat 
from Maryland, to block its passage. We had an alternative, I 
think, that was fair and balanced, and gave the political 
parties, with some limitations, the options to use soft money 
for overhead and still allow for voter registration and a lot 
of other things that I happen to believe. You can call me old-
fashioned, but I kind of like the first amendment freedom of 
speech, expression and association.
    Moreover, I believe that BCRA would do serious damage to 
our democratic process by weakening the political parties and 
shifting more power and influence to unaccountable, 
ideologically driven outside groups. And again, if they are 
operating, and the parties can operate, then I think it is a 
level playing field.
    As I point out repeatedly during the floor debate, BCRA 
does not ban soft money, notwithstanding repetitive claims to 
the contrary by the law's supporters; rather BCRA merely 
redirected soft money to less accountable groups. 
Unfortunately, I was unsuccessful in efforts to defeat BCRA.
    Before the ink on the President's signature had dried, new 
groups had begun to act like vacuum cleaners, picking up soft 
money as possible situations began to proliferate, I think, 
right before our eyes.
    Immediate reports indicated that organizations whose 
primary purpose was to function as a shadow political party 
committee were being established with the apparent stamp of 
approval by relevant Federal officeholders and party officials 
to solicit and spend soft money in support of parties, 
candidates and their agendas. Most of these groups were 
established for the express purpose of defeating President Bush 
in November of 2004, which is particularly stunning, 
considering that many Democrats, and some Republicans, had 
championed the efforts to, quote, ban soft money.
    However, data compiled by the Center For Responsive 
Politics notes that the top 24 individual soft money donors of 
the current election cycle are giving exclusively to Democrat-
leaning 527 groups, but, I think, after today you probably will 
also see them giving it to Republican soft money-leaning 
groups. I am trying to be fair and balanced, not to steal 
something from that show on TV. [Laughter.]
    But the committee held a hearing last November to provide 
an opportunity for representatives from prominent 527 groups to 
explain their activities, and to gain a greater understanding 
about the extent to which BCRA has reallocated political power 
and resources in the United States.
    The representatives of the Republican-leaning groups showed 
up. The representatives of the Democrat-leaning groups who had 
been invited refused to attend. Those who refused to testify 
then stonewalled, I think, the committee's legitimate attempts 
to receive more information about the activities of the groups 
that they head.
    Eventually after the committee had to consider exercising 
subpoena power to gain a measure of cooperation, these groups 
gradually produced a limited number of documents, almost all of 
which were already publicly available on the Internet and 
elsewhere.
    At about this same time, the FEC initiated a rulemaking to 
examine whether its rules ought to be amended so as to regulate 
527 groups, especially in wake of the Supreme Court's McConnell 
v. FEC opinion that upheld most of BCRA. I welcome this effort 
by the FEC to bring clarity to an area of the campaign finance 
law where there has been a great deal of confusion. The 
committee decided to postpone its inquiry into the activities 
of these 527 groups and their efforts to influence Federal 
elections to allow the FEC an opportunity to thoroughly look 
into the issue.
    Over the past few months, the FEC has addressed proposed 
rules, held hearings at which interested parties commented on 
the wisdom or the defectiveness of the proposed rules, and 
received over, I believe--and correct me if I am wrong--100,000 
written comments from concerned groups and citizens. Comments 
were submitted by approximately 130-some Members of the House 
on the Democrat side. One of the passages from the letter 
reads: ``there has been absolutely no case made to Congress or 
a record established by the Commission to support any notion 
that tax-exempt organizations and other independent groups 
threaten the legitimacy of our government when criticizing its 
policies. We believe instead that more, not less, political 
activity by ordinary citizens and the associations they form is 
needed in our country.''
    Let me say, first of all, it sounds like I probably should 
have signed that myself, but I am glad to see that members of 
the other party have discovered the importance of protecting 
the free speech and the associational rights of our citizens. 
This is certainly a far cry from some of the rants about the 
evils of soft money and special interests that were made during 
BCRA by members of both parties. However, I wish that we would 
have found this voice to support Congressman Wynn and I at that 
time, then maybe we could have gotten more votes for our 
proposal.
    Nevertheless, we are now stuck with a complex and 
convoluted law that doesn't ban or even reduce soft money in 
the Federal political system, but does impose significant 
burdens on individuals and groups seeking to be involved in the 
political process, and especially, I think, in the area of 
voter registration, which is one of the largest problems I had 
with BCRA, especially since public communications encouraging 
people to register are cut off so close to the election when 
people are really interested in registering to vote.
    So we commend the FEC's efforts to inform the regulated 
community regarding what activities BCRA permits and what 
activities it forbids, especially with respect to 527 groups. I 
must confess that my friends on the other side of the aisle 
aren't the only ones who have had a sudden change of heart 
about the merits of various campaign finance regulations. 
Members of my own side of the aisle who oppose BCRA now wish to 
see it applied broadly so as to hobble the groups that are 
supporting their political opponents.
    It is a strange day indeed when you find the Democrats 
defending unfettered spending as a legitimate political right 
and the Republicans want to prohibit it by a regulatory agency, 
yet that is where I think we find ourselves.
    Accordingly, last week's FEC decision to forego regulation 
of these groups with the election cycle was jeered by some, and 
obviously cheered by others. I hope the FEC process will 
provide guidance to the regulated community, some of whom may 
have felt paralyzed to act because the legal landscape remained 
too murky for them to operate comfortably, or operate in a 
pattern they felt might have potentially been illegal.
    Though the 90-day delay leaves open the questions of what 
the rules will be in the next election cycle, there should be 
no mistake that a decision has been made for this cycle (by the 
fact that no decision was made), and I will ask some questions 
on that today. Therefore, I am anxious to hear from the 
Commissioners themselves regarding the rulemaking. Furthermore, 
I look forward to hearing the Commissioners' talk on the 
permissible range, frankly, of activities in which 527 groups 
may engage.
    I understand, of course, that the Commissioners won't be 
able to comment on the specific actions of particular groups 
currently subject to ongoing FEC enforcement actions, and I 
respect that, and obviously yield to the proper nature of not 
asking you to do that.
    One final comment before I recognize our other Members: 
some of those who support campaign finance reform have argued 
that last week's action is a demonstration of the deficiencies 
of the FEC and provides evidence of the need to restructure 
that agency. These supporters are understandably chagrined by 
the soft money groups that have made, I think, a mockery of the 
law that they championed. They are faced with two choices: 
Admit, number one, that they were wrong and the bill was a 
mistake, or it is a failure; or number two, that they have to 
attack the FEC.
    Number one probably, I think, is the appropriate response, 
not the attack of the FEC. Instead, I think they will choose 
number two, to attack the Federal Election Commission. We 
should be clear, though, that the deficiencies of this law are 
the responsibility of the authors and the Members who have 
voted for it.
    I want to thank you again for coming here today. I also 
want to thank our Ranking Member, Congressman Larson for 
agreeing to the hearing and our Members for being here today.
    And with that, I am going to yield to our distinguished 
Ranking Member, Mr. Larson.
    Mr. Larson. Thank you very much, Mr. Chairman. And I want 
to thank you and also thank our distinguished panelists for 
being here this afternoon and for holding this oversight 
hearing to review the Federal Election Commission's rulemaking 
process regarding 527 groups.
    I know in conversations with the Chairman the need for 
additional hearings related to this issue under the committee's 
jurisdiction, and especially given the Chairman's major role 
and the outstanding role he played in the passage of HAVA, and 
also concerns that I think a number of Members have about the 
Presidential public financing fund. I am interested in hearing 
from the Commission about the role 501(c)(3)s may be playing in 
influencing elections.
    To that end I would ask unanimous consent to ask that this 
article from the Washington Monthly be inserted as part of the 
record, which explores at length the----
    The Chairman. Can I read it first?
    Without objection.
    Mr. Larson [continuing]. The both 527s and as the 
relationship between 527s and 501(c)s, and the potential for 
one to sort of meld into the other, which I found both 
interesting reading, and also, I am sure, made for the 
complexity involved in the decisionmaking that all of you on 
the Commission have been asked to give.
    The news media for the most part has been able to focus on 
527s, because they have disclosure requirements, which makes 
information readily available. But some groups are using 501(c) 
status as a way not to disclose their donors' activities, and 
these groups may be a bigger influence on elections than 527s 
are perceived.
    One group, Americans for Job Security, by all appearances 
is raising millions of non-Federal dollars for the sole purpose 
of defeating Democrats. This is done without the same donor 
disclosure rules that 527s follow. While we are here to talk 
about the FEC rulemaking process, I am interested in hearing 
from the witnesses how they can bring these groups that have 
been called the shadow Republican Party into the light as well.
    Again, as I have indicated, I would like to submit this 
article for the record.
    [The information follows:]

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    Mr. Larson. 527s are named after a section of the Internal 
Revenue Code that specifies the tax treatment accorded 
political organizations and tax-exempt organizations which make 
political expenditures. Congress, as was pointed out by the 
Chair, addressed 527s twice in the last 4 years. In 2000, we 
passed legislation that required all 527s that expect to have 
gross receipts of over $25,000 during a taxable year to 
register with the Internal Revenue Service within 24 hours of 
their formation. They were not required to report to the FEC. 
These 527s are then subject to the public disclosure and review 
requirements of the IRS, and if they meet additional 
requirements, they are subject to public disclosure and review 
requirements of the FEC as well.
    I note that our distinguished colleague Mr. Doolittle has 
just arrived, and Roll Call on May 17, he said, I appreciate 
today's FEC decision which applied a strict constructionalist 
approach to the law and rendered this decision in a fair and 
impartial manner.
    I agree with Mr. Doolittle.
    He went on to say, the ruling did not attempt to make law 
as the petitioners had sought, but instead followed the law as 
it was written by Congress. He then added, as abysmal as that 
law may be.
    Mr. Doolittle. Which it definitely is.
    Mr. Larson. I just want today to make sure I gave you full 
credit, but I wanted you to know that in the spirit of what you 
had to say, I was in agreement, not necessarily with your final 
comment.
    But in 2002, we passed legislation which was intended, 
among other things, to reduce unnecessary and duplicative 
Federal reporting by certain State and local political 
committees where the information was already required to be 
reported and be publicly disclosed under the State law.
    Federal courts have not been silent on the matter of 527 
disclosure requirements. On Christmas Eve of last year, the 
U.S. Court of Appeals for the Eleventh Circuit unanimously 
reversed the district court ruling. In Mobile Republican 
Assembly v. U.S., the court of appeals held that the disclosure 
requirements do not impose an unconstitutional penalty on 527s. 
The disclosure requirements are merely a condition precedent to 
receiving a Federal subsidy by way of a voluntary tax 
exemption.
    Last December in McConnell v. The Federal Election 
Commission, the Supreme Court clearly stated that placing 
limits on raising of unregulated corporate, union and large 
individual contributions donated by organizations and 
individuals with general or specific legislative objectives 
would not have the same application to broader citizen-based 
interest groups. Any entity that believes, feels that these 
disclosures requirements are too severe may choose to organize 
differently. While they may be subject to higher corporation 
taxes and additional regulations, it is their choice.
    Congress is free to impose additional regulations on 527s 
if it can be clearly demonstrated that these groups have the 
same corrosive influence on the electoral process.
    I would encourage a cost approach to the imposition of 
additional restrictions. Political free speech, as has been 
noted by the Chair, is the lifeblood of any vibrant democracy. 
Congress should not restrict individuals from donating money to 
groups like the NRA for use in publishing a legislative report 
card on the voting records of Members of Congress, nor restrict 
the National Association For the Advancement of Colored People 
from spending contributed funds to conduct voter registration 
drives. Arguably these types of activities amount to public 
service functions, and Congress should encourage these citizen-
based activities and not stymie groups from informing the 
public about their position or from getting more citizens to 
participate in our democracy.
    I supported BCRA because it severed the link between 
undisclosed and unregulated political contributions known as 
soft money and the corrosive effect such contributions have on 
the credibility of government, on Federal officeholders, on 
candidates and their parties.
    To say that the law, as the Chairman pointed out, is 
difficult to interpret and gray and vague in many areas is an 
understatement and, too, I think, further complicates the task 
that the FEC has at hand, but, again, is why I would urge 
caution in moving forward.
    The FEC voted unanimously last week to accept the general 
counsel's recommendation to act within the next 90 days. I am 
interested in hearing from the Commissioners on what will 
happen in that time frame, and if that is enough time to issue 
any changes.
    I would like to bring to the Commission's attention that 
when Congress enacted BCRA, we chose to defer the effective 
date to the following election cycle. This decision allowed all 
affected groups and parties to have sufficient time to 
transition from existing rules to the new rules under BCRA 
without distorting the electoral process in midcycle, where we 
find ourselves currently.
    The FEC should continue to take whatever time is needed to 
adequately consider and craft any proposed changes, but with an 
eye toward avoiding disruptions during the present election 
cycle which would affect political committees, organizations 
and candidates.
    I look forward to hearing how the Commission reached their 
decisions and what the future may hold for 527s. Thank you, 
Chairman.
    The Chairman. I want to thank the Ranking Member.
    [The statement of Mr. Larson follows:]

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    The Chairman. Mr. Mica.
    Mr. Mica. Thank you, Mr. Chairman. I thank you for holding 
this meeting. We talked about it very shortly after the 
decision of the Federal Election Commission not to further 
regulate the 527s. I was disappointed by their action, because 
I have always viewed the Commission as being responsible for 
Federal elections, and they all seem to act in the past in the 
best interest of the electoral process.
    I did not support the so-called campaign reform legislation 
basically because of what some of us predicted would happen, 
and unfortunately in our worst nightmarish dreams we couldn't 
have predicted a greater distortion of the Federal election 
process. So therefore, I am very disappointed.
    I don't know if the Members have been blindfolded and kept 
in a dark room and fed mushrooms in the past few months, but--
and just my background, I come from a bipartisan family. I have 
a brother who served as a Democrat for 10 years, he was an aide 
here for 10 years; another brother a Democrat, aide to Lawton 
Chiles. I have been around the process for 40 years, and I have 
never, ever seen anything like this, such an undermining of the 
Federal elections process. The campaigns have started with the 
527 in the most vicious approach, and people are just totally 
dismayed, not just people in politics, but the average person 
on the street, by what has taken place.
    We did not regulate soft money. We moved it around, and we 
have created a horrible vacuum and undermining of the process. 
I have never seen, again, anything like what we are 
experiencing now, totally out of control, and then a third more 
money--I read the other day a third more money into 
congressional races, so pouring more money in soft monies by 
finding circuitous routes and the Federal election process 
being made a sham.
    I share some of the sentiments of Mr. Doolittle. The only 
thing you can really do is have full disclosure, and we have 
less disclosure of huge amounts of money being spent already. 
The 527s have made a complete joke of the process and the 
attempts to curtail soft money.
    We were shown some charts here of the predicted 
expenditures, and I thought a half a billion dollars might be 
far-fetched, but I am told now that it may reach a half a 
billion dollars, which is absolutely outrageous, and the people 
do not have a clue as to where these funds are coming from. The 
disclosures--and if they aren't involved in a Federal election, 
somebody wake me up and tell me it isn't so. Again, I can't 
totally blame the Federal Election Commission, even though you 
have responsibility for regulating and overseeing the elections 
and also interpreting your responsibility.
    I would have voted for a stricter approach to regulation 
without a--I can't tell you how disappointed I am. It may be 
too late for the 2004 elections. That is the sad part of this. 
And the worst part about all of this is I think that the so-
called reform measure and your actions to not take a stricter 
approach to regulation of an out-of-control chase and display--
blatant display of unregulated money in a Federal election, the 
worst part about this is this is undermining people's faith in 
our democratic process, and that is the saddest part about what 
Congress has done and what you haven't done.
    So with that, I yield back.
    The Chairman. I thank the gentleman.
    The gentleman from California, do you have an opening 
statement?
    Mr. Doolittle. You know, Mr. Chairman, I really came to 
hear the Commissioners, and I will make any statements I have 
in the context of the back and forth.
    The Chairman. Thank you.
    The gentleman from New York.
    Mr. Reynolds. No, thank you.
    The Chairman. Thank you.
    I want to thank again all the Members and Commissioners for 
coming.
    Today we have the Honorable Michael Toner, Commissioner, 
Federal Election Commission; the Honorable Scott E. Thomas, 
Commissioner, Federal Election Commission; the Honorable Ellen 
L. Weintraub, Vice Chair, Federal Election Commission; and the 
Honorable Bradley A. Smith, Chairman of the Federal Election 
Commission.
    And with that I guess it is like Marvin Gaye's song 
``What's Going On.'' [Laughter.]
    We will start with you, Mr. Toner.

  STATEMENTS OF MICHAEL TONER, COMMISSIONER, FEDERAL ELECTION 
  COMMISSION; SCOTT E. THOMAS, COMMISSIONER, FEDERAL ELECTION 
 COMMISSION; ELLEN L. WEINTRAUB, VICE CHAIR, FEDERAL ELECTION 
 COMMISSION; AND BRADLEY A. SMITH, CHAIRMAN, FEDERAL ELECTION 
                           COMMISSION

                   STATEMENT OF MICHAEL TONER

    Mr. Toner. Thank you, Mr. Chairman, Mr. Ranking Member, 
members of the committee. Thank you for inviting us to testify. 
It is always a pleasure to be here.
    Under the Federal election laws, a political committee is 
defined as any group that receives more than $1,000 of 
contributions or makes more than $1,000 of expenditures in a 
calendar year.
    Prior to the Supreme Court's ruling in McConnell, many 
people believed that for independent groups not controlled by 
candidates, expenditures for political committee status were 
limited to those that were made for express advocacy, 
communications that on their face expressly advocate the 
election or defeat of a clearly identified Federal candidate.
    The Supreme Court concluded in McConnell that the express 
advocacy test is not constitutionally mandated. The Court 
further concluded that the express advocacy test in practical 
application is functionally meaningless in the real world of 
politics, and the Court emphasized that political consultants 
long ago shaped political advertisements with no consideration 
of express advocacy; that many campaign commercials paid for by 
Federal candidates did not contain express advocacy; and that 
political consultants had generally agreed that express 
advocacy was not the way to move voters in America.
    Despite all of this, for over 20 years the express advocacy 
test has played a major role in the Commission's determination 
of whether an organization is a political committee that must 
abide by the hard-dollar limits of Federal law.
    In this rulemaking the Commission is confronting the basic 
question of whether we are going to continue to use a legal 
test that has largely been discredited by the Supreme Court or 
whether the Commission is going to develop a regulatory test 
that might actually be effective and might have meaning in the 
political world.
    I strongly believe the Commission should take the latter 
course, and it was in that spirit that Commissioner Thomas and 
I sponsored a set of regulations that would have turned on a 
different regulatory test for 527 organizations, namely whether 
they promote, support, attack or oppose a Federal candidate in 
their public communications.
    This promote, support, attack, oppose standard was crafted 
by Congress and enacted into law in BCRA. The standard 
currently applies to public communications made by State and 
local political parties and candidates. The standard was upheld 
as constitutional in McConnell against a vagueness challenge. 
The Court concluded there that the statutory provisions, 
``provide explicit standards for those who apply them, and give 
the person of ordinary intelligence a reasonable opportunity to 
know what is prohibited.''
    The Court further went on and indicated that this standard 
provides clear notice as applied to political parties since, 
``every actions they take are presumed to be in connection with 
election campaigns.''
    We believe political parties--Commissioner Thomas and I 
do--that political parties and other campaign organizations and 
527 groups have many of the same characteristics, particularly 
because 527 groups operate as a matter of law for the purpose 
of influencing or attempting to influence the selection, 
nomination, election or appointment of individuals to Federal, 
State or local office.
    527 organizations voluntarily choose to organize under 
section 527 of the Code. They gain substantial tax benefits as 
a result of that voluntary choice, and they also hold 
themselves out as operating to influence elections to public 
office. Given this, it is very clear that 527 organizations are 
fundamentally partisan political organizations, which is fine, 
but the conclusion that flows from that is that they are very 
synonymous with the types of groups that the Supreme Court has 
made clear are appropriate for campaign finance regulation.
    In McConnell the Court made clear that in terms of 527 
organizations, the Court views them as organized for the 
express purpose of engaging in partisan political activity and, 
``by definition engage in partisan functions.''
    With all of this, Commissioner Thomas and I believed it was 
appropriate for the Commission to develop a broader standard 
for political committee status that did not turn on express 
advocacy in terms of 527 groups, but instead turned on several 
key elements: first, whether or not they are running 
commercials that promote or attack Federal candidates. In our 
view, if they do, they clearly are for the purpose of 
influencing a Federal election and, therefore, should be 
required to be classified as a political committee and abide by 
the hard-dollar limits of Federal law.
    Second of all, our proposed regulations would have made 
clear that 527 organizations that engage in partisan voter 
mobilization activities, activities that include communications 
that attack or promote Federal candidates, also should be 
treated as political committees required to abide by the hard-
dollar limits. In our view that is the scope of a practical, 
meaningful set of regulations for 527 groups that, after all, 
at bottom are partisan organizations.
    We also strongly believed that it was critical that the 
agency take action for the 2004 election. The McConnell case 
came down in December of 2003, and so the timing of these 
questions arising was not of our choosing, but the magnitude of 
the issues is enormous.
    A Presidential election is going to be conducted in 6 
months, and there is no question that hundreds of millions of 
dollars are going to be spent by 527 organizations on 
activities that will directly affect the Presidential election. 
With all of that in mind, Commissioner Thomas and I sought to 
develop a narrowly tailored approach that would have 
effectively regulated this type of conduct.
    With that, Mr. Chairman, I see that my 5 minutes has 
elapsed, and I will yield back my time.
    The Chairman. Thank you.
    [The statement of Mr. Toner follows:]

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    The Chairman. Commissioner Thomas.

                  STATEMENT OF SCOTT E. THOMAS

    Mr. Thomas. Thank you, Mr. Chairman and members of the 
committee. I will try to pick up to deal with the latter part 
of the proposal that Commissioner Toner and I cobbled together. 
It relates mostly to the so-called allocation issue.
    For groups that cross the political committee threshold, 
the FEC's Federal/non-Federal allocation regulations have long 
required the use of a funds-expended formula under which a 
share of the groups' administrative expenses and generic voter 
driving expenses must be paid for from federally restricted 
funds. The Federal share is determined by dividing the amount 
contributed to or otherwise spent on behalf of specific Federal 
candidates by the total Federal and non-Federal disbursements 
for specific candidates. The formula can be easily manipulated 
if only contributions and express advocacy are counted as 
candidate-specific outlays.
    For example, a group could contribute $1 to a Federal 
candidate and $99 to a non-Federal candidate and avoid express 
advocacy and thereafter work with a 1 percent Federal, 99 
percent non-Federal ratio for all applicable expenses. Indeed, 
we have seen evidence of political committees seemingly focused 
on the current Presidential race treating the vast majority of 
funds raised and spent as non-Federal, nonrestricted dollars. 
If the news accounts are close to accurate, tens of millions of 
dollars are likely to be spent by these groups to influence the 
upcoming Federal elections outside the Federal funding 
restrictions.
    Part of the Toner-Thomas proposal that would have modified 
the allocation rules really had two purposes. First, for 
purposes of calculating the funds-expended ratio, political 
committees involved in both Federal and non-Federal elections 
were to use the promote, support, attack or oppose standard for 
calculating funds disbursed for candidate-specific purposes. 
This would assure that a public communication by a political 
committee saying, ``Bush is wrong'' or ``Kerry is right,'' 
would count as an expense on the Federal side of the formula. 
No longer would registered political committee agents be able 
to claim that only the cost of ``defeat Bush'' or ``elect 
Kerry'' messages count toward the Federal portion. This legal 
approach, by the way, already had been approved by four members 
of the Commission in Advisory Opinion 2003-37.
    Second, this proposal was designed to prevent the same kind 
of gamesmanship that seems to have emerged using the 
contribution and independent expenditure concepts when 
calculating the Federal share. A group that really wants to 
focus vast soft money resources on a Presidential race could 
simply include nominal references to several non-Federal 
candidates in its communications and thereby skew the ratio.
    The Toner-Thomas proposal builds in a 50 percent minimum 
for the Federal share in the allocation ratio to prevent such a 
result. It was similar to the 65 percent minimum Federal 
percentage that has been applied for years to the parties' 
House and Senate campaign committees.
    With my remaining time, I will take a crack briefly at just 
addressing some of the most obvious concerns that have been 
noted.
    Really, there is a valid concern about getting involved in 
the middle of an election cycle, but I come back to the basic 
proposition it is really entirely dependent on how big of a 
problem we are facing. Here, after BCRA's passage, new groups 
sprang up or expanded greatly and began openly raising and 
spending tens of millions of dollars to influence Federal 
elections outside the Federal campaign finance rules. Their Web 
sites and other communications sometimes state expressly they 
are designed to defeat a particular Federal candidate. Hard-
hitting attack ads or lofty messages of praise regarding 
candidates seem to be their only function in some cases.
    These groups are being run in many cases by well-connected 
political operatives with easy direct or indirect access to 
elected officials. The major purpose of these groups seems to 
be influencing elections and use of the express advocacy 
shield, and weak FEC allocation regulations seems to be leading 
them to use huge donations to influence Federal elections.
    That is what the political committee rules are designed to 
prevent. Only by acting quickly could the FEC hope to stop this 
problem before possibly hundreds of millions more were going to 
be raised and spent this way.
    Now, there are some problems, in essence, that you don't 
want to wait on. I like to use the analogy these days, if I 
have a fire that is starting in my house, I am not going to 
wait 90 days to call the fire department. To me and to 
Commissioner Toner, we felt that the problem we had seen was 
concrete, it was present, and it was something we needed to 
address sooner rather than later.
    With that, I will cut off. I see my time is up. Thank you.
    The Chairman. I thank the gentleman.
    [The statement of Mr. Thomas follows:]

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    The Chairman. Commissioner Weintraub.

                STATEMENT OF ELLEN L. WEINTRAUB

    Ms. Weintraub. Thank you, Mr. Chairman and Ranking Member 
Larson and members of the committee. Thank you for inviting us. 
I have always found that our discussions have been productive.
    I did not support the Toner-Thomas proposal. I had a lot of 
substantive problems with it. I respect the efforts of my 
colleagues. Maybe that was the best proposal that could be put 
together on the time line that they insisted on following, but 
I don't think it was a realistic time line. I never believed 
that it was. We received tens of thousands of comments. We 
haven't had adequate time to take all of them into 
consideration.
    The proposal was not based on any elaborate--or any 
developed factual record at all. It wasn't supported by our 
general counsel. It wasn't supported by the recommendations of 
the tax experts who testified before us, and I think it 
embodied oversimplified notions of tax law.
    Albert Einstein once said everything should be made as 
simple as possible, but not simpler, and I think that is what 
this proposal attempted to do. It lacked key definitions. The 
allocation formula lacked any supporting data other than an 
impressionistic reaction to what a couple of well-publicized 
committees are doing, but we have to remember that when we are 
regulating political committees and political organizations 
across the country, there are thousands of them, and they are 
all going to be subject to the same rules. This isn't an 
enforcement action.
    We received some very persuasive testimony from tax experts 
as to the differences between the tax law and the election law 
and how they have been construed over decades by courts and by 
agencies. The IRS is unconstrained by first amendment concerns 
that we have to take into account, and 527 was described by one 
of our tax experts as the kitchen junk drawer of regulations. 
The IRS just sort of piles all sorts of things into it.
    Another one in written comments pointed out that it is 
meant to be sort of a mirror image of 501(c)(3), and the IRS 
drew a very wide circle around 501(c)(3) activities, because 
those you get a tax deduction for, and they didn't want 
anything that was remotely political to come under 501(c)(3). 
So anything that was even tangentially political got dumped 
into 527, and it encompasses a lot of activities that this 
agency has not traditionally regulated and that I think a lot 
of people don't think we ought to be regulating.
    There were concerns that were expressed by the nonprofit 
community as to how this would affect them, and I think that 
they were valid concerns. There is a legitimate role for people 
to criticize the government. A lot of nonprofit entities use 
criticizing elected officials close to the election as a 
primary form of advancing their legislative and policy agenda, 
and they have the first amendment right to do that, and we have 
to be very, very careful if we are going to be intruding in 
those areas.
    Now, while my concerns about some of the specifics of the 
proposal could be addressed given the extra time that our 
general counsel has asked for, perhaps as Congressman Larson 
has suggested, perhaps even more time, there is one problem 
that is sort of fundamental, and I just am having a hard time 
working around that, and that is the fact that Congress has 
acted in this specific area. Congress passed legislation 
directly addressing the problem of unregistered 527 
organizations, 527 organizations that didn't register with the 
FEC. And what Congress decided to do in 2000, and again they 
amended the law, you amended the law in 2002 after BCRA was 
passed, and the route that you chose was to have disclosure to 
the IRS.
    A proposal was suggested. A bill was introduced in the 
Senate that would have gone along very similar lines to what 
Commissioners Thomas and Toner have proposed in terms of making 
527 entities, for the most part, into political committees. 
That was not the proposal that was enacted into law, and if we 
were to adopt this proposal, we would substantially nullify the 
law that Congress actually did pass.
    I would think that you guys would be kind of angry at us if 
we did that. It would be like the FEC saying to Congress, you 
had various policy options in front of you when you decided to 
act legislatively on the 527 issue. You chose one route. We 
think you made a mistake. You should have chosen this other 
route, and that is the one that we are going to apply.
    As an administrator, I don't see how I can--maybe it is my 
background as a House staffer years ago that I just can't quite 
shake these ``deferential to Members of House'' instincts of 
mine, but I think that you guys would probably be kind of upset 
with us if we tried to initiate the kind of choice that 
Congress made.
    I also paid very close attention to the letter that 
Chairman Ney alluded to from 128 House Members. We got a 
similar letter from 19 Senators as to what they intended when 
they passed BCRA. Mr. Larson, you signed that letter, and I 
read it very carefully, and I paid a lot of attention to it. It 
was very persuasive to me. I don't see how we go and do 
something in interpreting a law that the Members of Congress 
who voted for it have told us was not their intention.
    There are definitional problems in this proposal that I 
think are very, very troubling. There is no definition of major 
purpose. There is no definition of promote, support, attack or 
oppose. I know the Supreme Court has upheld the latter standard 
with respect to political parties, but we had reams of 
testimony from members of the regulated community that they 
don't understand what it means, and I don't want to push 
forward any kind of regulation that is going to confuse the 
regulated community.
    People in the regulated community need to understand what 
the rules are so they can comply with them. I want them to 
comply with the rules, but they have to understand them. And I 
don't think we ought to be shooting from the hip just to put 
some kind of a quick fix out there without adequately 
considering what the impact is going to be on the regulated 
community.
    I see my time is up, so I will stop.
    The Chairman. Thank you.
    [The statement of Ms. Weintraub follows:]

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    The Chairman. Chairman Smith.

                 STATEMENT OF BRADLEY A. SMITH

    Mr. Smith. Thank you, Mr. Chairman, members of the 
committee.
    I have to say I don't know that I have ever seen so much 
excitement over a decision which simply maintains it is status 
quo, because that is what the Commission did. The law has long 
required that a group must engage in express advocacy before it 
is considered a political committee. Now, some have argued that 
that interpretation of the law is incorrect, but they have 
admitted that it is the interpretation of the law.
    For example, in January 2003, 10 months after BCRA was 
passed, 2 months after it took effect, representatives of 
Public Citizen, Democracy 21, Common Cause and the Center for 
Responsive Politics wrote to the IRS, quote, for well over a 
decade, independent groups learned that by simply avoiding the 
magic words of express advocacy as defined by the courts, these 
groups were no longer required to register as PACs with the FEC 
and fell outside of Federal campaign finance laws.
    Now, in BCRA Congress did not change the definition of 
political committee, nor did it change the definition of 
expenditure or contribution, which are the predicates for 
defining a political committee.
    In the regulations that we considered, not once did any 
witness come before us and say, if you are going to properly 
implement this law, you need to address the definition of 
political committee or expenditure. In a lawsuit that the House 
sponsors filed against our regs saying they didn't properly 
implement the bill, they did not suggest anywhere in that 
lawsuit that we should have changed or added new definitions 
for expenditure, contribution or political committee. The 
legislative history, I think, shows very clearly that Congress 
understood this definition when it passed BCRA, and it 
understood the activity would gravitate to 527 groups.
    My written testimony, as with the written testimony of the 
Vice Chair, includes a large number of quotes primarily from 
Senators, but there were also many Members of the House who 
understood this, including members of this committee. For 
example, Congressman Linder said, ``Shays-Meehan is merely 
diverting and channeling soft money into an ever-growing number 
of parties, while allowing corporations and unions to spend 
unlimited and unregulated dollars on electioneering. This does 
not and will not change the amount or type of money in the 
system, and it certainly does not alter the ability of outside 
groups to influence elections.''
    Or, Congressman Reynolds, you, too, anticipated exactly 
this result. You said, ``we would be fooling ourselves if we 
believed the notion that the Shays-Meehan legislation 
represents a complete ban on soft money. Let us be honest. In 
this bill there is no such thing as a ban on soft money. This 
bill creates even bigger loopholes than before, loosening even 
further the loopholes that allow party committees to shift 
their current soft money over to nonprofits, who in turn could 
use 100 percent soft money for issue advocacy.''
    And Representative Shays, when they were amending the 527 
disclosure bill that the Vice Chair referred to a few months 
later, said, quote, the one thing we know with our campaign 
finance reform bill is 527s are going to proliferate. We know 
that. Special interests will have a greater say. We know that. 
That is what people on both sides of the aisle argued for. Let 
Americans have their say.
    In response to this argument, supporters of the bill tended 
to argue four things. First, if a committee of a 527 were 
established, financed, maintained or controlled by a party, it 
would be treated like a party.
    Secondly, they required us to write a tougher definition of 
coordination, making it tougher for these groups to work with 
candidates and parties.
    Third, they prohibited Members from soliciting funds for 
these groups with one exception that is somewhat important that 
we may get a chance to talk about later.
    And fourth, they put on the electioneering communications 
ban, which you are aware of: the ban on an ad 60 days before an 
election.
    By the way, this argument was also made by the Republican 
Party before the Supreme Court. Its very able litigator Bobby 
Birchfield, began his oral argument by pointing out to the 
Court--he said, if you uphold this law--I am not quoting him, 
but he said, if you uphold this law, here is what is going to 
happen. George Soros is going to give millions to 527s, and all 
same activity is going to continue. They did not say, if you 
uphold this law, it is going to limit the speech of all these 
527s. They said exactly the opposite.
    Now, how did the Supreme Court respond to this? Well, the 
Supreme Court said, if I can find these quotes here--the 
Supreme Court said, ``BCRA imposes numerous restrictions on the 
fundraising abilities of political parties of which the soft 
money ban is only the most important. Interest groups, however, 
remain free to raise money to fund voter registration, get-out-
the-vote activities, mailings and broadcast advertising other 
than electioneering communications.''
    The Supreme Court also noted in response to the argument of 
the Republican Party that--they said, well, that argument is 
wrong, and they said, you might as well say it is 
overinclusive. They said, reform can take one step at a time. 
And here is what they wrote: ``One might just as well argue 
that the electioneering communication definition is 
underinclusive because''--here is the point I want you to 
hear--``because it leaves advertising 61 days in advance of an 
election entirely unregulated.'' And they continue, ``the 
record justifies Congress's line-drawing.''
    Now, the Toner-Thomas proposal would have regulated 
advertising 61 days in advance of the election, thereby making 
nonsensical this Court's statement.
    So as I see it, the comments about what the Court said in 
McConnell and so on are very interesting. They might be 
interesting if I were a Member of Congress and I had asked for 
a report as to what it might be constitutional for me to do, 
and I might weigh those factors in, but they are not very 
relevant to us on the Federal Election Commission because it 
was not what was passed by Congress. The Court did not say that 
you can apply ``support, promote, attack, oppose'' to nonparty 
groups because it wasn't in the law. They didn't have a reason 
to discuss that issue, and, therefore, again, it is not really 
relevant to us.
    Ultimately, then, this is an issue that is for Congress. 
There are still some constitutional restraints out there, which 
is one of the reasons it is better that Congress attempt this 
expansion of regulation than that we do it. As my time is up, I 
would urge you to simply refer to my lengthy written statement 
for a detailed explanation of this legal analysis. And, of 
course, I am happy to take your questions. Thank you.
    [The statement of Mr. Bradley A. Smith follows:]

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    The Chairman. Well, I thank everyone for their testimony.
    I am going to keep my questions brief and under the time, 
because I want everyone to have a chance. And if we have a 
little bit more time I will allow more questions, but if not, I 
will submit it for the record.
    I want to go to the role of the FEC. Considering the 
important constitutional freedoms at stake, when you as FEC 
Commissioners are making rules or carrying out your 
responsibilities that impact speech and associational rights, 
how broadly or how narrowly do you believe you should interpret 
the law? Broadly, narrowly or in between?
    Mr. Thomas. Well, I will jump in first, Mr. Chairman. I 
guess I've had somewhat of a philosophical disagreement with 
some of my colleagues over the years. I am someone who feels 
like the words Congress puts in the statute are my direction. 
Those are what I am supposed to follow, those are what I am 
supposed to defend, and those are what I am supposed to try to 
make work. And I have over the years tried to discourage my 
colleagues from trying to anticipate what constitutional battle 
might emerge if we adopt a certain construction of the statute. 
I have tried to encourage my colleagues to try to implement the 
statute as Congress intended it.
    And it is interesting in this particular dispute, because 
as I see it, what we have got here is a question about 
interpreting statutory provisions Congress passed back in the 
1970s about what is a political committee. That term is a term 
of art that has been there since the 1970s, as has the word 
expenditure. And so when I see arguments that, well, the effort 
to amend the legislation to require IRS disclosure of some 527s 
in 2000 or the BCRA legislation in 2002 somehow was a signal 
that the Commission should steer clear of getting into this 
issue we have in front of us today, I go back and say, look, 
the statute has been there for years and the FEC is supposed to 
figure out what is supposed to be, what is required to be 
regulated as a political committee. So I feel like I am trying 
to adhere to Congress's wishes when I go back and apply the 
entire statutory scheme.
    The Chairman. Also, as a follow-up point, how do you 
determine intent? What was your intent? You determine just what 
was written in the law or the opinions of those who voted for 
it? Now, we have talked about this letter with 140 Members 
stating what they thought the intent of BCRA was, but you have 
the authors of the bill of the Senate and the House (the two 
authors respectfully, Mr. Shays and Senator McCain) saying, 
that wasn't our intent.
    Do you go with the 140 because there are more numbers to 
decide intent, or do you go with the two who wrote the bill, or 
is it not a factor?
    Mr. Thomas. Well, any expression of congressional intent by 
a Member of Congress is relevant to me, but I would say that 
the dispute that we see coming from these alternative 
constructions from Members themselves demonstrates that it is 
an almost impossible question for the FEC to resolve, what was 
the intent. And so it is in my mind, again, better to go back 
and really try to opine and make the statutory words work and 
function together.
    The Chairman. Yes, Commissioner.
    Ms. Weintraub. Mr. Chairman, if I might, I think that we 
all try to interpret the words of the statute. I don't think 
Commissioner Thomas is alone in that. We also need to take into 
account what courts have said about the statute, as indeed 
Commissioner Thomas did when he tried to import a major purpose 
test into his regulatory proposal, because that is not part of 
the statute anywhere. That is strictly coming out of Buckley v. 
Valeo and the MCFL decision. So that is entirely a judicial 
construct. And we have to take into account if the Supreme 
Court says something is unconstitutional, that is obviously 
something we have to pay attention to.
    In terms of intent, I think it is entirely plausible that 
different Members of Congress had different intent when they 
voted for the law, but I suppose that I do find some weight in 
numbers, in that, as you know, you need a certain number of 
votes to get a law passed, and if more of the people who voted 
for that law who provided that majority had one view of the 
law, that I think is somewhat influential to me. We go back to 
the legislative history, look at what was said on the floor 
when people were debating, what was their understanding at the 
time. I think all of these factors are important.
    The Chairman. Any other opinions?
    Mr. Smith. Well, I would echo the Vice Chair that all of 
us, I think, attempt to apply the statute. I know that 4 years 
ago I appeared before the other body at my confirmation 
hearing, and the point I made at that time, I promised Members, 
was that I would attempt to apply the law that they had written 
and not to apply my own preferences, and that is a vital 
consideration for us.
    I feel that part of the reason I was appointed to the 
Commission was because of a sense of many Members that the 
Commission had frequently overreached in the past, that it had 
far too often found its interpretations of the law struck down 
as unconstitutional by the Court or as being contrary to the 
statute by the various courts.
    And so I think one should not make the mistake of thinking 
that following the law involves constantly trying to push the 
envelope to the furthest possible limit. I think following the 
law means looking at the language of the statute, looking at 
the relevant court decisions that interpret that language, 
looking at what Members of Congress said at the time and what 
they might say in comments, and other expert witnesses, and 
applying that in a consistent way and in a way that does not 
step on the prerogatives of Congress.
    The Chairman. Gentleman from Connecticut.
    Mr. Larson. Thank you, Mr. Chairman. And let me start by 
saying, again, the profound respect that I have for the 
difficulty of the task that you have at hand as witnessed by 
the testimony and the answers that you all have given. I find 
it interesting, too, that the four of you represent Republican, 
Democrat, Democrat, Republican as well, and I do believe that 
the task at hand is a very difficult one and provides caution.
    I was struck by what Mr. Thomas had to say about wanting to 
go in and put out a fire, but I wanted to ask you, what kind of 
a fire do you think is raging with respect to 501(c)(3)s? And 
if we are going to put out a fire, shouldn't we put out the 
entire fire?
    Mr. Thomas. Congressman, that is a great point, and I think 
we should, if we find the same kind of abuse in the 501(c) 
area, basically apply the same legal analysis ultimately. If 
the major purpose of the organization could be shown based on 
reasonable objective analysis to be influencing elections, then 
I say you can apply the same tests.
    Now, Commissioner Toner and I in our proposal were 
attempting to focus initially on the 527 phenomenon, because 
those folks under the tax laws have that special ``for the 
purpose of influencing'' kind of construct that they have to 
follow in the first place.
    But we were intending for these other groups, the 501(c) 
groups, to allow for appropriate regulation either by the IRS 
or by the FEC, based on a whole body of current applicable law. 
So I hope you will appreciate that we are hoping to be vigilant 
in that area if the case arises.
    Mr. Larson. Well, I think the reason I raise that and there 
strictly in looking at the broader picture, and again this is a 
task that you have as well, but it does occur to me that in 
this article that I have asked to be introduced for the record, 
they talk about, well, look let's be honest about this. If you 
really pare down these issues, aren't we talking, you know, the 
term ``shadow Democratic party,'' the shadow Democratic party 
and shadow Republican party, I suppose you could apply to 527s 
or 501(c)s, depending upon how you look at these organizations 
and their intent.
    I want to read you a comment that the author makes. I 
thought it was kind of profound. He said should the Republican 
shadow party give Bush the extra artillery he needs to prevail 
against Kerry, the newspaper editorialists and good government 
activists may someday regret the fact that they decried the 
Democratic shadow party while blankly ignoring the Republican 
version. Not because it may get Bush elected, but because it 
will drive the whole soft money political economy deeper 
underground. Should Kerry lose the democratic operatives 
running 527s may conclude that there is little value in 
declaring themselves openly as electioneering outfits. Instead, 
they will likely--that is a good word--transmogrify their 
groups into 501(c)s.
    Nobody will be able to see how much money George Soros gave 
this quarter under that scenario, or figure out who sponsored 
that $500,000 ad campaign in the St. Louis suburbs. Soft money 
would disappear, or rather it would just become invisible. And 
isn't that the equally troubling problem that we face that will 
probably require legislation. My broad question is, what kind 
of remedy and I am particularly sensitive to the fact that both 
the chairman and vice chairman have said from a definitional 
standpoint what do we have to be working at in terms of 
definition that will both be broad enough to not want to 
override or prevent the free speech concepts that we have 
talked about, but one that will provide more disclosure, more 
light shedding on both 527s and 501(c)(3)s.
    Ms. Weintraub.
    Ms. Weintraub. Congressman, if I knew the answer to that 
question, we could have passed a regulation last week. I think 
it is in part because it is such a difficult task of line 
drawing that our counsel asked for another 90 days in 
participate to take a stab at it. We--the 501(c) issue raises, 
I think, some very troubling issues that are the ones that you 
alluded to. That there is--if we pass this kind of a 
regulation, there is going to be real pressure to push a lot of 
this activity into 501(c)s, and there will be no disclosure. 
Congress acted to obtain disclosure from 527s and we would be 
defeating that purpose by sort of pushing that whole area 
underground. And people say oh, no, no that is got going to 
happen for this reason or that reason.
    We had testimony from some sophisticated players, political 
players and they said, you know, we have complicated 
organizations. We have 501(c) aspects. We have 527 aspects. We 
have been using the 527s, but you know if that doesn't turn out 
to be a good deal anymore, we will just shift as much of this 
as we can into the 501(c)s and there won't be that kind of 
disclosure. At the same time, we have to be very sensitive to 
the advocacy needs of nonprofit community who are clearly very 
alarmed at some of the proposals that were put forward, as well 
as the sort of voter registration activities that the chairman 
alluded to earlier, which I am equally concerned about.
    The Congressional Hispanic Caucus sent us a letter 
expressing are their concern about the need to mobilize voters 
in their communities and how that is affected by 501(c) 
organizations, and they don't want to see limits to that 
activity and frankly, beyond what is in the current law, I 
don't either. We have barely a majority of people who vote now 
who are eligible to vote, and that is a very troubling 
phenomena in and of it self. I would like to raise one other 
point on the fire issue, though, on how big the fire is. I 
think to some degree a lot of this has been hyped. And you 
don't have to take my word for it.
    Read Tom Mann and Tony Corrado in today's Roll Call. 
Hundreds of millions of dollars are being raised in perfectly 
legal disclosed hard money contributions to the two major 
presidential candidates and to their parties. Hundreds of 
millions of dollars. It is a fund-raising operation, the likes 
of which has never been seen before. It is clearly going to be 
the most expensive election ever known in the history of the 
world. Some people think that is a good thing. Some people 
think that is a bad thing. But the amount of money that is 
being raised in the few organizations that people seem to be 
most concerned about I think is really going to be a drop in 
the bucket. And that was the perspective of Professor Mann and 
Corrado as well.
    Mr. Larson. I did read the article and I thank you. Yes.
    Mr. Toner. Mr. Ranking Member, just two brief points. I 
think it is a critical question you raise. There is no doubt 
under the MCFL rulings that a 501(c)(4) organization under 
extraordinary circumstances could be a political committee. The 
Supreme Court there was dealing with a plaintiff group that was 
a (c)(4). The upshot of the opinion was if that organization 
did enough campaign-related activities, that it became its 
major purpose, the Court indicated it could become a political 
committee.
    So I think you are absolutely right, that the law has not 
precluded a 501(c) from becoming a political committee. I think 
that being said, it would be extraordinary because the primary 
purpose of those types of organizations cannot be politics. If 
they do cross the line, I think the MCFL decision makes clear 
that jurisdiction could exist. But I think it would be 
extraordinary. The other thing I want to note for the record is 
that Mr. Larry Norton, the FEC's general counsel, did not 
oppose the proposal that Commissioner Thomas and I advanced. I 
think he really adopted a stance of neutrality. He didn't 
oppose the proposal, nor did he advocate its passage, but 
instead indicated that he would like to have some more time, he 
and his staff, to examine the factual record, read the comments 
and then come back to us with recommendations. So I think it 
really is a stance of neutrality in terms of our general 
counsel in terms of this proposal.
    Mr. Larson. Is it neutrality or caution?
    Mr. Toner. I think it is probably both. And I think 
rightfully so. These are major issues that we are dealing with 
here. My fundamental point is that the test that we have used 
for determining political committee status has turned on 
express advocacy. I think the law has changed after McConnell. 
Before McConnell, I think a very strong argument existed that 
the express advocacy test was required in this area and I 
respected that for many, many years. But I don't believe that 
is the law any longer, and I think we either engage in this 
issue and develop a new framework that could actually be 
effective or we push on based on how we have handled this in 
the past. I don't think that is a pathway for effective action.
    Mr. Larson. Well, I know the chairman is going to--want 
everyone to ask some more questions. I am not an attorney, but 
I am so impressed by what all of you had to say and the 
sharpness of your arguments. I am just reminded of Judge 
Leonard Hand's comment that liberty and freedom is that which 
leaves you not too sure you are right.
    The Chairman. The gentleman from Florida, Mr. Mica.
    Mr. Mica. Just a couple of quick questions. If, in 90 days, 
I guess there is an 90-day review period, is there a likelihood 
of--if the counsel comes back and says that we can go down this 
path, of further regulating, is that still possible? The two 
dissenting--I saw an affirmative head, Ms. Weintraub.
    Mr. Smith. Well, it seems as chairman, perhaps it would be 
most appropriate for me to answer that I guess.
    Mr. Mica. Well, she already nodded in the affirmative. I 
want her to say it on the record. Would you say that on the 
record, Ms. Weintraub?
    Ms. Weintraub. Yes, absolutely.
    Mr. Mica. Okay. Sir, you are recognized.
    Mr. Smith. I think there would be a possibility, but I 
would add a couple of caveats on that. First, I think even had 
we acted on May 13 it would have been highly unlikely, given 
the legislative calendar and the procedures for enacting 
regulations that any regs would have had effect for much of 
this cycle. If we act in August, I think it is highly unlikely 
that any regulation could be effective in the 2004 election.
    Secondly, speaking for me, I have pretty much reached a 
conclusion. I am open if somebody comes up with an argument. 
But the sense I have got is I have heard their best shot, and I 
just can't find anything that suggests to me that when Congress 
passed BCRA, they thought--you thought--the majority that voted 
for it thought--and the minority that didn't vote for it 
thought that this was a good idea to regulate 527s in this way 
or that the bill would. I think the legislation, the 
legislative history is overwhelming that it was understood that 
if BCRA passed these 527 groups would remain largely 
unregulated, as I noted in my opening comments, and that it is 
not really appropriate for us then to jump in and suggest that 
you should have done something else.
    Mr. Mica. But if the majority of you voted to get into this 
area you could do that.
    Mr. Smith. If my colleagues were to reach that decision or 
something came that were to convince me that, you know, things 
have been wrong, but, you know, that is something we will have 
to see.
    Mr. Mica. All right. Sounds like, Ms. Weintraub, you were 
influenced by this 119. I have looked through this. I didn't 
see any Republicans. It looks like all Democrats. If I send you 
a letter with 120 Republicans, will that influence you?
    Ms. Weintraub. It might. But I have to--I am not sure you 
could find 120 who actually voted for the law that could tell 
me what their intent was on that.
    Mr. Mica. Well, here's the sponsors. Today Senators McCain 
and Feingold issued this statement on FEC. Today the FEC proved 
once again why it is necessary to fundamentally restructure 
that ineffective and irresponsible bureaucracy. I am quoting 
him. I didn't say that.
    Ms. Weintraub. I appreciate that.
    Mr. Mica. By refusing to take action today on the soft 
money activities of 527 groups, the Commission has failed to 
close a loophole that dangerously undermines the purpose of the 
Federal Election Campaign finance laws. I didn't write the 
bill. It is authored by--I thought--maybe we are not in the 
same world because we are maybe not watching the same TV that 
has all this stuff on it dealing with Federal elections. But 
this is McCain and Feingold. I think they were involved. Then I 
have got this statement with Shays because I have heard 
sometimes Shays mentioned as a sponsor, regardless of what side 
of the campaign finance reform debate you are on, everyone 
agrees that the FEC decision will only encourage the continued 
proliferation of so-called 527 groups and the soft money will 
continue to influence--he goes on here.
    So you know, maybe I will get 120 Republicans. And you have 
heard from these two. And, I mean, and, you know, we try to put 
faith in institutions to act in the best interest of the public 
in the elections process. And subjectively, you could go 
forward and do something about a situation that is obviously 
out of control. Where do you live Ms. Weintraub?
    Ms. Weintraub. Maryland.
    Mr. Mica. Okay. Well maybe I just--I turn the TV on in 
Orlando and it is day and night, night and day and has been so. 
I have seen them up here too, but----
    Ms. Weintraub. I am not in a swing State. I guess I don't 
get that much advertising.
    Mr. Mica. Somehow I believe that these folks are, in some 
way, trying to influence the Federal elections process.
    Ms. Weintraub. Congressman, I think that it would be a 
mistake and an effort to, you know, put a finger in the dike to 
go forward with the regulation that I think is fundamentally 
flawed. I really don't know how people would comply with the 
regulation as drafted by my colleagues. I know they gave it 
their best shot. I think some of the terms in there are 
undefined because they couldn't agree amongst the two of them 
as to what should go into a major purpose test for example. If 
we are going to look--we put forward four different proposals 
in the notice of proposed rulemaking, and none of them are 
incorporated in this proposal. I have been told that it would 
use a 51 percent test, but I don't know what goes into the 51 
percent.
    Mr. Mica. Well, that is why we have you all to figure it 
out and to try to make the process work and try to keep faith 
in the Federal elections process. Thank you, Mr. Chairman.
    The Chairman. Thank you. The gentleman from California.
    Mr. Doolittle. Thank you, Mr. Chairman. Let me express to 
the commissioners in person what I did in my press release. 
Thank you for following the law in your decision. You see, it 
is my belief that McCain and Feingold and others wanted to 
regulate 527s when they passed their horrid law, but they 
didn't have the votes to include them within their law and have 
the law pass both Houses. So they had to leave them out, and 
then they are hoping you will be dumb enough to get a letter 
signed by 127 or whatever it is, and use that as congressional 
intent.
    I mean, congressional intent has got to be discerned from 
the statute itself, first and foremost. I mean if you give any 
weight whatsoever to extraneous matters, and if you do, it 
should be very carefully considered because people are doing 
all kinds of things to achieve a certain result, and the truth 
sort of falls by the board sometimes.
    When I first came here to the Congress, I was elected in 
1990 and it was the ridiculous position the Republican party at 
that time, at least in the House, that we should ban PAC 
contributions. Why? Because Democrats were in the majority and 
they got more PAC contributions than Republicans did. Now, 
there's a great principle. And that is the problem with this 
law, with the whole history of campaign finance regulation in 
my opinion. Principle or truth has almost no bearing 
whatsoever. The law has been used right from the beginning as a 
way by one partisan group to gain advantage over the other.
    Right now the Democrats succeeded in hood winking a few 
Republicans into voting for this disastrous McCain-Feingold 
that has become the law. And they should feel good about that. 
I congratulate them. They have always been great at acquiring 
and maintaining power. They are better than we are at that, and 
you know, you must have had a good laugh behind the scenes 
about how dumb we were. You know, we control, as the 
Republicans, the House and the Senate, and yet Congress put 
this law out and a Republican president signed it. I mean, is 
this a wonderful world or what? I deliberately put out that 
press release and I am complimented you quoted from it, Mr. 
Larson.
    And I meant what I said. It was a fair-minded decision. And 
anything other than that, in my opinion, would have been making 
law. It is quite clear, this is 30-some pages of relative fine 
print in this McCain-Feingold 527s aren't in here. And I tell 
you why I believe they are not in there. There was no--they 
didn't forget about it. You heard somebody quote Mr. Shays 
earlier that you know he openly acknowledged that they were not 
intending to include 527s. So you did the right thing. I guess 
what I would like to ask you is a question, just as an 
American, with a particular familiarity with how all this stuff 
works, since you are FEC commissioners, do you really believe 
that our campaign law has reduced the influence of special 
interests in the election? I would invite any of to you 
respond.
    Mr. Smith. Well, Congressman Doolittle, I--I think 
sometimes it is important to go back and perhaps look at first 
principle. Sometimes this debate gets so tied up that nobody 
stops and says is what we are doing working. I won't try to 
answer that question directly, but I will say this. I sometimes 
note that some states, for example, Maryland, have fairly 
complex laws, versus Virginia which allows unlimited corporate 
contributions, they just have to be disclosed. New Mexico 
allows corporate contributions. Arizona has all taxpayer-funded 
campaigns pretty much now.
    I don't know anybody that thinks that when you drive across 
the Potomac going south, all of a sudden the mountains are 
barren of trees, or everything's been strip-mined, people have 
their teeth falling out from scurvy. I mean, I don't see 
anything that indicate that States that do not apply these 
rigorous regulations are more poorly governed as a general 
matter or more prone to political scandal than others. Now that 
is a very simplistic analysis. But I just think on the face of 
it, one might look and not see, if we look at the States as 
laboratories, where we are gaining a whole lot by the general 
approach. Obviously, however, our job at the Commission is to 
enforce what Congress passes. But I think it is always good for 
Congress to go back and not try to keep building on what is 
there, but sometimes look back and say do we want this edifice 
at all and consider starting over.
    Ms. Weintraub. Congressman----
    Mr. Doolittle. Please.
    Ms. Weintraub. In the first place, thank you for your 
comments, I think about our decision. You know, I think that 
BCRA had some laudable goals, but I echo what Congressman 
Larson said. The goal was to sever the link between office 
holders and raising these huge chunks of money, this soft 
money. Does that solve all the problems? No, it doesn't, but I 
think a lot of people think that is does serve a good purpose 
and it creates at least--it serves at least the goal of 
eliminating the appearance that Congressmen or other office 
holders are being influenced by those very, very large dollar 
contributions.
    I also think that the electioneering communications 
provision is simple. It is clear, it is going to be a dream to 
enforce. I am really looking forward to it. And I am looking 
forward to seeing how it works. I think it is too soon to tell 
whether exactly what BCRA accomplished because we haven't even 
been through one whole cycle with it yet. And I think maybe we 
ought to wait until the end of the cycle at least before we 
decide.
    Mr. Doolittle. Yes, but do you believe--and I don't just 
mean BCRA, but I mean the campaign--you could even answer 
without reference to BCRA. Do you believe personally, based on 
your knowledge and experience that campaign finance regulation 
law has reduced the influence of special interests? I don't 
mean the appearance of this or that. That is such a phony 
absurd standard in Buckley versus Vallejo. Throw that out 
completely. I just want to know your personal opinion. When you 
go home at night and talk to your family, you know, do you feel 
like you are more--we are more secure in our republic because 
of all this campaign regulation, that it has somehow reduced 
the influence of special interests?
    Ms. Weintraub. I try not to talk to my family about things 
like this.
    Mr. Thomas. Well, Congressman, briefly, I come from the 
perspective that these campaign finance laws are effective. 
They do really improve the body politic. I think my philosophy 
has always been that we are all sort of weak soldiers. If you 
dangle something that we really want in front of us, chances 
are we will be willing to do a favor for you down the road. And 
that is natural human nature.
    And so I think these laws, to the extent they do put some 
reasonable limits and prohibitions on sources of huge amounts 
of money, will insulate elected officials and other players in 
the political process from that natural human kind of, set of 
transactions. And so I do think that these laws are making 
things, in essence, better than they would be without them. I 
think that the prohibitions on corporate and union 
contributions do stop some folks from putting money into the 
process, the election process and I think that BCRA restraints 
on Federal officials being involved in raising soft money are 
helpful. My view. My philosophy.
    Mr. Doolittle. My time is up, but I would love to ask you 
why you think it is better under the present system than it 
would be if corporations and unions got directly involved. 
Let's really go back. Let's go right back to good old 
Republican Teddy Roosevelt, who signed the first piece of 
campaign regulation. Why is that such a great hallmark of 
wisdom? What is the matter with corporations and unions getting 
involved?
    Mr. Thomas. Well, again, my view is that it sets up that 
awkward situation where those folks who are trying to get 
something accomplished through government will use their 
ability to influence elections or to help elected leaders get 
elected, to basically secure those kinds of governmental ends. 
And----
    Mr. Doolittle. And they are not doing that now?
    Mr. Thomas. Well, they are certainly restrained 
significantly by the current set of laws in my opinion.
    Mr. Doolittle. I really wish we could have. I would love to 
have a lengthy discussion, but I will be infringing on the 
other members' time.
    Mr. Smith. Congressman, if I may just briefly add, since 
you brought it up----
    The Chairman. We will have to hurry because I do want to 
get to Mr. Ehlers, and then we will go through another round.
    Mr. Smith. I do note that Teddy Roosevelt was elected with 
large corporate contributions, unlike, say, George Wallace, who 
was elected with small individual contributions.
    The Chairman. Mr. Ehlers.
    Mr. Ehlers. Thank you, Mr. Chairman. I am sorry that my 
colleague from California was so restrained in his comments. If 
I said what I really thought, I might be more outspoken, Mr. 
Doolittle. But--and I will be honest. I voted against the law. 
I voted for all the alternatives that were presented to us 
because I thought they were better. But I knew that what has 
happened would happen under the law that we passed. And I think 
it is the height of idiocy that we prohibit these types of 
contributions going to political parties, which for centuries 
have been the political force in this country, and have the 
responsibility to do this precisely, to express opinions and to 
get people elected. You say no, you can't do that. But at the 
same time we have this back door open, the back doors I should 
add.
    There are other ways of doing it, which we knew existed and 
which, in fact, now have come into play. And I am very sorry 
that we passed the law. I felt that way when it passed. I voted 
against it as I said, because I knew it was unworkable. It 
would not accomplish the goals and I thought it was a 
reasonable goal to limit soft money. I think everything should 
be accounted for and traced. And that is fine with me.
    But what a cobbled up mess we have ended up with now. The 
law, per se, I think, might work well in certain areas, but 
certainly restricting the ability of political parties to do 
what political parties are supposed to do, I thought was 
terrible. But we did it. And then we opened back doors, as I 
said, which would allow people to do other things. I would also 
mention that one of you in the comments a moment ago, mentioned 
the Arizona law, which provides public financing. And I find it 
fascinating that that proposal was a referendum by the people. 
That was going under big time until Mr. Soros anteed up huge 
amounts of money, using the existing campaign law and solely 
because of that, it was passed.
    And that seems to be precisely counter to what the 
advocates, including Mr. Soros, are trying to do when they 
passed that law. So he certainly doesn't have clean hands on 
this matter either. I just think it is most unfortunate. I hope 
that we have the ability and the sense to pass another law 
clarifying this, whether it is Mr. Doolittle's approach of 
anyone can contribute anything they want as long as they report 
it, or an approach I have suggested, that we have some limits 
on contributions, but no cash, everything reported, names 
addresses phone numbers, everything and so that we have a 
detailed record of who contributes to what.
    And I would also impose the limits, whether it is 
contributions to the 527s or the--any other form or to the 
political parties. We have got a horrible animal out there now 
and it is an artifice that seems to mislead people into 
thinking that they have accomplished their goals and they 
haven't. They have made the situation worse with this law that 
has been passed. With that, Mr. Chairman, I will yield back.
    The Chairman. Thank you. We will go to a second round of 
questions. I wanted to answer Mr. Doolittle's question for a 
second real quickly. And the most disturbing thing is we can 
pretend that--the question of influence and money, and I 
understand, under the United States Constitution, you can't 
tell a person with independent wealth that they can't spend 
their money. I understand that. But we have told people they 
can't counter that. So what we are creating is a millionaires 
club; and you are a self-funder and you can put in 50 million. 
You know what, money is money is money in the elections. So 
somebody can put in 50 million dollars of their own money, but 
you know, you can't go out and, you know, have union or 
corporate contributions. In my opinion, it has done nothing 
except consolidate power in this country into the hands of a 
few. Right now, it happens to be that there are a couple of 
Democrats leaning toward supporting 527s. Hopefully we will 
find a Republican like George Soros who can do so as well. But 
anyway, I think it consolidates power into the hands of a few. 
And it really guts the fairness in our election system--and I 
think what you are seeing happen has happened.
    So to answer your question, I think BCRA just took 
influence and said here it is for a few people at the table. 
Also, I still think that clarifications will be needed down the 
road. I still think that it will be needed, because now it is a 
winding road where we have the money in our campaign accounts 
(all of us do) to have the necessary assets and tools to ask 
the questions of the attorneys.
    Now, if you are a regular challenger to a member of 
Congress, you know, you'd better get an attorney, an accountant 
and a bail bondsman. I think that is what this system has 
evolved to, so I just want to express my answer, I think to 
your question: it is consolidated power in the hands of a few. 
I have got a quick question on legality of 527 activities. In 
February of this year, the FEC approved an advisory opinion, I 
think you call it the ABC advisory opinion, that related to 
Federal political committees that also have 527s that raise to 
spend soft money. I just want to ask a few questions about that 
advisory opinion.
    First of all, the group that requested that opinion was a 
political committee, with both Federal and non-Federal, in 
other words, soft money accounts. That is correct, right?
    Ms. Weintraub. Well, that is what it said. It actually has 
not yet raised or spent any money so we are not exactly sure.
    Mr. Smith. But that was the condition of the----
    The Chairman. That was the condition.
    Mr. Smith. It would not apply in a group that was not in 
that situation.
    The Chairman. Is the scope of that opinion limited to other 
political committees that also have both Federal and non-
Federal accounts?
    Mr. Smith. It is limited to committees that are Federal--
that are already Federal political committees. It is not an 
opinion that is relevant to the determination of whether you 
become a Federal committee.
    The Chairman. Whether you become one. In its advisory 
opinion request, ABC asked whether it could use soft money to 
pay for voter registration and get-out-the-vote public 
communications that promote, support, attack or oppose a 
Federal candidate. I believe the Commission answered that only 
hard money could be used to fund those communications. Is that 
correct?
    Mr. Smith. Yes.
    The Chairman. Okay. That is correct. I believe the 
Commission also concluded that solicitations that promote, 
support, attack or oppose a Federal candidate may not be used 
to raise soft money even if the voter drive activities 
eventually financed by those funds do not mention a Federal 
candidate. I think that is correct, isn't it?
    Mr. Thomas. That was--yes on the contribution side that was 
the analysis.
    Ms. Weintraub. I believe that the opinion said that if the 
solicitation stated that it was going to be used for promoting, 
supporting, attacking, or opposing that candidate, that there 
was a sort of a fine legal point, that they had to actually say 
that in the solicitation.
    The Chairman. In the solicitation. The reason I am asking 
this is because, ironically, part of Belmont County, Ohio where 
I live, is the 18th district, and part is the sixth district. 
And in the sixth district, America Coming Together has a 
horrific controversy, which I had nothing to do with. These are 
all Democrats. And they are raising questions about the 
organization. ACT has now fired one set of the coordinators. 
They then turned around and fired another coordinator, and 
specifically, two former employees are claiming that they were 
required to sign a confidentiality agreement stating they would 
not reveal any information they learned as part of the job.
    But one of the employees said that ACT's attacks were 
partisan and they were asked to do political activity that they 
couldn't talk about because they signed that they wouldn't. 
Based on the conclusions the FEC reached in its ABC advisory 
opinion, I am concerned that maybe we will find out that ACT 
Ohio may be funding, almost exclusively with soft money, 
particular vote drive activities that should be funded, 
frankly, with hard money. Now, if someone were to file a 
complaint about this matter, would it be before the FEC or the 
Justice Department? That is my question. Where would they file 
the complaint, FEC or Justice Department?
    Mr. Smith. You would normally file the complaint at the 
FEC. If the FEC determined that it was a knowing and willful 
violation at the appropriate juncture based on the evidence as 
it became available to us, we could defer it to the Justice 
Department for criminal prosecution as well. But the FEC is the 
primary enforcement agency.
    The Chairman. Are there any normal time frames by which 
this would be resolved, or is there an expedited procedure, or 
is there a certain time frame?
    Mr. Smith. We don't have any formal expedited procedure. 
The commission activates cases as resources allow. You know we 
talked about that last fall. We continue to make great progress 
in that area. And you know, if a case seems important enough, 
it will be activated more quickly. Typically the median case 
now is activated within 23 days, so it would happen fairly 
quickly, much, much faster than it was just a few years ago.
    Ms. Weintraub. Mr. Chairman, if I might qualify something 
that we said before. It occurs to me that the rule that you 
have to use, that a political committee has to use hard money 
for a communication that promotes, supports, attacks, or 
opposes a clearly identified Federal candidate is modified by 
the principle that that is only the case if that Federal 
candidate is the only person mentioned. So if it promotes, 
supports, attacks, or opposes a number of candidates, some of 
whom are Federal and some of whom are non-Federal, then the 
expenses could be allocated between Federal and non-Federal 
accounts.
    The Chairman. Soft money and hard money, you mean?
    Ms. Weintraub. Yeah.
    The Chairman. Well, Ohio's case would be--the State doesn't 
allow soft money, corporate contributions. Or would it be 
allowed in this case, because they were going to use it for 
voter registration? Is that what you are saying, depending on 
the State law?
    Mr. Thomas. Depending on State law, yes. The non-Federal 
share would be subject to whatever restrictions State law had.
    The Chairman. Okay. Yes. Mr. Larson.
    Mr. Larson. Thank you very much, Mr. Chairman. I feel 
compelled to say a good word about my colleague, Mr. Shays. And 
you guys still including McCain as one of yours? But I do feel 
inclined to say that at the heart of their proposal, would it 
be that any piece of legislation was handed down to us from Mt. 
Sinai and might be different than legislation constructed by 
humans intent in the kind of atmosphere that we exist in in 
coming to compromise. Or as Mr. Bismarck is quoted as saying, 
two things shouldn't be observed; sausage being made and a bill 
becoming law. That is our job, to perfect as we go forward. Mr. 
Thomas, I appreciated your comments as well.
    And I do think that there is a corrosive nature of the 
influence of money in government. And if we go back to the 
first attempt to regulate this, it was called the corrupt 
policy act, again, trying to eliminate the corrosive nature and 
the impact that that has in the potential for that impact it 
has on legislation. It is certainly a debate that is rich and 
one that we should have more often. And I agree with Mr. 
Doolittle on that. I want to ask just a few quick questions 
here. One is just a practical one.
    In your dealings, and that is what is the practical 
implication of adopting a new rule mid cycle for these 
organizations? Care to respond? We will start with the chairman 
and work right down.
    Mr. Smith. Well, let me--I will let those who supported 
that notion I guess respond to how it practically would have 
worked out. I think it would have, at least for some groups, at 
least caused some chaos because they would have been allocating 
expenses for example over a lengthy period of time, and some 
would have to shift some of those allocation rules. But I want 
to use that concern to address something that I think hasn't 
really been made clear.
    And Congressman Ehlers mentioned a little bit about 
clarity, and Congressman Mica was talking about could we come 
back in August and do something. I voiced my opinion that 
nothing that would be done would be effective this cycle. And I 
think it might be worthwhile for the point of clarity that 
everybody seems to want to get at to see if my colleagues agree 
with me that nothing is going to change in this cycle, just as 
nothing changed on May 13. The rules that everybody understood 
were going to be in effect right up to December or January.
    Mr. Larson. That is an excellent point. Is that the 
agreement of the----
    Mr. Thomas. I think as a practical matter we are now 
basically stuck, for lack of a better word, with the mish mash 
of the law as it exists without the Toner-Thomas proposal.
    Mr. Toner. And I think that is a very important point 
because I believed it was critical that the agency make an 
affirmative decision on what the law will be for 2004 and we 
have done that. I didn't agree with the decision, but I accept 
it and respect it. And so now, I think in the 90-day period 
that has been alluded to, we are going to have to take up what 
the law is going to be for the 2005-2006 cycle. And I think 
that is what we are working on now.
    Mr. Larson. And you say that that holds true for both 527s 
and 501(c)s?
    Mr. Toner. Yes, I believe the legal status quo will be in 
place for this cycle, yes.
    Mr. Larson. Madam Vice Chair.
    Ms. Weintraub. I agree with that, and I appreciate the 
opportunity to clarify that, because I said in response to an 
earlier question that we could pass a regulation in 90 days 
when our counsel comes back with a recommendation. But I don't 
believe from a practical standpoint that we could put it into 
effect for this election cycle. I mean, if you count the days, 
we would have to let it sit for 30 or 60 legislative days, 
after we approved it, and after it was published in the Federal 
Register. And I think, given the congressional calendar, you 
just can't get there from here. And for myself, I am not 
terribly troubled by that because I think that the regulated 
community needs notice. They need to be able to make plans. 
They need to know what the rules are in advance of when they 
are enacted.
    That is why BCRA didn't go into effect until the next--the 
beginning of the next cycle and it wasn't because the people 
who voted for it were happy with the status quo then. But you 
do need to provide notice to the regulators.
    Mr. Larson. I am struck by how all of you are struggling 
with definitions. And if minds of your capability are 
struggling with these definitions, and I mean no disrespect to 
the minds assembled up here, then in terms of making--and I 
understand in 90 days you are going to take another shot at it, 
but I take it from the Chair's comment, that even in taking a 
shot like that, given the cycle that we are in and given the 
practical application of that, that any recommendation would 
probably be put off for legislative consideration in the next 
session. Is that the intent of this?
    Mr. Smith. I think that is right. And Congressman, if I may 
use the opportunity to go on a bit. Nobody, prior to December 
or January past, was saying that any changes here were 
required. Everybody understood that 527s were going to run wild 
in this campaign. That was known. And when this issue first 
came up, we have moved very, very quickly to handle it. We have 
had, in 3 months, to get comments. People need time to submit 
comments as you well know. They had--we had--over 150,000 
comments. We had a 2-day hearing with over 30 witnesses, the 
vast majority of whom argued that these rules were improper and 
should not be enacted.
    I mean, we have moved very rapidly on this as it is, and I 
want to point out that this has not come up all of a sudden 
because the Commission was just sitting around for 2 years. It 
has come up all of a sudden because until January nobody--you 
know, Shays wasn't saying anything. Senator McCain wasn't 
saying anything. Congressman Meehan wasn't saying anything. 
None of these people were sitting there saying, ``why you are 
not addressing the 527 issue,'' and they weren't saying that 
because Congress did not address it in BCRA, and everybody 
understood that.
    The Chairman. But they are saying it now, are they not?
    Mr. Smith. They are saying it now. But it is a January 2004 
invention.
    Mr. Toner. And if I might, I think Chairman Smith makes a 
very good point about the fact that this agency considered 
these major issues on an expedited basis. And any suggestion 
that the agency didn't use due diligence, didn't aggressively 
look at these issues, so it could make a decision on time, I 
just don't share. I didn't agree with the decision on May 13, 
but I really appreciate all the effort that was made within the 
agency to make a decision in an expedited manner as these 
issues required.
    Mr. Larson. And I share that. I share your opinion. I want 
you to know that. I do. I think that you have given it due 
deliberation, and I am impressed.
    Mr. Thomas. Well, Congressman, I was just going to add that 
I think there would have been some folks who would perhaps have 
had some difficulty feeling comfortable with imposition of what 
I refer to as the ``promote, support, attack or oppose'' test. 
That was really the heart of the proposal. But I would just 
note that the Commission already adopted that approach in the 
advisory opinion. And four of us at least felt comfortable back 
then saying, look, the Supreme Court's indicated this is pretty 
clear.
    And we are talking about groups, the major purpose of which 
is to influence elections. So although there might have been 
some folks who would have kicked and screamed, I think most of 
the players out there we are aware of that are in the news all 
the time, could have fairly quickly adhered to ``promote, 
support, attack or oppose'' standards. So I would have been 
willing to give it a go.
    Mr. Larson. Madam Vice Chair.
    Ms. Weintraub. Thank you. I would like to address that 
point because I introduced the draft that we--with some 
amendments from Commissioner Toner that we ultimately ended up 
adopting in that advisory opinion. It wasn't my first choice, 
but it was the best choice that I thought we could get four 
votes for. And in response to that, there was an outcry, not 
just from, you know, whiny people that didn't want to have to 
comply with it, from people who are dispassionate observers of 
the process, George Will on the right, Rich Hazen who is a 
fairly liberal law professor in Los Angeles.
    Mr. Smith. I think I know Rick better than you do. He is 
very liberal.
    Ms. Weintraub. You probably do. I won't contest that. And I 
don't think he would be insulted by the appellation either. But 
people on both sides of the political spectrum who were 
dispassionate observers of the process said that advisory 
opinion did not give clear guidance. So now that we know that 
and we have heard this from a wide, wide range of people, I 
think it would be irresponsible for us to just glom onto that 
and say okay, we already voted for one thing that we have been 
told is confusing to people.
    Now let's put it into a regulation without giving it 
further clarification. I am not opposed to codifying it, but I 
think we have to define it and clarify it.
    Mr. Larson. Thank you.
    The Chairman. Before we go on to Mr. Mica, Mr. Doolittle 
and Mr. Ehlers, I do want to say one thing about the FEC. I 
think Commissioner Weintraub and Commissioner Smith have been 
attacked and I know we have heard statements from the authors 
of the bill and the Senator and the House Member, and I know 
people fought for your appointment that might not be happy with 
you now, but might be more happy with you and your decision, 
Commissioner Toner. So it is a strange, wild world. You have an 
R and a D, and an R and a D in opposite directions. So I guess 
it is kind of good at the end of the day. But on this reform 
bill--and I just want to go on the record on this. If you 
looked at it, I think most of you couldn't serve, although, I 
think Commissioner Smith could serve, although you didn't--
you----
    Mr. Smith. Well, had the law been--had this bill been in 
effect when I was nominated, I would have been eligible for 
appointment, whereas I think Commissioner Weintraub would not, 
Commissioner Toner would not have been. I think that is----
    The Chairman. But you didn't agree with the author of the 
bill on their terms and they have been attacking you. But I 
guess with the reformation bill, you would be the only one 
sitting here. So I find this all ironic. I, in no way, think 
that this whole, now, movement, because of a decision you made 
or you didn't make or by not making the decision you made a 
decision on an obviously bipartisan basis, it is nonsense to 
think that you have to have a reformation bill of the FEC 
because you had your own free thoughts. I just wanted to state 
for the record, I think that is all nonsense, and after all, 
the only one who would be here is the one they are mad at for 
not making a certain decision. So I just thought I would add 
that.
    Mr. Mica.
    Mr. Mica. Well, I don't really have a question. I will just 
wind it up. I am disappointed because I can be as partisan as 
anybody. I will show you some of my wild partisan statements 
and--but I think that we empower certain individuals and here 
the Federal Election Commission to put in place the rules for 
conducting the Federal elections. And maybe Congress did not 
address this properly. But at least two of the commissioners 
could subjectively determine and maybe they didn't have all of 
the approaches that needed to be taken, everything defined. But 
I think there are things that transcend politics, and I think 
there are things that should be done for the good of the 
political process and for the country.
    And I think that people in your position don't have to 
listen to the George Wills or the others, or the Members of 
Congress, but just to do the right thing. I disagreed with the 
law. I knew there would be loopholes. But I don't think you did 
the right thing. I think two of you did, and--in this case, but 
this whole mess, again, the worst part of this is that it 
further undermines people's faith in this electoral process 
because it has gotten worse instead of better. The whole 
purpose everyone thought of making Feingold or Shays-Meehan, 
whatever you call it, was to regulate soft money and to try to 
get this process out of control under some control and make 
some sense out of it.
    So I am saddened really that again there is further loss of 
faith in this most important process, and I just think that 
people need to do the best thing, regardless of who is saying 
what when you are given a charge as important as yours. No 
question, just sort of my final comment.
    Mr. Ehlers [presiding]. The gentleman from California, Mr. 
Doolittle.
    Mr. Doolittle. Thank you. Well, Justice Scalia, I think in 
his dissent in the McConnell case said it pretty well. This is 
the first act, referring to BCRA, of a long series of acts in a 
tragedy. I mean it is only going to continue to get worse. Look 
at this. Mr. Larson's party figured out early on that the 527s 
couldn't be in this. They were going to organize, get those up 
and running and they are ahead of us, way ahead of us in this 
election. So that is a short-term advantage for the Dems.
    We have gotten clarification today from all of you, which I 
appreciate. It is clear that in 90 days, nothing is going to 
change for this election. I hope everyone listening to this 
hearing on the Republican side will immediately instruct their 
lawyers to form 527s and to raise as much money as possible. 
And by the way, the testimony we heard today was that we are 
spending more money in this election than in any election 
before.
    So I mean it is not like all this wonderful regulation we 
have already got has reduced the influence of special 
interests. It is greater than ever. And we will get our 527s 
and we will be ready for the election where it is really going 
to count, which is 2006 where we won't have our own incumbent 
president running, we will be naked, carrying the load by 
ourselves and it will really be an interesting test of the 
process, whether the Republican party can survive or not. I 
predict they will, but we are going to have to work hard to 
catch up with the Democrats. We have got to quit using the law 
as a partisan club against each other. We have got to base this 
on principle.
    And the principle ought to be, in my judgment, that free 
speech is important in this country and should be encouraged 
and rewarded, not discouraged by regulation like we have now. 
This should be unconstitutional. But it isn't. And I think 
increasingly it won't be. Some day, somebody's going to go 
after 527s and after they go after 527s and the decision makers 
go for that, they will go after the 501(c)s and they will keep 
going in this quixotic pursuit of perfection, trying to weed 
out this special interest money.
    The problem is, as long as we have any semblance of a 
constitution, you will never achieve that utopia that they 
desire and you will just drive the so-called unregulated money, 
or soft money, you will drive it deeper and deeper and deeper 
into the system. I would just like to observe and then get your 
reaction for my question on this, increasingly, the effect of 
campaign regulation is to move speech away from the candidates 
and the parties, the entities that have the most 
accountability, shall we say in our system and to push it 
farther and farther out into less accountable groups. We are 
not talking about 527s.
    Down the road, if those are regulated it will be something 
else. Is this desirable in your minds? Why isn't it better to 
have the candidate doing the speaking? It is the candidate that 
wants your vote. He has some self-imposed constraints because 
he can't offend the voter as he seeks your vote. So truth will 
be a little more important and not saying the horrible things 
that can't be verified will be a little more important. When 
some funny 527 over here that nobody's heard of starts doing 
its thing and making these claims, they are not asking for 
anybody's vote really. Doesn't this trouble you that we are 
basically creating incentives and moving the focus of the 
campaign away from candidates and parties and more into these 
third party special interest groups?
    Ms. Weintraub. I will take a stab at that one. I think that 
I disagree with some of your premises. I think that if your 
premises were correct, then you would be right to be very 
troubled by that and I would share that. But there is--I think 
if anything this election cycle is proof that candidates have a 
lot of money available to them to get their message out. It is 
hard for me to imagine that there is any group out there that 
could drown out the $200 million that the President has raised 
in absolutely legal hard money contributions fully disclosed to 
get his message out. And Senator Kerry has also raised, last--I 
haven't looked at the numbers lately, but I read it was in the 
range of $100 million. That is an awful lot of money to get a 
message out.
    Mr. Doolittle. What happens, do you think, next time 
though, after this election, when we don't have a presidential 
election? Then how do you think it is going to work?
    Ms. Weintraub. Well, I think that there could be a little 
bit of a shift there. I think you are right. I think the 
presidential election does normally draw a lot more 
contributions than perhaps congressional candidates would have 
available to them. But I do think that when the electioneering 
communications provisions there is going to be more disclosure 
of all communication. So if there is an organization out there 
that is running ads within 60 days of the election, you are 
going to know who is running it and you are going to know who 
their backers are because that information is going to have be 
disclosed. And that is a positive affect of BCRA.
    Mr. Smith. Congressman if I could--obviously I share more 
of your premises, but at some level, of course, that is not 
that important, at least to my job. If you are asking me, as an 
expert witness like I used to come before this and other 
committees as a law professor, I would say one thing. But now 
my job is to enforce what you and your colleagues, your 
colleagues over your objection, enact into law.
    Mr. Doolittle. It is a very sad job. I am sorry for you.
    Mr. Smith. I do think though it is a matter of considering 
the proposal that was before us on 527s. You raise an important 
issue because to the extent that 501(c)(3)s would have been 
given more play--and by the way, they would not have been 
excluded by the proposal--I think they would have had potential 
problems and a great deal of uncertainty. But to the extent 
that they would have been driving activity into 501(c)s I don't 
think we would be accomplishing anything. We would keep 
continuing to drive it one step further at each stage.
    I also want to mention or comment on just one other issue 
that you raised and that your colleague from Florida had raised 
just in his last comments relating to the loss of faith and 
certain levels of partisanship and I do think it is a problem.
    One thing that has caused some loss of faith here from the 
thousands of comments we got was a lot of people viewed this as 
a blatantly partisan effort to silence their political 
opponents. Now that is something I have said is often a problem 
with campaign finance regulation, but in this particular case--
and there may have been some truth to that. I do want to point 
out that it was a bipartisan majority, a majority of both the 
Republican and Democratic commissioners that voted against the 
Toner-Thomas proposal. I also would note that the proposal that 
was there, that was being urged on us by the RNC, for example, 
would not only hit Democratic groups.
    I mean, it would have impacted Republican groups like the 
Republican Lawyers Association and the College Republicans and 
the Federation of Republican Women. It would have affected all 
kinds of conservative groups as well and limited their ability 
to participate in politics as well. And sometimes that wasn't 
being put out there. Some of the folks who were supporting it, 
I think, were actually trying to drum up partisan passions. I 
think it is worth noting that in the end, the Commission, I 
think, did not act on partisan grounds and I think, you know, 
we--I think we pushed those to the background and I think all 
of us including those of my colleagues with whom I disagreed on 
this issue attempt to do what we think is right and correct as 
a matter of interpreting the law and where we have leeway as a 
matter of good policy.
    Mr. Toner. Congressman, if I might, I agree with Chairman 
Smith. I think he makes a very important point. It was a 
bipartisan two of us who offered the proposal and it was a 
bipartisan four of us who voted against it. I think that is 
important. This is not a situation in which three Republicans 
were opposing three Democrats which has occurred over the years 
occasionally at our agency. I think that is an important point. 
But in terms of the partisan fallout, if the proposal would 
have been adopted, I thought that that was one important reason 
why I wanted to make clear that I would vote for the 
regulations for this cycle.
    But I would also vote for them for the 2006 cycle, not 
knowing whether the George Soroses of the world are going to be 
out there, or the Republican equivalent of George Soros, 
doesn't really concern me. I viewed this approach to the law to 
be the appropriate approach for 2004 and for 2006, and not 
based on short-term political gain perceived one way or the 
other. [But I think the other point you made was a very 
fundamental one concerning the fragmentation of our politics. 
There is no question it is occurring.]
    And so we have national parties that are financed by hard 
dollars. And they are doing fairly well raising those types of 
funds. But now we have parallel organizations that are doing 
the exact same things the national parties used to do with 
unlimited soft money funds run by operatives who are very 
sophisticated, such as Mr. Ickes and others who used to work at 
the Democratic National Committee and now interestingly are not 
working there, but are doing a lot of the same things that used 
to occur there.
    And so I think you are absolutely right. You are seeing a 
fragmentation of politics and the question is when 
organizations are doing the exact same things that national 
committees used to do, what type of money is appropriate for 
them to underwrite their activities? I think it is a major 
issue. It obviously is something that we are grappling with at 
the agency. It may be something that Congress decides that they 
want to try to address. But I think your point is absolutely 
right. We are seeing a fragmentation of politics.
    Mr. Larson. Would the gentleman yield?
    Mr. Doolittle. Yes, sir.
    Mr. Larson. Just for a quick comment. Only that it seems in 
listening to you, that only Democratic operatives are--have 
this expertise and strategy that somehow Republicans are babes 
in the woods, and that they have not applied any of these 
strategies, whatsoever. Or is it outrage that Democrats 
discovered 527s because 501(c)(3)s have been in effect for so 
long and so successful. I mean, that is what, you know----
    Mr. Toner. I think you make a very good point and I think 
Republicans are hardly babes in the woods, and I think they 
have been and will get into this arena aggressively, given how 
we have come out on this. And I think you are going to see a 
dramatic escalation of Republican-oriented organizations you 
mentioned and you read into the record an organization that is 
out there. And that is why I think it is critical to be clear 
that under current law, and under the Supreme Court precedent, 
501(c)(4)s can be political committees. And to argue that they 
should be exempt as a matter of law from being a political 
committee, I don't think adds up under Supreme Court precedent.
    Admittedly that might be an extreme case. But you make a 
very good point. Republicans, I believe, will aggressively be 
in this arena. Who could blame them if there is going to be 
wide running room here, I think it is only to be expected.
    Mr. Larson. This isn't a place to make wagers, but if I 
were a wagering man, which I am not, I think if we totalled up 
what the 501(c)s have been able to raise, but of course we 
wouldn't know that because of disclosure, I think you would 
find the Democrats dramatically dwarfed, but that is a 
discussion for another day.
    The Chairman. Well just to comment before we move to Mr. 
Ehlers. You know, I think after no decision, which is in a 
sense a decision, fortunately the babes are going to mature 
into adults very quickly. Mr. Ehlers.
    Mr. Ehlers. Thank you, Mr. Chairman. I was going to make a 
remark something to the same effect. And the issue, Mr. Larson, 
I just want to get this in quickly before I make my comments. 
The issue is not that so much as the perceived duplicity of the 
party that fought very hard to get this passed and the majority 
of whose members voted for it, immediately began forming the 
527s, whereas the party that I think was more responsible on 
this thought it was improper and waited for a ruling. So I 
guess I resent the aspersion that somehow your hands are 
perfectly clean. Let me just comment----
    Mr. Larson. If I made that, I didn't mean to.
    Mr. Ehlers. I am not yielding time. We have spent enough 
time on that. I do have to respond to a couple of things first 
and then a question. Several times, including your comments, 
Madam Vice Chair, about the money raised by the presidential 
candidates implied somehow that money is evil. And I am a 
charter member of Common Cause, and it has always bothered me 
that they seem to regard campaign money as illegal. And I hear 
it from the public, too. All that money. All that money. And I 
simply remind them that if you add together all the campaign 
money spent by every candidate in the United States, from dog 
catcher through President in an election campaign, it is less 
money than is spent advertising aspirin, Tylenol and other pain 
killers.
    Mr. Ehlers. You have to keep this into perspective. General 
Motors, when they try to sell a car, they spend an average of 
$300 for every car that they sell on advertising. Multiply that 
by the 15 some million cars sold per year, you realize what 
kind of money is spent on advertising.
    The point is political advertising is a very small part of 
the mix, and it is not a corrupting part. And that is, again, 
where I disagree with Common Cause.
    I have been a charter member and sometimes I am ashamed of 
the membership because of the information they send out. But I 
have stuck with it, and I am just curious why we haven't heard 
more of them, at least I haven't, about the use of 527s, which 
I think totally negates what they were trying to achieve and 
what the sponsors of the bills were trying to achieve through 
the passage of the law, which is to get rid of soft money.
    It is the lack of accountability that is the issue. It is 
not the amount of money that is out there, and that is what is 
disappointing about your opinion, simply because there is a--
there was a possibility there of saying, look, the bill 
intended to impose accountability, and we now have some 
organizations that are not accountable, you don't know where 
the money is coming from and how much was given. And I 
understand the legal arguments, and as Mr. Toner said, I accept 
your decision, but unlike him, I cannot respect it because I 
think it was contrary to the intent of the law.
    I hope that we can write another law, and I just want to 
comment, too, about the sponsors of the bill. Their names have 
been pulled into this fairly regularly, and I think they are 
very disappointed with what happened to the law. At the same 
time, I know from conversations with them during the course of 
it that they were very disappointed at how the law emerged, and 
they just had to give to this group and to this group and to 
that group in order to get the law passed and they thought it 
would be better to have something passed than nothing.
    I just frankly think it is a disappointment for all of us, 
including myself, who really wanted to get rid of soft money. 
That was the real objective, and we should have centered in on 
that and not done some of the other foolish things.
    I would just like to ask you--and this does not--you can 
just take off your FEC hats, if you will, and just express your 
opinion as citizens. What is the best means by which we can 
bring full accountability and get rid of soft money? Just 
bring--full accountability of the money, both for the benefit 
of the candidates or parties and for the citizens of this 
country. What approach would you take? You know a lot about 
campaign law, so take your FEC hats off and say what--if you 
wanted us to write a law, what do you think it should 
emphasize?
    Mr. Thomas. Well, I will start if you would like, 
Congressman. I think that this approach that Commissioner Toner 
and I were working toward was an effort to try to really put a 
clearer standard out there so that people would know what 
should be deemed political activity and what should not, and 
the idea would be that only the political activity should fall 
subject to these limits and prohibitions and campaign finance 
disclosure requirements.
    I think that would be very helpful, because we do need to 
make these kinds of distinctions, it seems. We do have to 
acknowledge that there are some organizations that are going to 
be very interested in an upcoming piece of legislation and they 
are going to put out ads that say, ``This is a very terrible 
bill that is going to be very harmful to us as Americans. Call 
your elected Representative and tell him to vote no.'' We have 
got to allow that kind of communication, but we have got to 
find a way, maybe, the ``promote, support, attack or oppose'' 
standard, to make that delineation. But once you come up with a 
clear standard like that I think that you can apply it pretty 
much across the board, and people will know. And you can apply 
the limits, the prohibitions and the disclosure requirements 
based on that one clear standard.
    We have a mess right now, I will concede. We have got 
language in the statute that talks about whether something is 
``in connection'' with an election. We have got language that 
turns on whether it is ``for the purpose of influencing'' an 
election. We have got the ``electioneering communications'' 
standard now that talks about whether it makes reference to a 
Federal candidate within flat time frames before the elections. 
I think it would be very helpful, ultimately, if Congress 
wanted to back up and take another run to try to develop one 
clear objective standard and apply it across the board.
    Mr. Ehlers. That is a very important comment, I really 
resent a law that puts incredible restrictions on my ability to 
endorse colleagues or individuals in my State or to work on 
their behalf, which is what this law does, and yet someone else 
can give $20 million to influence that election.
    I can in fact go to jail under this law for misbehavior, 
and George Soros certainly has not gone to jail. Anyone else 
want to respond? Ms. Weintraub.
    Ms. Weintraub. I would like to respond to what you had 
initially said, because if I conveyed the impression to you 
that I think that a lot of money being spent on political 
advertising is evil, that was not my intent. My point was just 
to convey that the amount of money that is being raised by 
these 527s has to be seen in the context of how much other 
money there is in the system.
    I think that a lot of people have gotten more involved in 
politics this year. There has been an awful lot of new donors 
created, and that is a good thing. It is good to have people 
involved in politics. I hope we are going to see a lot more 
voters this year, too, but it is certainly not my position that 
a lot of people making legal hard money contributions is in any 
way a bad thing.
    I take issue with what my colleague said. If I thought that 
his proposal provided clarity I might have voted for it. 
Unfortunately, I didn't think that it did. I thought it would 
muck it up even more and confuse people even more, but people 
can disagree on that. I think that the more disclosure that we 
have, the better, and we have to make sure that we don't do--
take actions that would have the effect that Congressman 
Doolittle alluded to of driving the money underground to where 
it is not disclosed at all. I think that would be the worst 
possible result.
    Mr. Ehlers. Any other comments?
    Mr. Smith. I would say only, Congressman, that I have 
written a book on it, literally.
    Mr. Ehlers. Maybe we should send copies to the sponsors.
    Mr. Smith. I think people have, and I don't think they got 
much attention. My general sense in the end is that to some 
extent this is just a dog chasing its tail. You say what can we 
do to get rid of soft money. People always ask me what is soft 
money, and I say, well, soft money is just unregulated money. 
Any money that is not regulated is soft money, because that is 
the only way you can really define it. That is why it has 
been--you know, when people say the purpose of BCRA was to get 
rid of soft money, well, soft money to whom? Just to political 
parties? To State political parties? That was spent by 527s? 
That is spent by individuals?
    Nobody has even talked about the fact that if we ban 527s 
George Soros could just go hire all these guys, put them on his 
personal payroll and keep doing the same thing. And at some 
level again, you know, people have to participate in politics, 
and it could be that there is some limit. I mean, I have argued 
that we shouldn't have limits on contributions, but I am not 
unduly concerned about certain limits on contributions if they 
are set at high enough levels.
    I am concerned now we have ridiculous parts of the law, 
like if a wife gives money to the husband, that is considered 
corrupting and we can't have that, and, you know, there are a 
lot of elements like that. We have disclosure requirements so 
low that if the college Republicans have a couple of car washes 
and raise $300 and run some radio ads in your district 
supporting you, they have got to start filing reports with the 
Federal Election Commission. I think that kind of thing 
suffocates grassroots politics. So I don't think anybody is 
going to be corrupted by a $2,500 corruption. Maybe you are. I 
don't think you are.
    I like to note to students that their parents will spend 
$80,000 to send them to college, but if 3 years after 
graduating from college they decide to run for Congress and 
their parents offer to give them $5,000 they can go to jail. I 
think we could address some of those things that would sort of 
loosen the rules for true grassroots politics, while maybe 
still keeping caps on the really big donors. It would be 
something, perhaps, not dissimilar along the lines suggested by 
the Ney-Wynn bill but also maybe loosening some of the 
disclosure requirements.
    Sometimes people say we need to know every penny, instantly 
on the Internet. Well, we don't. We don't need to know every 
penny spent. We don't need to know it instantly. We don't need 
to know if some kid gives some money. You know, one thing--one 
of the few parts of McCain-Feingold that was struck down was 
the ban on minors giving. Kids now can give money, and I think 
that is a much more important first amendment right than adults 
giving money, and what I liked about it was that bill taken 
literally, which I presume it was intended to be taken 
literally, had the court upheld that ban would have meant that 
if, for example, the county Democratic Party set up a booth at 
the county fair selling cotton candy it would have made it 
illegal for a child to go buy cotton candy from them. It had to 
be an adults-only zone, you know.
    So I think we need to go back and look at these laws and 
quit taking this approach that everything is a loophole and 
start looking at it as, you know, let's be realistic here and 
talk about what is really creating a potential problem.
    Mr. Ehlers. I very much appreciate that comment, because I 
think that is the real issue here, and that is why I was so 
disappointed in this bill. We strained so mightily at it for 
several many years and came out with something that is a long 
ways from what you have just described.
    And I want to add something I have observed in the last 5 
years. We are developing a new generation of young people who 
have a much deeper interest in politics than the previous 
generation, whether it is the generation X or something, and I 
hope we can encourage that because that is really the future of 
our country. These are good kids, well-meaning kids, really 
working hard, and for the first time in my life it looks like I 
am going to have as many volunteers as I need on my campaign, 
largely of young people, and I think that is absolutely 
wonderful.
    I shouldn't say this publicly, I am not sure I even need 
that many volunteers, but I am very happy to put them to work 
and make them part of the process, and that is what America is 
really all about. And I wish we could develop--and maybe this 
committee has to develop it jointly, jointly develop a bill 
that would help encourage that and regulate the things that we 
really believe have to be regulated.
    And I just want to thank you very much for being here. I 
hope we didn't beat up on you too much because we shouldn't do 
it. You are trying hard to do a difficult job, and I am sorry 
we handed you a law that is so hard to administer. Thank you.
    I yield back, Mr. Chairman.
    The Chairman. Other questions or comments?
    Mr. Larson. Thank you, Mr. Chairman, and again thank you 
for your insight and leadership in this area and my other 
colleagues as well. I have enjoyed immensely the discussion 
this afternoon, especially thanks to the panelists. There is 
much work to be done always in a democracy that needs constant 
pruning and attention.
    Mr. Chairman, I would ask that the--because two of my 
colleagues had conflicts with legislative business of their 
own, if the record could be kept open to enable them to send 
questions to the Commissioners so that you might be able to 
respond to their questions and other questions that any member 
may not have had a chance to get to. I know that is always your 
practice and procedure, and I just again wanted to thank you 
and the Commissioners for your thoughtful deliberation.
    The Chairman. With that, I would ask unanimous consent that 
members and witnesses have 7 legislative days to submit 
material into the record and for those statements and materials 
to be entered in the appropriate place in the record. Without 
objection, the material will be entered.
    I want to thank Congressman Larson, his staff, our staff, 
members that participated in this and, most importantly, the 
Commissioners. And also I would like to ask unanimous consent 
that staff be authorized to make technical and conforming 
changes on all matters considered by the committee in today's 
hearing. Without objection, so ordered.
    Having completed our business, the committee is adjourned. 
Thank you.
    [Whereupon, at 6:40 p.m., the committee was adjourned.]

                  Additional Statements for the Record

                               __________

               Testimony of Congressman Christopher Shays

    The Federal Election Campaign Act of 1974 (FECA) requires 527 
groups whose major purpose is to influence federal elections, and who 
spend more than $1,000 for this purpose, to register as federal 
political committees and comply with federal campaign finance laws.
    The Federal Election Commission (FEC), however, has for 30 years 
improperly interpreted FECA to allow 527 organizations to spend 
millions of dollars to influence federal elections without complying 
with federal campaign finance laws.
    Since the Bipartisan Campaign Reform Act (BCRA) was passed and 
signed into law in 2002, certain 527 groups have actively exploited the 
loophole created by the FEC's interpretation of FECA, spending millions 
of dollars to influence federal races.
    This upsurge of outside groups expressly created to support or 
oppose candidates for federal office has magnified the long-standing 
lack of regulation that has allowed 527 groups to operate beyond the 
realm of federal campaign finance law, and has underscored the need to 
substantially reform the FEC.
    On May 13, the FEC met to consider new regulations for 527 groups. 
They had an opportunity to bring 527 groups under federal election law 
by adopting a proposal put forward by Commissioners Michael Toner and 
Scott Thomas to correct long-standing misinterpretations of the 1974 
FECA, but instead they voted to do nothing.
    The Commission had a clear obligation to act on this issue and it 
failed.
    Their inaction tacitly endorsed continued abuses of federal 
election law and opened the flood gates for the raising and spending of 
millions of soft money dollars to influence this year's federal 
elections.
    Commissioner Toner got it right when he said, ``Delaying a decision 
is making a decision--namely, that we are not going to issue any 
regulations for the 2004 elections. We are going to see a new `soft 
money' arms race for the 2004 election.''
    During our seven-year battle to pass BCRA, most Democrats supported 
our law and many Republicans resisted reform--but, until last week, the 
Democrats were operating outside the law and the Republicans were 
trying to abide by it. Justified by last week's decision, Republican 
groups will now use the same tactics in seeking to defeat Democratic 
candidates for federal office.
    We will see huge amounts of soft money flow back into the political 
process, despite the intent of Congress in passing the Bipartisan 
Campaign Reform Act (BCRA), President Bush's intent in signing it, and 
the Supreme Court's intent in upholding the law.
    To ensure free and fair elections, it is essential that federal 
election law is fully implemented and fairly enforced. It is imperative 
that the FECA execute the will of Congress with respect to all campaign 
law, but they have consistently failed to do so.
    The bottom line is, groups on both sides of the aisle primarily 
seeking to influence federal elections should be regulated by federal 
election law.
    We need to overhaul the inefficient, ineffective FEC and replace it 
with a reliable enforcement body, and we have introduced legislation to 
do so.
    The Federal Election Administration Act would replace the existing 
six-member Commission with a three-member Federal Election 
Administration. By improving the way the campaign law enforcement body 
operates, this legislation will ensure federal election law is fairly 
implemented and fully enforced.
    The FEC is charged with enforcing election law, but has failed to 
do so. It is time to rethink their fitness for the job.
                                 ______
                                 

 Answers of Chairman Bradley A. Smith, Vice Chair Ellen L. Weintraub, 
  Commissioner Scott E. Thomas, and Commissioner Michael E. Toner to 
                Written Questions Submitted June 1, 2004

    We are in receipt of your letter dated June 1, 2004, and appreciate 
the opportunity to clarify further some of the issues that we discussed 
during our oversight hearing before the House Committee on 
Administration. We will address each of your questions in turn.
527 Fundraising by Federal Officeholders and Candidates
    You have asked whether the FEC's regulations should be amended to 
reflect statutory language that you believe indicates that federal 
officeholders and candidates may solicit up to $20,000 from individuals 
on behalf of 527s.
    You correctly note that 2 U.S.C. Sec. 441i(e)(4)(B) provides that 
officeholders and candidates may make explicit solicitations for 
donations aggregating up to $20,000 per donor per year for funds to 
carry out voter registration, voter identification, get-out-the-vote, 
and generic campaign activity or for an entity whose principal purpose 
is such activity. As you further note, FEC regulations at 11 C.F.R. 
Sec. 300.52 contemplate such solicitations only where the funds are for 
entities organized under 501(c) of the tax code. Although not 
explicitly excluded by the regulation, entities organized under 
Sec. 527 of the Internal Revenue Code are not included. Your concern is 
that the Commission's regulations may misinterpret that statute.
    Your question arises out of a discrepancy in the statutory language 
between paragraphs (A) and (B) of Sec. 441i(e)(4). Paragraph (A), 
permitting certain general solicitations, is specifically limited to 
501(c) organizations, while paragraph (B), permitting certain specific 
solicitations, is not. It can be argued, therefore, that the 
Commission's regulation, in restricting the specific solicitation 
provision to 501(c) organizations, is inconsistent with the plain 
language of the statute.
    Alternatively, the regulation can be seen as giving effect to 
Congressional intent that the 501(c) restriction be read to encompass 
both paragraphs. This intent is evidenced by floor statements during 
the BCRA debates by Senator McCain, who said:
    ``Proposed new section 323(e)(4)(B) of the Federal Election 
Campaign Act authorizes the only permissible solicitations by Federal 
candidates or officeholders for donations to a 501(c) organization 
whose principal purpose is to engage in get-out-the-vote and voter 
registration activities described in new section 301(20)(A)(i)&(ii) of 
the Federal Election Campaign Act. The new section also authorizes the 
only permissible solicitations for a 501(c) organization that can be 
made by Federal candidates or officeholders explicitly for funds to 
carry out such activities.
    ``In these instances, a Federal candidate or officeholder may 
solicit only individuals for donations and may not request donations in 
an amount larger than $20,000 per year. Section 323(e)(4)(B) applies 
only to 501(c) organizations. The section does not authorize any such 
solicitations for other entities, and it does not authorize 
solicitations for funds to be spent on so-called `issue ads.' \1\''
---------------------------------------------------------------------------
    \1\ 147 Cong. Rec. S2140 (daily ed. Mar. 20, 2002) (Statement of 
Sen. McCain) (emphasis added). See also id. (``Finally, the purpose of 
section 323(e)(4) is to permit only individual candidates or 
officeholders to assist, in limited ways, section 501(c) organizations. 
This permission does not extend to an officeholder or candidate acting 
on behalf of an entity--including a political party.'')
---------------------------------------------------------------------------
    The apparent tension between the regulation and the statute is 
addressed in the Commission's Explanation & Justification for the 
regulation, which states that the Commission intended for the 
regulation to be read to limit the described solicitations to 501(c) 
organizations, citing the views of BCRA's sponsors and one other 
commenter.\2\ Regardless of one's view as to whether the regulation 
represents the best possible interpretation of the statute, 
officeholders are put on notice that the Commission did construe both 
paragraphs (A) and (B) of Sec. 441i(e)(4) as limited to solicitations 
for 501(c) organizations.
---------------------------------------------------------------------------
    \2\ ``BCRA's sponsors and the same public interest commenter also 
pointed out the proposed 11 CFR 300.52(b)(2) . . . did not make clear 
that the specific solicitations permitted for Federal election activity 
or organizations principally engaged in such activities applies only to 
501(c) organizations and not to other tax exempt organization, such as 
527 organizations. The Commission agrees. Accordingly, the introductory 
language in the final rule specifically states that the requirements 
for solicitations in the rule apply to 501(c) organizations.'' Final 
Rules on Prohibited and Excessive Contributions: Non-Federal Funds or 
Soft Money, 67 Fed. Register 49081, 49109 (Jul. 29, 2002).
---------------------------------------------------------------------------
    You also expressed concern that only 527s appear to fit the 
description of an entity whose principal purpose is to conduct voter-
drive activities. However, a 501(c) would qualify as long as its voter-
drive activity were non-partisan.
Coordination
    We have not seen a copy of the memorandum written by Larry Gold 
which you reference as a predicate for your second question. We cannot 
and do not draw any inferences as to the legality of any activities of 
the ``Grassroots Democrats.''
    As a general matter, our coordination regulations are set forth at 
11 C.F.R. Sec. 109.20(a) et seq. These regulations set forth both 
conduct and content standards that must be met for a communication to 
be considered a ``coordinated'' communication. Assuming all other 
criteria for finding illegal coordination are met, coordination is 
generally defined, in pertinent part, as activity that is made ``in 
cooperation, consultation, concert with, or at the request or 
suggestions of a candidate, candidate's authorized committee, or their 
agents, a political party committee, or its agents.'' More 
specifically, 11 C.F.R. Sec. 109.21(e)(1)(ii) states that a 
communication may be deemed to be coordinated it it ``is created, 
produced, or distributed at the suggestion of a person paying for the 
communication and the candidate, authorized committee, political party 
committee, or agent of any of the foregoing, assents to the 
suggestions.'' (Emphasis added.)
    The Commission's investigation into coordinated activity have been 
legally complex and highly fact intensive. Whether or not a candidate, 
authorized committee, or political party, or agent of the foregoing, 
had ``assented'' to a suggestion would have to be determined based on 
specific facts.

                                  
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