[Congressional Record (Bound Edition), Volume 146 (2000), Part 9]
[Senate]
[Pages 12910-12916]
[From the U.S. Government Publishing Office, www.gpo.gov]



                INTERNAL REVENUE CODE OF 1986 AMENDMENT

  The PRESIDING OFFICER. Under the previous order, the Senate will now 
resume consideration of H.R. 4762, which the clerk will report.
  The legislative clerk read as follows:

       A bill (H.R. 4762) to amend the Internal Revenue Code for 
     1986 to require 527 organizations to disclose their political 
     activities.

  The PRESIDING OFFICER. Under the previous order, there will now be 7 
minutes for closing remarks, with 5 minutes of that time to be under 
the control of the Senator from Arizona, Mr. McCain.
  The Senator from Arizona.
  Mr. McCAIN. Mr. President, I yield 2 minutes of my 5 minutes to the 
Senator from Wisconsin, Mr. Feingold.
  The PRESIDING OFFICER. The Senator from Wisconsin.
  Mr. FEINGOLD. Mr. President, despite the claims in the press by some 
opponents of this measure, this bill is fair and evenhanded. It affects 
groups on both sides of the political spectrum. It is not aimed at any 
particular group or players in the elections. It is aimed at getting 
rid of secrecy. It is not an attempt to silence anyone. It is an 
attempt to give the American people information. They are entitled to 
have this information about the groups who flood the airwaves with 
negative ads during an election campaign.
  I thank all my colleagues who supported the McCain-Feingold-Lieberman 
amendment on the Department of Defense bill. They can be proud of what 
they did. With that vote, they have started in motion a process that 
has brought us to this day, when we will quickly pass and send to the 
President for his signature a good, fair, bipartisan bill that does the 
right thing for the American people.
  Mr. ROTH. Mr. President, I believe in full disclosure of who is 
funding political campaigns. The public has a right to know who is 
paying for the political advertisements and direct mail that they see. 
While I think this bill may not go far enough in requiring disclosure 
of these groups, it is a first step and that is why I support H.R. 
4762.
  H.R. 4762 requires disclosure for political organizations which are 
tax exempt under section 527 of the Internal Revenue Code. 527 
organizations which directly advocate the election or defeat of a 
particular candidate for federal office are subject to federal election 
campaign law disclosure obligations. However, 527 organizations that do 
not directly advocate for the election or defeat of a particular 
candidate are not subject to these federal election campaign laws and 
are not obligated to disclose the names of their contributors nor how 
they send the contributions they receive. This bill correctly adds 
disclosure requirements to these 527 organizations so that the 
activities performed and identity of contributors to these previously 
undisclosed will be available for public scrutiny, much like those 527 
organizations that have to disclose under the federal election laws.
  I am also glad that this bill follows the constitutional requirement 
that revenue measures originate in the House of Representatives. If the 
revenue measure did not originate in the House, then any member could 
subject the bill to a ``blue slip,'' thereby voiding the entire bill, 
not just the part of the bill that is a revenue measure. I opposed an 
amendment similar to this bill a few weeks ago when it was offered as 
an amendment to the Defense Authorization bill because adoption of that 
amendment would have subjected the Defense Authorization bill to such a 
``blue slip'' challenge. Since we are taking up a House-originated 
revenue measure, I do not have the concerns which forced me to vote 
against the previous amendment.
  However, I do have some concerns with this bill. First, this bill is 
a tax measure and tax measures should first be addressed by this 
committee of jurisdiction, the Finance Committee. This we have not 
done. In fact, the Fiance Committee was scheduled to have a hearing on 
July 12, 2000 to review this and other similar legislation dealing with 
disclosure of political activity by tax-exempt and other organizations. 
This hearing will not happen now and we will not be able to have the 
Finance Committee review how effective this legislation will be.
  My second concern is that this bill may not do enough. By only 
focusing

[[Page 12911]]

on disclosure in one type of tax-exempt organization and not on others, 
we leave open the use of the other type of tax-exempt organizations by 
those who want to hide their contributions and activity behind the 
cloak of anonymity that these tax-exempt organizations provide. This 
view is shared by the staff of the Joint Committee on Taxation.
  Finally, I am concerned that this legislation requires the Internal 
Revenue Service to do things that it is not prepared to do with regard 
to disclosure. For example, under the bill reported out of the Ways and 
Means Committee, the IRS could partner with another agency--most likely 
the Federal Election Commission--to provide that the results of the 527 
disclosure to the public. Unfortunately, this and other technical 
matters that were addressed in the Ways and Means Committee bill were 
not incorporated in this bill. I fear that we will have to address 
these technical issues in the future in order to make the disclosure 
provisions work to effectively provide this information to the public.
  Because this bill is a first step and that some disclosure is better 
than no disclosure, I will vote for H.R. 4762.
  Mr. President, I ask unanimous consent that a letter from the Brennan 
Center for Justice expressing the view that this bill requiring 
disclosure by 527 organizations is constitutionally sound be printed in 
the Record. 
  There being no objection, the letter was ordered to be printed in the 
Record, as follows:

                                   Brennan Center for Justice,

                                      New York, NY, June 28, 2000.
       Dear Senator: I am writing to express the views of the 
     Brennan Center for Justice at New York University School of 
     Law on the constitutional validity of attempts to seek 
     disclosure from organizations covered by Section 527 of the 
     Internal Revenue Code, as contained in the Lieberman-Levin-
     Daschle-McCain Bills (S.B. 2582 and 2583).
       Senate Bill 2582 seeks to completely close the current 
     Section 527 loophole, under which some organizations are 
     claiming that they exist for the purpose of influencing 
     electoral outcomes for income tax purposes, but that they are 
     not ``political committees'' for purposes of federal election 
     law. Senate Bill 2582 clarifies that tax exemption under 
     Section 527 is available only to organizations that are 
     ``political committees'' under FECA. Senate Bill 2583 is a 
     more limited bill, which requires Section 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 disclosing large contributors and 
     expenditures.
       Both of these bills are constitutionally sound. Buckley v. 
     Valeo, 424 U.S. 1 (1976), clearly established that groups 
     whose major purpose is influencing elections--the operative 
     test under both the Federal Election Campaign Act (FECA) and 
     under Section 527 of the Internal Revenue Code--are 
     appropriately subject to federal disclosure laws. A close 
     textual analysis of Buckley reveals that the Supreme Court 
     explicitly recognized the legitimacy of mandatory disclosure 
     laws for organizations whose major purpose is influencing 
     elections.


             understanding buckley's disclosure limitations

       In Buckley v. Valeo, the Supreme Court considered the 
     constitutional validity of, among other things, various 
     disclosure provisions that Congress had enacted on federal 
     political activity. In general, the Court found mandatory 
     disclosure requirements to be the least restrictive means for 
     achieving the government's compelling interests in the 
     campaign finance arena. However, the Court believed that, 
     while it was constitutionally permissible to require advocacy 
     groups that ``expressly advocate'' for or against particular 
     federal candidates to comply with federal disclosure laws, 
     advocacy groups that engage in a mere discussion of political 
     issues (so-called ``issue advocacy'') cannot be subjected to 
     public disclosure.
       The Supreme Court was concerned that FECA could become a 
     trap for unwary political speakers. Advocacy groups or 
     individuals that participate in the national debate about 
     important policy issues might discover that they had run 
     afoul of federal campaign finance law restrictions simply by 
     virtue of their having mentioned a federal candidate in 
     connection with a pressing public issue. The Court found that 
     FECA's disclosure provisions, as written, raised potential 
     problems both of vagueness and overbreadth.
       Under First Amendment ``void for vagueness'' jurisprudence, 
     the government cannot punish someone without providing a 
     sufficiently precise description of what conduct is legal and 
     what is illegal. A vague or imprecise definition of regulated 
     political advocacy might serve to ``chill'' some political 
     speakers who, although they desire to engage in pure ``issue 
     advocacy,'' may be afraid that their speech will be construed 
     as regulable ``express advocacy.'' Similarly, the overbreadth 
     doctrine in First Amendment jurisprudence is concerned with a 
     regulation that, however precise, sweeps too broadly and 
     reaches constitutionally protected speech. Thus, a regulation 
     that is clearly drafted, but covers both ``issue advocacy'' 
     and ``express advocacy'' may be overbroad as applied to 
     certain speakers.
       The Court's vagueness and overbreadth analysis centered on 
     two provisions in FECA--section 608(e), which adopted limits 
     on independent expenditures, and section 434(e), which 
     adopted reporting requirements for individuals and groups. 
     For these two provisions, the Supreme Court overcame the 
     vagueness and overbreadth issues by adopting a narrow 
     construction of the statute that limited its applicability to 
     ``express advocacy.'' However, the Court made it absolutely 
     clear that the ``express advocacy'' limiting construction 
     that it was adopting for these sections did not apply to 
     expenditures by either candidates or political committees. 
     According to the Court, the activities of candidates and 
     political committees are ``by definition, campaign related.'' 
     Buckley, 424 U.S. at 79.
       The ``express advocacy'' limitation was intended by the 
     Court to give protection to speakers that are not primarily 
     engaged in influencing federal elections. However, because 
     candidates and political committees have as their major 
     purpose the influencing of elections, they are not entitled 
     to the benefit of the ``express advocacy'' limiting 
     construction. The Supreme Court never suggested, as no 
     rational court would, that political candidates, political 
     parties, or political committees can avoid all of FECA's 
     requirements by simply eschewing the use of ``express 
     advocacy'' in their communications. As discussed above, the 
     Supreme Court wanted to avoid trapping the unwary political 
     speaker in the web of FECA regulation. However, for political 
     parties, political candidates, and political committees, 
     which have influencing electoral outcomes as their central 
     mission, there is no fear that they will be unwittingly or 
     improperly subject to regulation.

                           *   *   *   *   *

       The Buckley Court's first invocation of the ``express 
     advocacy'' standard appears in its discussion of the 
     mandatory limitations imposed by FECA section 608(e) on 
     independent expenditures. Section 608(e)(1) limited 
     individual and group expenditures ``relative to a clearly 
     identified candidate'' to $1,000 per year. The Court, in 
     analyzing the constitutional validity of the $1,000 limit to 
     independent expenditures by groups and individuals, focused 
     first on the issue of unconstitutional vagueness. The Court 
     noted that although the terms ``expenditure,'' ``clearly 
     identified,'' and ``candidate'' were all defined in the 
     statute, the term ``relative to'' a candidate was not 
     defined. Buckley, 424 U.S. at 41. The Court found this 
     undefined term to be impermissibly vague. Id. at 41. Due to 
     the vagueness problem, the Court construed the phrase 
     ``relative to'' a candidate to mean ``advocating the election 
     or defeat of'' a candidate. Id. at 42.
       Significantly, the Court did not adopt a limiting 
     construction of the term ``expenditure,'' which appears in a 
     definitional section of the statute at section 591(f). 
     Rather, the Court narrowly construed only section 608(e). Id. 
     at 44 (``in order to reserve the provision against 
     invalidation on vagueness grounds, Sec. 608(e)(1) must be 
     construed to apply only to expenditures for communications 
     that in express terms advocate the election or defeat of a 
     clearly identified candidate for federal office.''). The 
     limitations under section 608(e) apply only to individuals 
     and groups. Id. at 39-40. Political parties and federal 
     candidates have separate expenditure limits that did not use 
     the ``relative to a clearly identified candidate'' language, 
     see Sec. Sec. 608(c) & (f), which was found to be problematic 
     in section 608(e)(1).
       The Court, having solved the statute's vagueness problem, 
     next turned to the question of whether section 608(e)(1), as 
     narrowly construed by the Court, nevertheless continued to 
     impermissibly burden the speaker's constitutional right of 
     free expression. The Court found the government's interest in 
     preventing corruption and the appearance of corruption, 
     although adequate to justify contribution limits, was 
     nevertheless inadequate to justify the independent 
     expenditure limits. Therefore, the Court held section 
     608(e)(1)'s limitation on independent expenditures 
     unconstitutional, even as narrowly construed.
       In sum, in this portion of its opinion, the Buckley Court 
     did not adopt a new definition of the term ``expenditure'' 
     for all of FECA. Rather, the Court held that the limits on 
     independent expenditures imposed on individuals and groups 
     should be narrowly construed to apply only to ``express 
     advocacy,'' and that these limits were nevertheless 
     unconstitutional even as so limited. Because the limits on 
     independent expenditures in section 608(e) were ultimately 
     struck down by the Court, the narrowing construction of that 
     section became, in a practical sense, irrelevant.
       The only other portion of the Buckley decision that raises 
     the ``express advocacy'' narrowing construction is the 
     Court's discussion of reporting and disclosure requirements 
     under FECA section 434(e). It is here that the

[[Page 12912]]

     Court makes it absolutely clear, in unambiguous language, 
     that political committees and candidates are not entitled to 
     the benefit of the narrowing ``express advocacy'' 
     construction earlier discussed in section 608(e).
       The Court begins its discussion of reporting and disclosure 
     requirements, by noting that such requirements, ``as a 
     general matter, directly serve substantial governmental 
     interests.'' Buckley, 424 U.S. at 68. After concluding that 
     minor parties and independents are not entitled to a blanket 
     exemption from FECA's reporting and disclosure requirements, 
     the Court moved on to a general discussion of section 434(e).
       As introduced by the Court, ``Section 434(e) requires 
     `[e]very person (other than a political committee or 
     candidate) who makes contributions or expenditures' 
     aggregating over $100 in a calendar year `other than by 
     contribution to a political committee or candidate' to file a 
     statement with the Commission.'' Id. 74-75 (emphasis added). 
     The Court noted that this provision does not require the 
     disclosure of membership or contribution lists; rather, it 
     requires disclosure only of what a person or group actually 
     spends or contributes. Id. at 75.
       The Buckley Court noted that the Court of Appeals had 
     upheld section 434(e) as necessary to enforce the independent 
     expenditure ceiling discussed above--section 608(e). Id. at 
     75. The Supreme Court, having just struck down these 
     independent expenditure limits, concluded that the appellate 
     court's rationale would no longer suffice. Id. at 76. 
     However, the Buckley Court concluded that section 434(e) was 
     ``not so intimately tied'' to section 608(e) that it could 
     not stand on its own. Id. at 76. Section 434(e), which 
     predated the enactment of section 608(e) by several years, 
     was an independent effort by Congress to obtain ``total 
     disclosure'' of ``every kind of political activity.'' Id. at 
     76.
       The Court concluded that Congress, in its effort to be all-
     inclusive, had drafted the disclosure statute in a manner 
     that raised vagueness problems. Id. at 76. Section 434(e) 
     required the reporting of ``contributions'' and 
     ``expenditures.'' These terms were defined in parallel FECA 
     provisions in sections 431 (e) and (f) as using money or 
     other valuable assets ``for the purpose of . . . 
     influencing'' the nomination or election of candidates for 
     federal office. Id. at 77. The Court found that the phrase 
     ``for the purpose of . . . influencing'' created ambiguity 
     that posed constitutional problems. Id. at 77.
       In order to eliminate this vagueness problem, the Court 
     then went back to its earlier discussions of 
     ``contributions'' and ``expenditures.'' The Court construed 
     the term ``contribution'' in section 434(e) in the same 
     manner as it had done when it upheld FECA's contribution 
     limits. Id. at 78. It next considered whether to adopt the 
     same limiting construction of ``expenditure'' that it had 
     adopted when construing section 608(e)'s limits on 
     independent expenditures by individuals and groups.
       ``When we attempt to define `expenditure' in a similarly 
     narrow way we encounter line-drawing problems of the sort we 
     faced in 18 U.S.C. Sec. 608(e)(1) (1970 ed., Supp. IV). 
     Although the phrase, `for the purpose of . . . influencing' 
     an election or nomination, differs from the language used in 
     Sec. 608(e)(1), it shares the same potential for encompassing 
     both issue discussion and advocacy of a political result. The 
     general requirement that `political committees' and 
     candidates disclose their expenditures could raise similar 
     vagueness problems, for ``political committee'' is defined 
     only in terms of amount of annual ``contributions'' and 
     ``expenditures,'' and could be interpreted to reach groups 
     engaged purely in issue discussion. The lower courts have 
     construed the words ``political committee'' more narrowly. To 
     fulfill the purposes of the Act they need only encompass 
     organizations that are under the control of a candidate or 
     the major purpose of which is the nomination or election of a 
     candidate. Expenditures of candidates and of ``political 
     committees'' so construed can be assumed to fall within the 
     core area sought to be addressed by Congress. They are, be 
     definition, campaign related.
       ``But when the maker of the expenditures is not within 
     these categories--when it is an individual other than a 
     candidate or a group other than a political committee--the 
     relation of the information sought to the purposes of the Act 
     may be too remote. To insure that the reach of Sec. 434(e) is 
     not impermissibly broad, we construe ``expenditure'' for 
     purposes of that section in the same way we construed the 
     terms of Sec. 608(e)--to reach only funds used for 
     communications that expressly advocate the election or defeat 
     of a clearly identified candidate''. Id. at 79-80 (footnotes 
     omitted) (emphasis added).
       The Court in Buckley could not have been more clear. When 
     applied to a speaker that is neither a political candidate 
     nor a political committee, the term ``expenditure'' in 
     section 434(e) must be narrowly construed under the ``express 
     advocacy'' standard. However, when applied to organizations 
     that have as a major purpose the nomination or election of a 
     candidate, the ``express advocacy'' limiting construction 
     simply does not apply. The activities of these groups are, by 
     definition, campaign related, and legitimately subject to 
     regulation under FECA.
       This, of course, is the only sensible reading of FECA. To 
     suggest that political candidates, political parties, or 
     political committees can escape FECA's regulatory reach by 
     merely eschewing the use of express words of advocacy, 
     reduces the law to meaninglessness. It may be necessary, as 
     the Court held, to give advocacy groups that are not 
     primarily engaged in campaign-related activity a bright-line 
     test that will enable them to avoid regulatory scrutiny. But 
     organizations whose very purpose is to influence federal 
     elections need no such safety net, and have not been given 
     one.


        implications for regulation of section 527 organizations

       FECA's definition of a ``political committee'' mirrors the 
     Internal Revenue Service's definition of a Section 527 
     ``political organization.'' Under FECA, a ``political 
     committee'' is, among other things, ``any committee, club, 
     association, or other group of persons which . . . makes 
     expenditures aggregating in excess of $1,000 during a 
     calendar year.'' 2 U.S.C. Sec. 431(4)(A). The term 
     ``expenditures'' includes, among other things, ``any 
     purchase, payment, distribution, loan, advance, deposit, gift 
     of money or anything of value, made by any person for the 
     purpose of influencing any election for Federal office.'' 2 
     U.S.C. Sec. 431(9)(A)(i) (emphasis added).
       Under the Internal Revenue Code, a Section 527 political 
     organization is defined as ``a party, committee, association, 
     fund, or other organization (whether or not incorporated) 
     organized and operated primarily for the purpose of directly 
     or indirectly accepting contributions or making expenditures, 
     or both, for an exempt function.'' 26 U.S.C. Sec. 527(e)(1) 
     (emphasis added). An ``exempt function'' within the meaning 
     of section 527 ``means the function of influencing or 
     attempting to influence the selection, nomination, election, 
     or appointment of any individual to any Federal, State, or 
     local public office of 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.'' 26 U.S.C. Sec. 527(e)(2) 
     (emphasis added).
       Thus, any organization that is a Section 527 organization 
     is, by definition, organized and operated primarily for the 
     purpose of ``influencing or attempting to influence the 
     selection, nomination, election, or appointment of any 
     individual'' to public office. See 26 U.S.C. Sec. 527(e)(2). 
     Such an organization satisfies the ``major purpose'' standard 
     established by the Supreme Court in Buckley, and may 
     therefore be subject to reasonable public disclosure of its 
     sources of funding for its political activities. Buckley 
     offered protection to issue-oriented speakers and groups that 
     are not organized for the explicit purpose of influencing 
     election outcomes. Section 527 organizations, however, are 
     subject to reasonable mandatory public disclosure 
     requirements by virtue of their central mission.


                               conclusion

       There is no question that the Supreme Court in Buckley was 
     concerned with protecting the rights of advocacy groups and 
     individuals to engage in constitutionally protected ``issue 
     advocacy.'' The Court was particularly concerned that the 
     Federal Election Campaign Act, as written, would become a 
     trap for unwary or unsophisticated political speakers. 
     However, the Court also recognized that there are some groups 
     of speakers--political candidates, political parties, and 
     political committees--whose major purpose is engaging in 
     electoral politics. For these speakers, there is no danger of 
     trapping the unwary, and thus, the Court provided them with 
     no special constitutional protection. The actions of 
     political candidates, political parties, and political 
     committees are assumed to be campaign-related, and they are 
     therefore appropriately subject to federal disclosure laws.
       In order to qualify for tax exempt status under Section 527 
     of the Internal Revenue Code, an organization's primary 
     purpose must be to influence election outcomes. Because a 
     Section 527 organization is, by definition, primarily engaged 
     in political activity, it satisfies the ``major purpose'' 
     test promulgated in Buckley. Thus, there is no constitutional 
     impediment to subjecting Section 527 Committees to reasonable 
     disclosure laws. The ``express advocacy'' protections that 
     the Supreme Court promulgated in order to protect unwary 
     political speaker, as the Court itself explicitly recognized, 
     have no applicability in the context of an organization whose 
     primary purpose is engaging in electoral politics. Senate 
     Bill 2582, which clarifies that tax exemption under Section 
     527 is available only to organizations regulated as 
     ``political committees'' under FECA, as well as the more 
     limited Senate Bill 2583, which simply requires public 
     disclosure from Section 527 organizations, will both 
     withstand constitutional scrutiny.
           Very truly yours,
                                             E. Joshua Rosenkranz,
                                                        President.

  Mr. MOYNIHAN. Mr. President, while I support the objectives of this 
legislation, I regret that the Senate has chosen to rush ahead with a 
vote on this matter without following the customary Senate procedure. 
This bill

[[Page 12913]]

should have been referred to its committee of jurisdiction, the 
Committee on Finance, and that committee ought to have had the 
opportunity to consider all its implications.
  In fact, Chairman Roth and I agreed to schedule a hearing on this 
matter for July 12. We contacted election and tax law experts to ask 
their opinions regarding fundamental questions surrounding Section 527 
organizations.
  As we thought, there are constitutional questions, and the 
possibility of unintended consequences that might result from this or 
similar legislation. The careful examination that Senator Roth and I 
had planned is going to be cut short by our actions today. Without that 
careful examination, we can only hope that our conduct will withstand 
judicial scrutiny and not create additional problems.
  Mr. LEVIN. Mr. President, I am pleased to join my colleagues Senators 
McCain, Feingold and Lieberman in voting to send to the President H.R. 
4762, a bill that hopefully will lead to closing one of the gaping 
loopholes in our Federal campaign finance laws. I use the words ``lead 
to'' because we aren't closing the so-called 527 loophole here today--
we are forcing the disclosure of the contributors who use the loophole. 
Just as the disclosure of soft money hasn't yet ended the soft money 
loophole, this disclosure won't automatically close the 527 loophole. 
Most of our reform work lies ahead. But, our action today will 
hopefully give us momentum toward ending both the Section 527 loophole 
and the soft money loophole.
  Having been in the Senate over 20 years, now, I've witnessed how slow 
and frustrating the legislative process can be, and I've also witnessed 
how we as an institution can come together quickly and directly when we 
see a compelling need to do so. Senators Lieberman, Daschle, McCain, 
Feingold and I introduced legislation in the Senate, similar to H.R. 
4762, in April of this year. With the upcoming November elections we 
were ever aware of the explosion in sham issue ad campaigns by 
anonymous contributors across the country that the public was going to 
experience this year without Section 527 reform. We wanted to beat the 
clock and get this legislation in place in time to have an effect on 
this year's campaigns.
  With the leadership of a committed group in the House, and a 
significant bipartisan majority supporting such reform in the Senate, 
we have been able to do that. I commend the many dedicated House 
members and Senators who worked to bring this vote about over the past 
few weeks. The reforms we are passing today will have a meaningful 
effect on the campaigns being run this year.
  The Section 527 loophole allows undisclosed, unlimited contributions. 
These are stealth contributions--tens of millions of dollars of stealth 
contributions that are off the campaign finance radar screen. How does 
that happen--that an organization that claims--on its own--to exist for 
the purpose of influencing an election can receive unlimited 
contributions and kept them secret? Well, it happens because these 
organizations seeking a tax exemption under Section 527 of the Internal 
Revenue Service Code say one thing to the IRS to get the tax exemption 
and say the opposite to the Federal Election Commission to avoid having 
to register as a political committee.
  The Internal Revenue Service Code defines an organization subject to 
a tax exemption under Section 527 as an organization, ``influencing or 
attempting to influence the selection, nomination, election, or 
appointment of any individual to any Federal, State or local public 
office . . .'' The Federal Election Campaign Act defines a political 
committee which is subject to regulation by the FEC and that means 
disclosure as an organization that spends or receives money ``for the 
purpose of influencing any election for Federal office.'' So people 
creating these organizations are claiming, with a straight face, that 
they are trying to influence an election in order to get the benefits 
of one agency while representing they are not trying to influence an 
election in order to avoid the requirements of another. We often say, 
``You can't have it both ways,'' but persons forming these 
organizations, Mr. President, turn that saying on its head. They are, 
so far, having it both ways, and our campaign finance system and the 
respect and trust of the American people in our elections and 
government are paying the price.
  Section 527 was created by Congress in the 1970's to provide a 
category of tax exempt organizations for political parties and 
political committees. While contributions to a political party or 
political committee are not tax deductible, Congress did provide for a 
tax exemption for money contributed and spent on political activities 
by an organization created for the purpose of influencing elections. At 
the time Congress established the tax exemption, it assumed that such 
organizations would be filing with the FEC under the campaign finance 
laws for the obvious reason that the language for both coverage by the 
IRS and coverage by the FEC were the same--``influencing an election.'' 
Consequently it was assumed that Section 527 didn't need to require 
disclosure with the IRS, since the FEC disclosure was considerably more 
complete.
  The legislation before us would require Section 527 organizations to 
file a tax return, something they are not required to do now, and 
disclose the basic information about their organization as well as 
their contributors over $200.
  As good and important as this bill is, however, it does not stop the 
unlimited aspect of these secret contributions, nor the unlimited 
contributions permitted through the soft money loophole. This victory 
today is but one battle in the overall campaign to enact the McCain-
Feingold bill, and I look forward to continuing to work with my 
colleagues to make that happen.
  Mr. McCAIN. Mr. President, I would like to address an issue of 
importance with respect to the 527 disclosure debate, and that is the 
constitutionality of H.R. 4762. I assert that the 527 disclosure 
legislation is Constitutional.
  Among other things, the legislation requires 527 organizations 
claiming tax exempt status to disclose their members who make 
significant contributions to support the 527's political advocacy. Some 
opponents maintain that the legislation runs afoul of the Supreme Court 
ruling in NAACP v. Alabama, where as most of you know, the NAACP was 
protected from having to disclose its membership list to the Alabama 
government
  The 527 disclosure legislation complies with the Constitution's 
protection of freedom of association upheld in NAACP v. Alabama. It 
does not require the disclosure of membership rosters, per se, just the 
members who are making politically related donations. More important, 
it does not constitute a significant restraint on members' rights to 
associate freely.
  It is important to note that the circumstances are different here 
than those that surrounded the Alabama government's treatment of the 
NAACP during the 1950's and 1960's. The Supreme Court recognized that 
the members of the NAACP had every right to be concerned for their own 
and their families' safety if their identities were publicly disclosed. 
The prospect of public identification would have significantly 
discouraged people of color from joining the NAACP. While political 
contributors to 527 organizations may prefer to avoid public scrutiny, 
they have no need to fear for their lives as a result of that scrutiny.
  That said, public safety is by no means the principal standard by 
which the 527 disclosure legislation will be judged. In the NAACP v. 
Alabama decision, the Supreme Court acknowledges that a valid 
governmental purpose must be weighed against the tendency for the 
disclosure requirement to abridge an individual's freedom of 
association. The decision emphasized that the governmental purpose for 
disclosure--in this case to prevent corruption of the American 
political system--must be achieved in the most narrow manner possible.
  Like our Congressional leaders, I believe the more disclosure the 
better--as long as the associated requirements are constitutional. 
Focusing narrowly on 527 organizations is one thing that sets

[[Page 12914]]

H.R. 4762 apart from the Smith-McConnell legislation, to ensure that 
the legislation survives a constitutional test. I would like to submit 
a copy of the Smith-McConnell legislation, the Tax-Exempt Political 
Disclosure Act, into the record.
  The Smith-McConnell legislation sweeps in business and labor 
organizations. As I said, disclosing their political activities is a 
laudable goal. I have advocated a similar approach, but one that would 
include bright line tests to determine precisely when contributions and 
expenditures would have to be disclosed. Those bright line tests, such 
as limiting the disclosure requirement to a time period close to an 
election, are lacking in the Smith-McConnell bill.
  Unlike business and labor organizations, which engage in activities 
completely unrelated to elections, 527's are clearly political 
organizations. 527 organizations by law must have the function of 
influencing or attempting to influence elections. The Supreme Court in 
the Buckley decision upheld federal disclosure laws for these types of 
organizations. When it comes to disclosure laws for business and labor 
organizations, concerns about vagueness and overbreadth come into play.
  527 organizations proliferated during the primary campaign season. 
Many had obscure names that made it hard to guess even the types of 
members funding political advocacy on behalf of each 527, much less 
their identities. Contrary to the 527's, most labor and business 
organizations have established identities, and clear-cut positions and 
purposes that go beyond funding issue ads. Since we have no window into 
the world of 527's, a disclosure requirement is more valid when 
compared with a disclosure requirement affecting labor and business 
organizations.
  Unlike most, if not all, labor and business organizations, there is 
no way to determine how many members there are in a 527. In the example 
I often cite, there were only two contributors, each funneling what 
appears to be at least one million dollars into the accounts to be used 
for campaign advocacy. While we may have no idea how many contributors 
there are in a 527, or how much each contributed, you can bet their 
favored candidates know.
  In a press conference announcing introduction of his bill, Senator 
McConnell admits the ``dubious constitutionally'' of his proposal. In 
order to regain the American public's trust, it is important that we 
support a proposal we feel confident will withstand the Court's 
scrutiny. Thank you, Mr. President.
  Ms. SNOWE. Mr. President, I rise today in support of the legislation 
sent to us by the House concerning disclosure for so-called ``Section 
527 organizations''.
  I want to thank the efforts of those involved in making this day a 
reality, and that includes a bipartisan group from both sides of the 
aisle and both sides of the Hill who have taken a leadership role in 
working toward restoring Americans' faith in its election system. 
Senator McCain's herculean efforts and leadership on this issue have 
made today's vote possible. In addition, Senator Feingold's leadership 
has been invaluable, and Senators Lieberman and Jeffords and 
Congressmen Shays, Meehan, and Castle, have worked very hard to ensure 
that this legislation was both considered and passed.
  I believe that disclosure of campaign activities is the most 
fundamental component of campaign finance reform. On the one hand, 
proponents of measures like the McCain-Feingold bill point to greater 
disclosure as part and parcel of additional reforms. On the other hand, 
opponents have argued that, rather than more comprehensive reforms, 
what we really need is simply more disclosure on what we already have. 
So disclosure should be common ground where we can all come together, a 
point proved by the overwhelming support for disclosure of 527 
organizations in the House on a vote of 385-39.
  As we know, these organizations have incorporated under the 527 
section of the tax code to get tax exempt status to influence federal 
elections, but then they argue to the Federal Elections Commission that 
for their purposes these organizations aren't influencing federal 
elections, simply because they don't expressly advocate for the 
election or defeat of a particular candidate.
  Right now, they don't have to disclose any of their activity--who 
they are, where they get their funding, and where they spend their 
money. Under this legislation, they will have to disclose on all their 
activities, and because political activities are all they do, that is 
as it should be.
  It has also been expressed that if we are to target 527's, we should 
also have increased disclosure for other organizations that engage in 
political activities. And I couldn't agree more. Because the American 
people ought to know who these groups are, their major sources of 
funding, and where they are spending their money if they are working to 
influence a federal election. It's that simple.
  Prior to this vote on 527's, we were working on legislation that 
would do just that--a bipartisan, bicameral measure that would satisfy 
the concerns that have also been raised about the scope of disclosure--
that it not be so broad as to cover all manner of activities that have 
nothing to do with elections.
  So we crafted a bill that was neither overly broad or vague. We 
narrowly and clearly defined political activities as those that mention 
a candidate for office, targeted specifically to the candidate's 
electorate, within a time frame near an election. And we only targeted 
large-scale communications so grassroots organizations will not be 
affected.
  Our framework for this expanded disclosure drew from an amendment 
that Senator Jeffords and I, along with Senators McCain, Feingold, 
Lieberman, and others, developed and introduced in early 1998. Based on 
a proposal developed and advanced by constitutional scholars, our 
measure was designed to withstand constitutional scrutiny, address some 
of the most egregious campaign abuses, and focus on areas where we know 
the Supreme Court has already allowed us to go--like disclosure.
  We've already been to the Senate floor twice with this language, and 
I'm proud to say that the constitutional arguments made against our 
provision quite simply didn't hold water. And a majority of the Senate 
went on record in support of our provision.
  In short, the three major provisions of the bill we were working on 
could be summed up as follows--disclosure, disclosure, and, finally, 
disclosure. That's what we're talking about here--sunlight, not 
censorship. Not speech rationing, but information.
  I cannot emphasize enough that our effort would not have prevented 
anyone from making any kind of communication at any time saying 
anything they want. All we said is, if you're attempting to influence a 
federal election, we ought to know who you are, your major sources of 
funding, and where you're spending your money.
  As the Brennan Center for Justice stated to me in a letter I had 
included in the Record in our first debate on Snowe-Jeffords, and I 
quote, ``As the Supreme Court has observed, disclosure rules do not 
restrict speech significantly. For that reason, the Supreme Court has 
made clear that rules requiring disclosure are subject to less exacting 
constitutional strictures than direct prohibitions on spending.'' So if 
the Congress is truly serious about increased disclosure, there is no 
reason why they should be able to support our approach.
  The fact is, we all have to disclose as candidates, and we should. Is 
it unreasonable when we know groups running ads or sending out mass 
mailings to the public are influencing federal elections to ask them to 
disclose as well?
  We know, for instance, that in the 1995-1996 election cycle, the 
Annenberg Public Policy Center estimates that between $135 to $150 
million was spent by outside groups not associated with candidates on 
television ads. In the last cycle, that number jumped to between $275 
to $350 million--more than double. But what we don't know is how much 
is being spent on efforts like mass mailings or phone banks, or who is 
funding them, and this legislation is designed to tell us.

[[Page 12915]]

  As for those so-called issue ads, if any doubt remains about the real 
intent of many of the broadcast ads we see, the Brennan Center recently 
released a report on television advertising in the 1998 congressional 
elections. What did they find? When all the ads were evaluated in terms 
of how many within two months of the general election were actually 
political ads and how many were simply discussing issues or 
legislation, 82 percent were seen as campaign ads. Eighty-two percent. 
There's no question what these ads are attempting to do--yet, under 
current law, they fly right under the radar screen.
  So, in short, our bipartisan approach got at the largest abuses while 
answering the critics who say that what's good for the 527 
organizations are good for other groups and unions and corporations as 
well. Unfortunately, we did not reach agreement with the House on such 
an approach this year--but our work generated momentum for 
consideration and passage of this 527 bill. And we must look at this as 
a significant first step. Hopefully, we will have the opportunity to 
build on this legislation with the broader approach of Snowe-Jeffords.
  The passage of this bill should also make it that much more difficult 
for those who supported it to now go back and say we shouldn't have 
greater disclosure for other groups engaging in political activities 
when Snowe-Jeffords is introduced next year. In other words, what we 
have done with this legislation is to throw a boulder in what has until 
this point been the still and brackish pond of the campaign finance 
status quo, and the ripple effect will continue expanding ever outward.
  Again, I want to thank everyone involved in this great victory and I 
hope we will move forward to expand our efforts on campaign finance 
reform in the next Congress.


                        internal revenue service

  Mr. MOYNIHAN. I understand that this legislation would allow the 
Secretary of the Treasury to partner with other Federal agencies, 
principally the Federal Election Commission, in a manner similar to 
that contemplated under the bill reported by the Ways and Means 
Committee. Is that understanding correct?
  Mr. FEINGOLD. That is correct. We want to allow the Internal Revenue 
Service to enforce these disclosure rules with the assistance and 
cooperation of the Federal Election Commission.
  Mr. McCAIN. Mr. President, as sponsor, I would like to make the final 
comments.
  Mr. McCONNELL. Mr. President, this debate has come a long way from 
the days of trying to regulate the speech of politicians and other 
major players on the American political scene. Just a few years ago, 
folks on the other side of the aisle were trying to get taxpayer 
funding for elections, spending limits for campaigns, and regulation of 
any group that mentioned a candidate in an ad two months before an 
election day. As recently as last year, there were measures being 
debated in the Senate that would have devastated the Republican Party 
in trying to compete with the Democrats and with well-funded outside 
groups who are almost wholly and completely affiliated with the 
Democrats--groups such as the labor unions, the plaintiffs' lawyers, 
the Sierra Club, and the League of Conservation Voters.
  This particular bill before us will not put Republicans at a 
disadvantage in this fall election. And, of course, it will not put 
Democrats at any disadvantage because it doesn't affect their political 
affiliates, the unions and the trial lawyers. In fact, it's hard to 
tell exactly who will be put at a disadvantage by this bill because 
there are so few groups that will actually be impacted. So, in many 
respects, it is a relatively benign and harmless bill.
  But, let me be clear, there is an important constitutional principle 
at stake here--even though it may only affect a handful of groups in 
this country. This bill takes us down the constitutionally dubious path 
of disclosure related to issue advocacy, which the Supreme Court has 
said, falls outside of the boundaries of government regulation. In 
fact, the federal courts following Buckley v. Valeo have routinely 
struck down attempts to regulate speech that does not expressly 
advocate the election or defeat of a federal candidate. Just two weeks 
ago, the Second Circuit Court of Appeals struck down the latest attempt 
to regulate issue advocacy as a clear violation of the First Amendment. 
Nevertheless, I say to my Republican colleagues, particularly those who 
are up for election this year, that is a pretty hard argument to 
explain in a political campaign. The constitutional distinction between 
issue advocacy and express advocacy is complex and does not get reduced 
to a campaign commercial very easily.
  So in light of the limited impact of this relatively benign bill, I 
recommend to my Republican colleagues that they vote for this bill. I 
will not be voting for it because I do think the constitutional law in 
this area is rather clear. But, ultimately, this is not a spear worth 
falling on 4 months in advance of an election. This vote will insulate 
them against absurd charges that they are in favor of secret campaign 
contributions or Chinese money or mafia money.
  With regard to the few groups who may be in the 527 area, they will 
have a choice to make, either to no longer be organized under section 
527 or to go to court. And, these groups will have to weigh the costs 
and make that choice.
  Mr. President, I yield the floor.
  The PRESIDING OFFICER. The Senator from Arizona.
  Mr. McCAIN. Mr. President, today, indeed, marks a seminal day in the 
battle to reform our electoral system and restore the faith of the 
American citizenry that ours is a government of and for the people. 
This is a vote for campaign finance reform. If the Senate approves this 
legislation, it will be the first campaign finance reform bill to 
become law in 21 long years. It will be action that is long overdue.
  Whether we want to admit the fact or not, perception has an 
unfortunate tendency to become reality. And the American people 
perceive the Congress as controlled by the monied special interests. If 
we are to ensure the public's faith in its Government, we must 
obliterate that perception. This bill, although admittedly a very small 
step, is a step towards ending that perception. This is a step we 
should be proud to take.
  This bill will not solve what is wrong with our campaign finance 
system. It will not do away with the millions of soft money dollars 
that are polluting our elections. We must yet undertake the task of 
doing away with soft money and make our Government more accountable to 
the people we represent.
  It will give the public information regarding one especially 
pernicious weapon that is being used in modern campaigns. It is an 
egregious and outrageous insult to the very principles of how 
democracies function.
  The bill is fair. It affects both parties. It affects interests on 
both sides of the aisle. It stifles no speech. It curbs no individual's 
rights, and it is clearly constitutional. If the Senate approves it 
today, it will become law, and the American people will be well served.
  Before I close, I again thank the many who were involved with this 
issue. Many in the House courageously fought to pass this legislation. 
I thank and note again Congressmen Chris Shays, Marty Meehan, Mike 
Castle, Lindsey Graham, and Amo Houghton who all worked tirelessly on 
this legislation. If it were not for their courage and tenacity, we 
would not have this legislation before the Senate today.
  In the Senate, a bipartisan coalition of those who believe in reform 
refused to relent on this matter: Senators Snowe and Levin played key 
roles in ensuring we move forward. Of course, I must pay special note 
of all the work done by Senators Lieberman and Feingold. I am proud not 
only to call them friends but partners in this crusade to return the 
Government to the people. I could be in no better company.
  As I noted last night to all those who believe in reform, today is 
only the first step, but it is a great first step

[[Page 12916]]

and it is, indeed, a great day for democracy and a Government that is 
accountable to the governed. I urge my colleagues to support this 
legislation.
  Mr. President, I yield my remaining time to the Senator from 
Connecticut.
  The PRESIDING OFFICER. The Senator from Connecticut has 25 seconds 
remaining.
  Mr. McCAIN. I ask unanimous consent that the Senator from Connecticut 
be allowed to speak for 2 minutes.
  The PRESIDING OFFICER. Without objection, it is so ordered. The 
Senator from Connecticut.
  Mr. LIEBERMAN. Mr. President, I thank my distinguished colleague from 
Arizona whom I have come to call our commanding officer in the war for 
campaign finance reform. I am proud to serve under him.
  In this long struggle to cleanse our campaign finance system, we are 
about to achieve a victory. In a campaign finance system that is wildly 
and dangerously out of control today, we are about to draw a line. We 
are about to establish some controls based on the best of America's 
national principles.
  The campaign finance reform adopted after the Watergate scandal had 
two fundamental principles: that contributions to political campaigns 
be limited, and that they be fully disclosed.
  These so-called 527 organizations totally violate and undermine both 
of those principles. Individuals, corporations, and associations can 
give unlimited amounts to 527 organizations, and those contributions 
are absolutely secret, unknown to the public. The contributors then 
audaciously enjoy a tax benefit for those contributions. Today, we say 
no more of that. Unfortunately, contributions will continue to be 
unlimited to 527 organizations, but at least now the public will know.
  As Senator McCain indicated, this is not the end of the effort to 
reform our campaign finance system. It is only the beginning, but it is 
a significant beginning. I urge my colleagues across the aisle to 
support it. I thank the Chair.
  Mr. McCAIN. Mr. President, I ask for the yeas and nays.
  The PRESIDING OFFICER. Is there a sufficient second?
  There is a sufficient second.
  The question is, Shall the bill, H.R. 4762, pass? The clerk will call 
the roll.
  The legislative clerk called the roll.
  Mr. NICKLES. I announce that the Senator from New Hampshire (Mr. 
Gregg) is necessarily absent.
  Mr. REID. I announce that the Senator from Hawaii (Mr. Inouye) is 
necessarily absent.
  The PRESIDING OFFICER (Mr. Bunning). Are there any other Senators in 
the Chamber desiring to vote?
  The result was announced--yeas 92, nays 6, as follows:

                      [Rollcall Vote No. 160 Leg.]

                                YEAS--92

     Abraham
     Akaka
     Allard
     Ashcroft
     Baucus
     Bayh
     Bennett
     Biden
     Bingaman
     Bond
     Boxer
     Breaux
     Brownback
     Bryan
     Bunning
     Burns
     Byrd
     Campbell
     Chafee, L.
     Cleland
     Cochran
     Collins
     Conrad
     Craig
     Crapo
     Daschle
     DeWine
     Dodd
     Domenici
     Dorgan
     Durbin
     Edwards
     Enzi
     Feingold
     Feinstein
     Fitzgerald
     Frist
     Gorton
     Graham
     Gramm
     Grams
     Grassley
     Hagel
     Harkin
     Hatch
     Hollings
     Hutchinson
     Hutchison
     Jeffords
     Johnson
     Kennedy
     Kerrey
     Kerry
     Kohl
     Kyl
     Landrieu
     Lautenberg
     Leahy
     Levin
     Lieberman
     Lincoln
     Lott
     Lugar
     McCain
     Mikulski
     Moynihan
     Murkowski
     Murray
     Reed
     Reid
     Robb
     Roberts
     Rockefeller
     Roth
     Santorum
     Sarbanes
     Schumer
     Sessions
     Shelby
     Smith (NH)
     Smith (OR)
     Snowe
     Specter
     Stevens
     Thomas
     Thompson
     Thurmond
     Torricelli
     Voinovich
     Warner
     Wellstone
     Wyden

                                NAYS--6

     Coverdell
     Helms
     Inhofe
     Mack
     McConnell
     Nickles

                             NOT VOTING--2

     Gregg
     Inouye
       
  The bill (H.R. 4762) was passed.
  Mr. REED. Mr. President, first, I commend my colleagues on both sides 
of the aisle for their persistence in negotiating a Section 527 
disclosure bill that has passed both chambers of Congress. The 
overwhelming vote in both the House and Senate in support of H.R. 4762, 
a bill mirroring a successful amendment we made to the Defense 
Authorization bill several weeks ago, is an important step in fixing 
our broken campaign finance reform system.
  Both parties have now acknowledged that some change in our campaign 
finance laws is warranted, the first such legislative consensus on this 
issue since technical changes were made in 1979 to the Federal Election 
Campaign Act of 1974.
  A majority has agreed that Section 527 organizations need to both 
follow federal campaign law and to file tax returns. H.R. 4762, like 
our amendment to the Defense Authorization bill, requires Section 527s 
to disclose any contributors who give more than $200, and report any 
expenditures of more than $500. Unlike our original amendment, it 
requires a Section 527 organization that fails to disclose 
contributions and expenditures to the IRS to pay a penalty tax on the 
amounts it failed to disclose. The amendment we made to the Defense 
Authorization bill would have removed a Section 527's tax exempt status 
for the same violation. Although not as severe a penalty, I believe 
that this change in the House version of this legislation does reflect 
the spirit of the original Senate amendment.
  Although disclosure is only part of the solution, the passage of H.R. 
4762 ensures that the public understands what these committees are, who 
gives them their money, and how they spend that money to impact 
election outcomes. This law, once signed by the President, will close a 
major loophole and stop these stealth PACs from skirting campaign 
finance requirements, and I was pleased to vote in support of it. 
However, we still have much to do.
  We cannot, and must not, rest with this vote today. Our campaign 
finance system still needs major overhaul if we are going to reduce the 
influence of almost unlimited amounts of campaign cash on our electoral 
system. Until a majority of our citizens believe again that our 
government is ``by and for'' the people, we cannot stop our battle to 
reform this process. We need to pass a ban on soft money, reduce 
skyrocketing campaign expectations, and return our electoral process to 
the people, where it belongs. The power in our country should rest with 
the vote, not with the purse.

                          ____________________