[Congressional Record Volume 146, Number 84 (Wednesday, June 28, 2000)]
[Senate]
[Pages S5994-S6000]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
INTERNAL REVENUE CODE OF 1986 AMENDMENT
The PRESIDING OFFICER. Under the previous order, the clerk will
report the bill by title.
The assistant legislative clerk read as follows:
A bill (H.R. 4762) to amend the Internal Revenue Code of
1986 to require 527 organizations to disclose their political
activities.
The Senate proceeded to consider the bill.
The PRESIDING OFFICER. The Senator from Wisconsin.
Mr. FEINGOLD. Mr. President, I am extremely pleased we have reached
an agreement to consider and almost certainly pass H.R. 4762, which
passed the House last night by an overwhelming vote of 385-39. Tomorrow
will be a historic day. For the first time since 1979,
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the Congress is going to pass a campaign finance reform bill. The bill
we are going to pass is by no means a solution to all the problems of
our campaign finance system, but it is a start--and an important
start--because it will close the loophole that was opened at the
intersection of the tax laws and election laws that allows unlimited
amounts of completely secret contributions to flow into our campaign
finance system and influence our elections.
I yield 3 minutes to the initial leader on this issue, the Senator
from Connecticut, Mr. Lieberman.
The PRESIDING OFFICER. The Senator from Connecticut.
Mr. LIEBERMAN. I thank the Chair, and I thank my friend from
Wisconsin.
Mr. President, I rise to express my strong support for this bill,
which contains nearly identical language to a bill I introduced earlier
this session and to an amendment Senators McCain, Feingold, and I
sponsored to the Defense authorization bill. This bill deals with the
proliferation of so-called stealth PACs operating under section 527 of
the Tax Code. These groups exploit a recently discovered loophole in
the tax code that allows organizations seeking to influence federal
elections to fund their election work with undisclosed and unlimited
contributions at the same time as they claim exemption from both
Federal taxation and the Federal election laws.
Section 527 of the Tax Code offers tax exemption to organizations
primarily involved in election-related activities, like campaign
committees, party committees and PACs. It defines the type of
organization it covers as one whose function is, among other things,
``influencing or attempting to influence the selection, nomination,
election, or appointment of any individual to any Federal, State, or
local public office. . . .'' Because the Federal Election Campaign Act,
(FECA) uses near identical language to define the entities it
regulates--organizations that spend or receive money ``for the purpose
of influencing any election for Federal office''--section 527 formerly
had been generally understood to apply only to those organizations that
register as political committees under, and comply with, FECA, unless
they focus on State or local activities or do not meet certain other
specific FECA requirements.
Nevertheless, a number of groups engaged in what they term issue
advocacy campaigns and other election-related activity recently began
arguing that the near identical language of FECA and section 527
actually mean two different things. In their view, they can gain
freedom from taxation by claiming that they are seeking to influence
the election of individuals to Federal office, but may evade regulation
under FECA, by asserting that they are not seeking to influence an
election for Federal office. As a result--because, unlike other tax-
exempt groups like 501(c)(3)s and (c)(4)s, section 527 groups do not
even have to publicly disclose their existence--these groups gain both
the public subsidy of tax exemption and the ability to shield from the
American public the identity of those spending their money to try to
influence our elections. Indeed, according to news reports, newly
formed 527 organizations pushing the agenda of political parties are
using the ability to mask the identities of their contributors as a
means of courting wealthy donors seeking anonymity in their efforts to
influence our elections.
Because section 527 organizations are not required to publicly
disclose their existence, it is impossible to know the precise scope of
this problem. The IRS's private letter rulings, though, make clear that
organizations intent on running what they call issue ad campaigns and
engaging in other election-related activity are free to assert Section
527 status, and news reports provide specific examples of groups taking
advantage of these rulings. Roll Call reported the early signs of this
phenomenon in late 1997, when it published an article on the decision
of Citizens for Reform and Citizens for the Republic Education Fund,
two Triad Management Services organizations that ran $2 million issue
ad campaigns during the 1996 elections, to switch from 501(c)(4)
status, which imposes limits on a group's political activity, to 527
status after the 1996 campaigns. A more recent Roll Call report
recounted the efforts of a team of GOP lawyers and consultants to shop
an organization called Citizens for the Republican Congress to donors
as a way to bankroll up to $35 million in pro-Republican issue ads in
the 30 most competitive House races. And Common Cause's recent report
Under The Radar: The Attack of The ``Stealth PACs'' On Our Nation's
Elections offers details on 527 groups set up by politicians,
Congressmen J.C. Watts and Tom DeLay industry groups; the
pharmaceutical industry-funded Citizens for Better Medicare; and
ideological groups from all sides of the political spectrum, the Wyly
Brothers' Republicans for Clean Air, Ben & Jerry's Business Leaders for
Sensible Priorities and a 527 set up by the Sierra Club. The advantages
conferred by assuming the 527 form--the anonymity provided to both the
organization and its donors, the ability to engage in unlimited
political activity without losing tax-exempt status, and the exemption
from the gift tax imposed on very large donors--leave no doubt that
these groups will proliferate as the November election approaches.
None of us should doubt that the proliferation of these groups--with
their potential to serve as secret slush funds for candidates and
parties, their ability to run difficult-to-trace attack ads, and their
promise of anonymity to those seeking to spend huge amounts of money to
influence our elections-- poses a real and significant threat to the
integrity and fairness of our elections. We all know that the identity
of the messenger has a lot of influence on how we view a message. In
the case of a campaign, an ad or piece of direct mail attacking one
candidate or lauding another carries a lot more weight when it is run
or sent by a group called ``Citizens for Good Government'' or
``Committee for our Children'' than when a candidate, party or someone
with a financial stake in the election publicly acknowledges
sponsorship of the ad or mailing. Without a rule requiring a group
involved in elections to disclose who is behind it and where the group
gets its money, the public is deprived of vital information that allows
it to judge the group's credibility and its message, throwing into
doubt the very integrity of our elections. With this incredibly
powerful tool in their hands, can anyone doubt that come November, we
will see more and more candidates, parties and groups with financial
interests in the outcome of our elections taking advantage of the 527
loophole to run more and more attack ads and issue more and more
negative mailings in the name of groups with innocuous-sounding names?
The risk posed by the 527 loophole goes even farther than depriving
the American people of critical information. I believe that it
threatens the very heart of our democratic political process. Allowing
these groups to operate in the shadows pose a real risk of corruption
and makes it difficult for us to vigilantly guard against that risk.
The press has reported that a growing number of 527 groups have
connections to--or even have been set up by--candidates and elected
officials. Allowing wealthy individuals to give to these groups--and
allowing elected officials to solicit money for these groups--without
ever having to disclose their dealings to the public, at a minimum,
leads to an appearance of corruption and sets the conditions that would
allow actual corruption to thrive. If politicians are allowed to
continue secretly seeking money--particularly sums of money that exceed
what the average American makes in a year--there is no telling what
will be asked for in return.
The bill we are addressing today gives us hope for forestalling the
conversion of yet another loophole into yet another sinkhole for the
integrity of our elections. The bill aims at forcing section 527
organizations to emerge from the shadows and let the public know who
they are, where they get their money and how they spend it. The bill
would require 527 organizations to disclose their existence to the IRS,
to file publicly available tax returns and to file with the IRS and
make public reports specifying annual expenditures of at least $500 and
identifying those who contribute at least $200 annually to the
organization. Although this won't solve the whole problem, at least it
will make sure that no group can hide in the shadows as it spends
millions to influence the way we vote and who we choose to run this
country.
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Opponents of this legislation claim that our proposal infringes on
their First Amendment rights to free speech and association. Nothing in
our bills infringes on those cherished freedoms in the slightest bit.
To begin with, the Supreme Court in Buckley versus Valeo made
absolutely clear that Congress may require organizations whose major
purpose is to elect candidates to disclose information about their
donors and expenditures.
Even without that opinion, the constitutionality of this bill would
be clear for an entirely different reason. And that is that this bill
does not prohibit anyone from speaking, nor does it force any group
that does not currently have to comply with FECA or disclose
information about itself to do either of those things. Instead, the
bill speaks only to what a group must do if it wants the public subsidy
of tax exemption--something the Supreme Court has made clear no one has
a constitutional right to have. As the Court explained in Regan versus
Taxation with Representation of Washington, 461 U.S. 540, 544, 545, 549
(1983), ``[b]oth tax exemptions and tax-deductibility are a form of
subsidy that is administered through the tax system,'' and
``Congressional selection of particular entities or persons for
entitlement to this sort of largesse is obviously a matter of policy
and discretion . . .'' Under this bill, any group not wanting to
disclose information about itself or abide by the election laws would
be able to continue doing whatever it is doing now--it would just have
to do so without the public subsidy of tax exemption conferred by
section 527.
Let me address one final issue: that it is somehow wrong to apply
this bill to 527s but not to other tax exempt groups. I believe deeply
in the cleansing tide of disclosure, whether the contributing
organization involved is a labor union, a business association, a for-
profit company or a tax-exempt organization. For that reason, I worked
hard with a bipartisan bicameral group of reformers to come up with a
fair proposal requiring across the board disclosure from all
organizations that engage in election activity. I thought we had a good
proposal, but we were unable to get enough support for it to see it
pass the House at this time. We should continue to work to enact such
disclosure, but we cannot let that goal stand in the way of passing
this urgently needed legislation now, because there are real
differences between 527 organizations and other tax exempts, and these
differences justify closing the loophole, even if we can't enact
broader reform.
First and foremost, section 527 organizations are different because
they are the only tax-exempts that exist primarily to influence
elections. That is not my characterization. That is the statutory
definition. 527s are not lobbying organizations. They are not public-
interest issue organizations. They are not labor organizations or
business organizations. They are election organizations, plain and
simple. You can't say the same about the AFL-CIO or the Chamber of
Commerce, or Handgun Control or the NRA, whose primary purpose is to
advocate a policy position or to represent specific constituencies. So
I say to anyone who claims these groups are just like other tax-
exempts, ``Read the tax code.''
Just as importantly, there is a greater need for improved disclosure
by 527 organizations than there is for disclosure by other tax exempts.
When the AFL or the Chamber of Commerce runs an ad, we know exactly who
is behind it and where their money came from: union member dues in the
case of the AFL, and business member dues in the case of the Chamber.
These groups provide the basic information the public needs to evaluate
the motivation of the messenger. The absolute opposite is the case with
527s. The public can't know what hidden agenda may lie behind the
message because so many 527s have unidentifiable names and are funded
by sources no one knows anything about.
In the best of all possible worlds, all money supporting election-
related activity would be disclosed. But we should not allow our
inability to achieve that goal now to stand in the way of closing the
most egregious abuse of our hard-won campaign laws that we have seen
during this election cycle. We all agree the American people have an
absolute right to know the identity of those trying to influence their
vote. So why let another day go by allowing these self-proclaimed
election groups to operate in the shadows. Let's work together, across
party lines, to close the 527 loophole.
We have become so used to our campaign finance system's long, slow
descent into the muck that it sometimes is hard to ignite the kind of
outrage that should result when a new loophole starts to shred the
spirit of yet another law aimed at protecting the integrity of our
system, but this new 527 loophole should outrage us, and we must act to
stop it. On June 8, a bipartisan majority of the Senate said that we
stand ready to do so when we adopted nearly this precise language as an
amendment to the Defense authorization bill. An overwhelming majority
of the House of Representatives did the same when it passed this bill
on June 28. We cannot retreat from what we have already said we are
ready to do. We must pass this bill now.
I am thrilled to support this bill. I pay appropriate tributes to
Senators McCain and Feingold for their principled and persistent
leadership of this movement to bring some sanity, openness, limits, and
control back to our campaign finance laws. I have been honored to work
with them in the front lines of this effort.
This is a turning point. The campaign finance laws of America adopted
after Watergate say very clearly that individuals cannot give more than
$2,000 to a campaign. Corporations and unions are prohibited by law
from giving anything. Yet we know that unlimited contributions have
been given by individuals, corporations, and unions, but at least that
soft money, if anyone can say anything for it, is fully disclosed.
In this cycle, we have seen increasing use of the most egregious
violation of the clear intention of our campaign finance laws: So-
called 527 organizations that not only invite unlimited contributions
from corporations, unions, and individuals, but keep them a secret.
Finally, we have come to a point in the abuse of our campaign finance
laws that Members can no longer defend the indefensible. This is a
victory for common sense, for our democracy, for the public's right to
know. It has value in itself. But I hope it will also be a turning
point that will lead us to further reform of our campaign finance laws.
I will say this: In the battle that has brought us to the eve of this
victory--that we will enjoy tomorrow, I am confident--we have put
together a broad bipartisan, bicameral group committed to cleaning up
our election laws, our campaign finance laws.
I hope and believe the debate tonight and the vote tomorrow are the
beginning of finally returning some limitation, some sanity, some
disclosure, some public confidence to our campaign finance laws.
I thank the Chair and thank the leaders in this effort--Senator
McCain and Senator Feingold--and am proud to walk behind them in this.
Mr. President, I yield the floor.
The PRESIDING OFFICER. The Senator from Wisconsin.
Mr. FEINGOLD. I am delighted to yield 4 minutes to our fearless
leader on this issue, the Senator from Arizona.
The PRESIDING OFFICER. The Senator from Arizona.
Mr. McCAIN. I thank my friend from Wisconsin.
Mr. President, I am pleased that we are about to pass and send to the
President the first piece of campaign finance legislation in 21 long
years. This bill is simple, just, and the right thing to do in order to
ensure that our electoral system is not further debased.
My friend from Wisconsin and my friend from Connecticut have
described the details of the bill. I just want to point out again that
making these requirements a contingency for certain tax credit status
ensures that these requirements are clearly constitutional. The
Constitution guarantees freedom of speech and association, not an
entitlement to tax-exempt status. Further, because of the simplicity of
this approach, no vagueness problems will arise and compliance will be
easy.
What could be more American? What could be more democratic?
Before I go further, I want to take a moment to thank my colleagues
in arms who fought so hard to bring this issue forward. I thank Senator
Snowe and Senator Levin for their hard work.
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I thank my colleagues from the House: Congressmen Chris Shays, Marty
Meehan, Mike Castle, Lindsey Graham, Amo Houghton, and others. Without
their courage to stand up and demand to do what is right, we would not
be here tonight and on the verge of the vote tomorrow.
I especially thank Senators Feingold and Lieberman. Senator Lieberman
was the author of legislation mandating 527 disclosure. It was his bill
that served as the basis for this debate. And, of course, I must again
thank Senator Feingold for all the courage he has shown in fighting for
reform at any cost. I sincerely appreciate his efforts.
Just yesterday, the House of Representatives overwhelmingly voted in
favor of this modest reform by a vote of 385-39. I hope the Senate vote
will be equally overwhelming.
Would I have liked to accomplish more? Absolutely. Will I continue
the fight, along with my good friend from Wisconsin, to enact more
sweeping reform? I absolutely promise to do so. Will we continue to do
whatever is necessary to restore the public's confidence in an
electoral system perceived by many, if not most, to be corrupt? You can
be assured of it.
But tomorrow--I say to all those across this great land who want
reform--will be a great first step. It will, indeed, be a great day for
democracy and a government accountable to the governed.
I yield the floor.
The PRESIDING OFFICER. The Senator from Wisconsin.
Mr. FEINGOLD. Mr. President, I yield 2 minutes of our time to the
other co-initiator of this issue, Senator Levin.
The PRESIDING OFFICER. The Senator from Michigan.
Mr. LEVIN. Mr. President, first, I commend the real leaders in this
effort, Senators McCain and Feingold. They have been extraordinary in
their tenacity. We look forward to their continuing tenacity to close
two egregious loopholes--the one we are closing through this bill, and
the other one is the soft money loophole.
I thank Senator Lieberman for his leadership in terms of the 527
loophole itself. We are about to take a step on a long journey. It is a
journey to bring back some limits on campaign contributions. Those
limits have been destroyed by two loopholes: The soft money loophole
and the so-called 527 loophole.
We are about to shed some light, pour some sunshine on the 527
loophole. And the public will respond, I believe, when they see just
how egregious this loophole is. When the disclosure required by this
bill becomes law--as it will--the public will respond to the unlimited
contributions which are also hidden. That disclosure, I believe, will
lead to the closure of this loophole. And for that, we commend the
leaders in this effort.
It is an ongoing struggle. It can only be said to be successful when
the soft money loophole is closed, and when the 527 loophole is not
just brought out into the sunshine but, hopefully, when it shrivels
away and is closed because the public wants the restoration of limits
on campaign contributions. They want them disclosed, but they want them
limited.
We have taken the important step of disclosure relative to one of
those loopholes, and for that we have to thank Senators McCain,
Feingold, and Lieberman. I very much express the gratitude of a
bipartisan coalition to all of them.
The PRESIDING OFFICER. The Senator's time has expired.
The Senator from Kentucky.
Mr. McCONNELL. Mr. President, I would like to make just a few
comments about the legislation that is before the Senate.
First, everyone in the Senate supports disclosure by any group that:
contributes to a federal candidate, or expressly advocates the election
or defeat of a federal candidate. And, I might add that currently every
organization set up under section 527 of the Internal Revenue Code that
contributes to federal candidates, or expressly advocates the election
or defeat of a federal candidate does, in fact, publicly disclose their
contributions and expenditures.
So, let's be clear: nearly every 527 organization in America publicly
discloses its donors and its expenditures.
Second, the narrow legislation before this body would target a
handful of tax-exempt organizations established under section 527 of
the tax code that do not make contributions to candidates, or engage in
express advocacy, and thus, are not required to publicly disclose
contributors or expenditures.
Although these 527 groups are small and few, the constitutional
questions are real. The caselaw demonstrates that there are serious
questions as to whether the government can require public donor
disclosure of groups that are not engaging in express advocacy. In
fact, the Supreme Court has rejected public disclosure of membership
lists and contributors to issue groups as a violation of the First
Amendment in landmark cases like Buckley v. Valeo, 424 U.S. 1, 80
(1976) and NAACP v. Alabama, 357 U.S. 449, 462 (1958). And, less than
two weeks ago, yet another federal court--the United States Court of
Appeals for the Second Circuit--struck down an attempt to regulate
groups that do not engage in express advocacy. I would like to have two
items printed in the Record that explain in detail the constitutional
concerns with this legislation. The first item is a letter from the
American Civil Liberties Union, and the second item is testimony by
election law expert, James Bopp, Jr., of the James Madison Center for
Free Speech. Mr. Bopp's testimony from a Senate Rules Committee hearing
this year cites a long string of court decisions striking down this
type of regulation over the past quarter century.
Mr. President, I ask unanimous consent that the material be printed
in the Record.
There being no objection, the material was ordered to be printed in
the Record, as follows:
American Civil Liberties Union,
Washington, DC, June 8, 2000.
Dear Senator: I am writing to communicate the American
Civil Liberties Union's opposition to the McCain Amendment
No. 3214 concerning disclosure by organizations covered by
Section 527 of the Internal Revenue Code.
The American Civil Liberties Union supports certain methods
of disclosure for tax exempt issue organizations and for
organizations that engage in express advocacy. However,
different methods of disclosure are appropriate for express
advocacy groups that are not appropriate for groups that
engage in issue advocacy. It is appropriate to require a 527
group to provide the Internal Revenue Service (IRS) with the
name and address of the organization, the purpose of the
organization and other information that is now required of
other issue advocacy organizations such as 501(c)(4)s,
501(c)(3)s and 501(c)(5)s.
However, it is certainly inappropriate and unconstitutional
to require issue organizations to report donor lists and
membership lists to the IRS, as they would be required to do
under the McCain Amendment. This is not about protecting
secrecy, this is about preserving the rights of all people to
express their opinions on issues without requiring them to
report to the government in order to do so. By participating
in groups that elevate a particular issue, citizens are
exercising their much cherished free speech rights. It would
greatly chill free expression if the IRS or the Federal
Election Commission (FEC) required donor lists of groups that
represent unpopular viewpoints, minority viewpoints or views
that are highly critical of government policies.
this is not a new issue
Three years after it passed the Federal Election Campaign
Act of 1971, Congress amended the Act to require the
disclosure to the Federal Election Commission of any group or
individual engaged in: any act directed to the public for the
purpose of influencing the outcome of an election, or . . .
[who] publishes or broadcasts to the public any material
referring to a candidate (by name, description, or other
reference . . . setting forth the candidate's position on any
public issue, [the candidate's] voting record, or other
official acts . . . or [is] otherwise designed to influence
individuals to cast their votes for or against such
candidates or to withhold their votes from such candidates.
Such issue advocacy groups would have been required to
disclose to the FEC in the same manner as a political
committee or PAC. They would have to make available every
source of funds that were used in accomplishing such acts.
This unconstitutional regulatory scheme is the template for
the McCain amendment now before you.
The ACLU challenged this provision of the 1974 amendments
as part of the Buckley v. Valeo case. When the challenge came
before the US Court of Appeals for the DC Circuit, the law
was unanimously struck down because it was vague and imposed
an undue burden on groups engaged in activity that is, and
should be, protected by the First Amendment. The DC Circuit
Court ruling stated: to be sure, any discussion of important
public questions can possibly expert some influence
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on the outcome of an election . . . But unlike contributions
and expenditures made solely with a view to influencing the
nomination or election of a candidate, issue discussions
unwedded to the cause of a particular candidate hardly
threaten the purity of the elections. Moreover, and very
importantly, such discussions are vital and indispensable to
a free society and an informed electorate. Thus the interest
group engaging in nonpartisan discussions ascends to a high
plane, while the governmental interest in disclosure
correspondingly diminishes.
Because of the Court's unanimous and unambiguous ruling,
the FEC did not even attempt to appeal this aspect of the
courts ruling concerning issue group regulation disclosure,
and that defective section of the Act was allowed to die.
The ACLU urges members of the Senate to vote against
Amendment No. 3214, the McCain Amendment on 527 group
disclosure.
Sincerly,
Laura W. Murphy,
Director.
Testimony of James Bopp, Jr., April 26, 2000, Senate Rules Committee
the reformers' attack on issue advocacy has another front--section 527
of the internal revenue code
There is another bill that I want to discuss today that is
also part of the unrelenting attack on citizens' ability to
participate in public discourse. Not content with a frontal
assault through the FECA, reformers have turned their
attention to the Internal Revenue Code. HR 4168 proposes to
amend the Internal Revenue Code of 1986 to require that
federal election rules apply to groups formed under Sec. 527
of the Internal Revenue Code.
Before I talk about the specific effects of House
Resolution 4168, some clarifying background information about
Sec. 527 and the FECA is necessary. Section 527 was added to
the Internal Revenue Code in 1974 to resolve long-standing
issues relating to inclusion of political contributions in
the gross income of candidates. Drafters were concerned that
candidates would use their campaign committees to earn
investment income free of tax, and so a tax on investment
earnings became the major limitation on the exemption
available under Sec. 527.
Section 527 of the Internal Revenue Code provides an
exemption from corporate income taxes for political
organizations that are organized primarily to intervene in
political campaigns. Thus, to qualify for the tax exemption,
the organization must be a ``political organization'' that
meets both the organizational and operational tests under
Sec. 527.
A ``political organization'' is a party, committee,
association, fund, or other organization organized primarily
for the purpose of directly or indirectly accepting
contributions or making expenditures for an exempt function
activity. Section 527(e)(1) of the Code defines the term
``exempt function'' to mean, in relevant part, the function
of influencing or attempting to influence the selection,
nomination, election, or appointment of any individual to any
Federal, State, or local public office or office in a
political organization, or the election of Presidential or
Vice-Presidential electors, whether or not such individual or
electors are selected, nominated, elected or appointed. A
``political organization'' meets the organizational test if
its articles of incorporation provide that the primary
purpose of the organization is to influence elections. Under
the operational test, a ``political organization'' must
primarily engage in activities that influence elections but
it need not do so exclusively.
The IRS has issued no precedential guidance in this area,
but it has issued private letter rulings which provide an
indication of what constitutes evidence of political
intervention for purposes of Sec. 527. Activities that are
intended to influence, or attempt to influence, the election
of individuals to public office may include encouraging
support among the general public for certain issues, policies
and programs being advocated by candidates and Members of
Congress.
Thus, the IRS has found that expenditures for issue
advocacy could qualify as intervention in a political
campaign within the meaning of Sec. 527(e)(2). Moreover, the
distinction between issue advocacy activities that were
educational within the meaning of Sec. 501(c)(3) and issue
advocacy activities that were not educational and
therefore qualified as Sec. 527(e)(2) expenditures
intended to influence the outcome of elections, was not
based on major differences in the nature of conduct of the
activities. The IRS instead pointed to the targeting of
the activities to particular areas, the timing of them to
coincide with the election, and the selection of issues
based on an agenda. As will be discussed in a moment,
these factors have been rejected by the courts as
irrelevant to any determination of whether an
organization's speech, regardless of its tax status, is
express advocacy.
In a recent private letter ruling to an organization under
Sec. 527, made public on June 25, 1999, the IRS determined
that a wide range of programs qualified as ``exempt
functions'' for a Sec. 527 political organization. The IRS
found a political nexus even though some of the materials to
be distributed, and techniques to be used, resembled issue
advocacy and other materials and techniques often used in the
past by charitable organizations without violating section
501(c)(3) of the Internal Revenue Code. However, because the
materials and techniques were designed to serve a primarily
political purpose and would be inextricably linked to the
political process, the political nexus was substantiated.
Of particular interest is the IRS's conclusion that voter
education, which may include dissemination of voter guides
and voting records, grass roots lobbying messages, telephone
banks, public meetings, rallies, media events, and other
forms of direct contact with the public, can be apolitical
intervention when it links issues with candidates. Whether an
organization is participating or intervening, directly or
indirectly, in a political campaign, however, depends, in the
view of the IRS, upon all of the facts and circumstances.
Thus, while voter education may be both factual and
educational, the selective content of the material, and the
manner in which it is presented, is intended to influence
voters to consider particular issues when casting their
ballots. This intent was seen by the evident bias on the
issues, the selection of issues, the language used in
characterizing the issues, and in the format. The targeting
and timing of the distribution was aimed at influencing the
public's judgment about the positions of candidates on issues
at the heart of the organization's legislative agenda. These
activities are partisan in the sense that they are intended
to increase the election prospects of certain candidates and,
therefore, would appear to qualify under Sec. 527(e)(2).
It is the perceived intersection between the Internal
Revenue Code and the FECA that reformers want to regulate.
Section 527 organizations must convince the IRS that they are
organized and operated for the exempt function of influencing
elections as required under Sec. 527(e)(2). However, because
the organization is engaged in only issue advocacy and does
not make contributions to candidates or engage in express
advocacy, the organization is not subject to the FECA.
However, H.R. 4168 would treat them as if they engaged in
such activities and require them to register as PACs under
the FECA.
However, the Supreme Court has made it clear that an
organization cannot be treated as a PAC because it engages in
issue advocacy--which was one of the purposes of the express
advocacy test in the first place. The Supreme Court, in one
of its most oft-quoted footnotes, has provided an
illustrative list of which terms could be ``express words
of advocacy:'' ``vote for,' `elect,' `support,' `cast your
ballot for,' `Smith for Congress,' `vote against,'
`defeat,' `reject.' '' Since the Court's ruling in
Buckley, district and federal courts of appeal have
followed this strict interpretation of the express
advocacy test and have struck down any state or federal
regulation purporting to regulate based on intent or
purpose to influence an election. These courts have
unanimously required express words of advocacy in the
communication itself before government may regulate such
speech.
Furthermore, the organizations ``major purpose'' must be
making contributions and express advocacy communications to
be treated as a PAC. The FECA defines a ``political
committee'' as ``any committee, club, association, or other
group of persons which receives contributions aggregating in
excess of $1,000 during a calendar year or which makes
expenditures aggregating in excess of $1,000 during a
calendar year. In Buckley, the U.S. Supreme Court narrowly
construed this definition, holding that under the FECA's
definition of political committee, an entity is a political
committee only if its major purpose is the nomination or
election of a candidate.
An organization's ``major purpose'' may be evidenced by its
public statements of its purpose or by other means, such as
its expenditures in cash or in kind to or for the benefit of
a particular candidate or candidates. Even if the
organization's major purpose is the election of a federal
candidate(s), the organization does not become a political
committee unless or until it makes expenditures in cash or in
kind to support a person who has decided to become a
candidate for federal office.
Recently, the Fourth Circuit found a definition of
``political committee,'' that included both entities that
have as a primary or incidental purpose engaging in express
advocacy, and those that merely wish to influence an election
(engage in issue advocacy), as being overbroad and
unconstitutional. The court found that the definition of
``political committee'' could not encompass groups that
engage only in issue advocacy and groups that only
incidentally engage in express advocacy.
Thus, only an organization that engages primarily in excess
advocacy triggers FECA reporting and disclosure requirements.
Issue advocacy in the context of electoral politics does not
cause an organization to be deemed a political committee.
Merely attempting to influence the result of an election is
not enough. This classic form of issue advocacy, influencing
an election without express words of advocacy, does not cause
an entity to be subject to the reporting and disclosure
requirements of political committees under the FECA. Only
those expenditures that expressly advocate the election or
defeat of a clearly identified candidate do so.
Thus, it is perfectly consistent that an organization may
qualify for exemption under Sec. 527 of the Internal Revenue
Code yet not qualify as a PAC under the FECA. Tax law
provides for exemption from corporate tax and a shield
against disclosure of contributors. Election law mandates
PACs to report all their contributors and expenses, subjects
them to contribution limits, and prohibits
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them from receiving corporate or labor union contributions.
These burdens on a PAC cannot be constitutionally applied to
an issue advocacy organization.
Therefore, as discussed above, Sec. 527 casts a wider net
than does the FECA. The FECA bases its requirements on
narrowly defined activities, not on tax status. Thus,
activities deemed political by the Internal Revenue Service,
for purposes of determining tax exempt status, are
not considered ``political'' under the FECA when there is
no express advocacy of the election or defeat of a federal
candidate.
With this background of how the provisions of Sec. 527 and
the FECA work, it is apparent that the reformers are yet
again attempting to regulate citizen participation in the
form of protected issue advocacy. As a result of the IRS's
amorphous definitions of ``social and welfare activities''
and ``political intervention,'' many Sec. 501(c)(4)
organizations are now forced to organize under Sec. 527 for
tax purposes. In fact, the Christian Coalition has filed suit
against the IRS challenging its overbroad interpretation of
what is political intervention which caused it to be denied
its Sec. 501(c)(4) exemption.
House Resolution 4168, however, would require issue
advocacy organizations exempt under Sec. 527 to be treated as
PACs under the FECA. However, it is unconstitutional to
require issue advocacy groups to register as PACs. What the
government may not do directly, it may also not do indirectly
by bootstrapping onto the Internal Revenue Code a requirement
of ``political committee'' registration and reporting
requirements. In other words, Congress may not condition a
tax exempt status on reporting and disclosure requirements of
issue advocacy when it may not constitutionally require in
the first instance.
The fact that issue advocacy groups may engage in
activities which influence an election, or even admit that
their purpose is to influence an election, is totally
irrelevant to the analysis. What is pertinent is whether
these groups engage in any express advocacy. The Buckley
Court left intact, as constitutionally protected, speech that
influences an election.
To make it clear that speech that only influences an
election, but does not contain express words of advocacy, is
completely free from regulation, the Supreme court explicitly
stated this both positively and negatively. First, the Court
stated that ``[s]o long as persons and groups eschew
expenditures that in express terms advocate the election or
defeat of a clearly identified candidate, they are free to
spend as much as they want to promote the candidate and his
views. Second, the Court explained that the FECA did ``not
reach all partisan discussion for it only requires disclosure
of those expenditures that expressly advocate a particular
election result.
Therefore, in order to protect speech, especially speech
that may influence an election, the Court drew a bright-line
so that the speaker would know exactly when he crossed into
regulable territory--the express advocacy realm. Anything on
the other side of the line, speech that may influence an
election, whether intentionally or not, was to be protected
from government regulation so as to promote the free
discussion of issues and candidates. Thus, speech free from
explicit words of advocacy, whether made with the intent to
influence an election or not, is perfectly appropriate and
legitimate.
This is not to say that Congress is completely without
power to lawfully regulate Sec. 527 organizations. The Joint
Committee on Taxation's recommendation that Sec. 527
organizations should be required to disclose tax returns
(except for donor information) would create parity between
Sec. 527 organizations and Sec. 501(c)(3) and Sec. 501(c)(4)
organizations. However, any disclosure that goes beyond the
public disclosure of tax returns violates the constitutional
protection of issue advocacy.
Mr. McCONNELL. The Senate has precious few legislative days this year
to finish the important business of the American people, and there is
no time for a meaningful debate on campaign finance reform. I think
that even my colleagues on the other side would concede that there are
not sixty votes on substantive issues like the antiquated hard money
limits and the soft money question. In fact, after two weeks of
discussions, neither the House nor the Senate could cobble together a
majority for broad and meaningful disclosure.
But I do commend Senator Gordon Smith for his efforts to find a
reasonable middle ground. His bill, the Tax-Exempt Political Disclosure
Act, sought a compromise between the McCain-Lieberman 527-only bill and
the broad bill reported out of the House Ways and Means Committee that
went so far as to cover tax-exempt social welfare organizations like
the AARP, the NAACP, and the Disabled American Veterans.
The Smith bill targeted the key tax-exempt groups in America: labor
and business organizations set up under sections 501(c)(5) and (c)(6)
of the tax code, like the Chamber of Commerce, the Teamsters and the
National Education Association. Recent news stories underscored the
need for meaningful disclosure of tax-exempt labor and business
organizations. Documents reviewed by the Associated Press demonstrate
that the National Education Association has spent millions of tax-
exempt dollars to influence elections while simultaneously reporting to
the IRS that the organization has spent no money on political
activities. This gross reporting disparity has prompted the filing of
formal complaints with the IRS and the Federal Election Commission
against the NEA. And, I think we all can agree to the obvious: neither
the National Education Association nor any labor union will be covered
or affected in any way by this legislation. They can continue to spend
millions of dollars on political activity with no meaningful
disclosure.
Nevertheless, I have chosen to allow this matter to move forward for
a vote without offering amendments or extended debate. The Senate needs
to focus on the important business of the American people and return to
our first priority of ensuring that all of our appropriation bills are
passed on time.
I plan to vote against this legislation because I believe that the
best and most constitutionally sound solution is to require 527 issue
advocacy organizations to file public returns with the IRS similar to
those filed by issue advocacy organizations organized under section
501(c)(4) of the Internal Revenue Code. Such public returns would
include, among other things: the name and address of the organization,
including an electronic mailing address; the purpose of the
organization; the names and addresses of officers, highly-compensated
employees, members of its Board of Directors, a contact person and a
custodian of records; and the name and address of any related entities.
I also would require the Secretary of the Treasury to make this
information publicly available on the Internet within 5 business days
after receiving the information. However, Mr. President, I would not
cross the constitutional line of requiring that the organizations'
confidential donor lists be made public.
Again, Mr. President, I think this is an important debate, but
respectfully disagree with my colleagues on the constitutional
propriety of requiring public disclosure of confidential donor lists
for groups that do not contribute to federal candidates or engage in
express advocacy.
With that, I yield back the remaining amount of time.
The PRESIDING OFFICER. The Senator from Wisconsin.
Mr. FEINGOLD. Mr. President, the Senator from Kentucky said that
nearly every 527 publicly discloses their contributors and
expenditures. I don't know how the Senator from Kentucky can make that
claim because he doesn't know. No one knows how many 527 organizations
there are. They currently don't file any reports whatsoever, so we
can't know that. They currently don't even notify the IRS that they
exist. That is exactly what this bill will change.
I now yield 2 minutes to one of our strongest allies on this issue
and on the entire issue of campaign finance reform, the Senator from
New York, Mr. Schumer.
The PRESIDING OFFICER. The Senator from New York.
Mr. SCHUMER. I thank the Senator from Wisconsin for yielding.
Both to the Senator from Arizona and the Senator from Wisconsin,
kudos on their exemplary leadership on this issue and the general issue
of campaign finance reform, as well as my colleagues from Connecticut,
Michigan, and Maine who have been such reform leaders.
A Chinese proverb says that a trip of 1,000 miles begins with the
first step. This is the first step, but we do have 1,000 miles to go.
It is the first step, and it is a significant one. Until this proposal
becomes law, organized crime, drug lords, and other various bottom
crawlers in society unknown to any of us could influence the political
process by contributing money and running ads that we all know are, for
all practical purposes, political ads. To have no disclosure, let alone
no limits, on these kinds of activities puts a dagger in the heart of
democracy. Sunlight is the disinfectant we need. Sunlight is the
disinfectant provided by this provision. It does no less; it does no
more.
We have many more miles to go. The distinction between hard money and
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soft money, the fact that these days candidates don't have to worry
about a $1,000 limit because soft money is so prevalent and so
available and because of, in my judgment, recent misguided Supreme
Court decisions that allow political parties to do political ads--we
all know they are political ads; simply because they don't say vote for
candidate X, they are not classified as political ads--makes our system
a joke, makes our system a mockery.
What we are doing here is simply returning to the status quo of a
year ago before these 527 accounts were founded. We have a very long
way to go. The only confidence I have is that we do have leaders such
as the Senator from Arizona and the Senator from Wisconsin to help us
move forward.
If we were to rest on our laurels, if we were to think we had now
cleaned up the system because we passed this legislation, we would be
sadly mistaken. It is very much need because this is the part of
campaign finance that remains under a rock with all the worms and
critters crawling undiscovered. At the same time, we need to go much,
much further. I will be glad to follow the banner of Senators McCain
and Feingold to try to help make that a reality.
I thank the Chair and the Senator from Wisconsin.
The PRESIDING OFFICER. The Senator from Wisconsin.
Mr. FEINGOLD. Mr. President, I thank the Senator from New York for
everything he has done on this matter. I ask the Chair how much time
remains on our side.
The PRESIDING OFFICER. Three minutes.
Mr. FEINGOLD. Mr. President, I ask unanimous consent for an
additional 5 minutes.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. FEINGOLD. Mr. President, let me note that there is no
constitutional argument against this bill because these organizations
receive a tax exemption. The public is entitled to this information in
exchange for the substantial tax benefit these groups receive. I am so
pleased this matter will be demonstrated in the courts because this
bill is going to actually become law.
I would like to use the remaining time to remind my colleagues and
the public of the scope of the loophole we are about to get rid of.
This has been called the ``mother of all loopholes.'' If left
unchecked, literally millions upon millions of dollars originating from
foreign governments, foreign companies, and even, theoretically,
organized crime could be spent in our elections without a single
solitary bit of reporting and accountability--totally secret money in
unlimited amounts, and no one would know where the money was coming
from. It is hard to imagine anything that would be worse for the health
of our democracy.
We have a chart here containing, word for word, what is essentially
an advertisement by one of these groups. It is as plain as day. This
group solicits contributions from extremely wealthy individuals and
groups. Contributions, it says, can be given in unlimited amounts. They
can be from any source. They are not political contributions and are
not a matter of public record. They are not reported to the FEC, to any
State agency, or to the IRS.
Today, we are wiping out what might be the most important part of
this advertisement, that the contributions are not a matter of public
record. From now on, these groups will disclose their contribution to
the IRS. The public will be able to see where their money is coming
from and understand what is behind the message.
I do want to mention a number of people who have been central to this
effort. Of course, my friend and colleague, Senator McCain, deserves a
huge amount of the credit for putting forward our original amendment to
the DOD bill and tenaciously continuing to push until it became law.
Senators Lieberman and Levin developed the original bill on 527s,
recognizing the huge threat these stealth PACs posed. Their work over
the past few weeks to make sure we finish the job has been
extraordinary. Senator Snowe, who has long been concerned about getting
disclosure of phony issue ads run in the last days before an election,
was a key supporter, as was Senator Schumer and many others. On the
House side, Representative Shays, who is in the Chamber now, as well as
Representatives Meehan, Houghton, Castle, Doggett, and Moore were
crucial to getting the bill passed there, over the strong opposition of
the House leadership. I am proud of how we worked in a bipartisan and
bicameral fashion to get the bill done and close this loophole. This
effort bodes well for the future of campaign finance reform.
This is my final point, Mr. President. This is not the end of the
fight, as we have said. It is just the beginning. Now that we have
cracked the wall of resistance to any reform at all, I think we are
ready to move forward on truly cleaning up the corrupt campaign finance
system. Now that we have disclosure of the unlimited amounts that are
going to outside groups, I think we are ready to address the unlimited
contributions from corporations, unions, and wealthy individuals that
the soft money loophole permits to be given to the political parties.
Mr. President, I should have also mentioned Senator Jeffords, who is
present in the Chamber, for his help on this issue.
I know that many of my colleagues want to clean up this system and
are willing to work in good faith to find a way that we can do that.
In the few seconds I have remaining, I thank a number of staff for
their incredibly hard work and dedication to the campaign finance issue
and to this 527 disclosure will. We have not had many wins, and they
are the ones responsible for keeping us in this fight. Mark Buse, Ann
Choinere, Lloyd Ator of Senator McCain's staff, Laurie Rubenstein of
Senator Lieberman's staff, Linda Gustitus with Senator Levin, Jane
Calderwood and John Richter from Senator Snowe's staff, Andrea LaRue
with Senator Daschle, and Bob Schiff of my own staff worked very long
hours to make sure that we got to this point, and we appreciate all of
their efforts and look forward to future victories together.
I yield the floor.
The PRESIDING OFFICER. Does the Senator yield back his remaining
time?
Mr. FEINGOLD. Yes.
The PRESIDING OFFICER. The bill is before the Senate and open to
amendment. If there be no amendment to be proposed, the question is on
the third reading and passage of the bill.
The bill (H.R. 4762) was ordered to a third reading and was read the
third time.
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