Blog — Campaign Finance Reform
Last month, former Democratic congressional candidate Dr. David Gill, his campaign committee, and my organization, Citizens for Responsibility and Ethics in Washington (CREW), sued the IRS for misinterpreting the Tax Code and creating a loophole that allows some tax-exempt organizations to spend hundreds of millions of dollars on political activity while keeping their donors secret.
According to federal law, groups seeking tax exempt status under section 501(c)(4) must be “operated exclusively for the promotion of social welfare.” The IRS, however, issued a regulation undermining this clear language by requiring such groups only to be “primarily engaged” in promoting social welfare. This has allowed some groups to conclude up to 49 percent of their overall activities may be political. The lawsuit simply asks the court to require the IRS to interpret and apply the law the way Congress wrote it.
In criticizing the lawsuit, Eric Wang of the Center for Competitive Politics, which opposes most campaign finance regulation, either ignores or fails to grasp the basis for the lawsuit, the facts upon which it is based, and CREW and Dr. Gill’s ultimate goal.
Mr. Wang claims the lawsuit is based on the notion political advocacy cannot promote better government and thus advance social welfare. This is wrong. Rather, our complaint alleges political campaign activity in support of or in opposition to a candidate for office does not promote social welfare in a way that justifies providing tax-exempt status and the ability to keep the identities of donors secret.
This idea did not originate with CREW, Dr. Gill, and the lawsuit. Mr. Wang may not know it, but the IRS has specifically stated: “The promotion of social welfare does not include direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office.”
Contrary to Mr. Wang’s assertion, CREW and Dr. Gill are not arguing political activity has no social value. Public participation in the political process unquestionably is a central principle of democracy. But allowing wealthy individuals and corporations to cloak their political activities behind bogus social welfare organizations — with no accountability and in violation of federal law — does not promote democracy.
Mr. Wang also seems unfamiliar with the American Action Network’s (AAN) actions in Dr. Gill’s race for Congress. In 2012, AAN poured nearly $1.5 million into Dr. Gill’s race, more than either candidate spent. Most of AAN’s money was spent on television advertisements falsely claiming Dr. Gill would eliminate Medicare and depicting him as a “mad scientist.” Not only did these ads cause Dr. Gill to lose the race by a scant 1,002 votes, they damaged his reputation and caused him economic harm.
The public has no idea who ultimately paid for the ads because AAN is a 501(c)(4) group and does not have to disclose its donors. But insurance giant Aetna accidentally disclosed it gave AAN $3.3 million in 2011, and PhRMA, the drug manufacturers’ trade association, admitted on its tax return it gave $4.5 million to the group in 2010. They likely targeted Dr. Gill because he supports a single-payer health care plan, which AAN and PhRMA oppose.
How did AAN’s false ads promote social welfare?
Mr. Wang correctly notes that if the lawsuit is successful, 501(c)(4) groups engaging in political activities would have to disclose their donors and would lose their tax-exempt status. What’s wrong with that? AAN could become a super PAC and spend as much money as it likes on political ads.
Of course, that is not nearly as attractive an option. Super PACs have to disclose their donors, and those who finance AAN’s activities want to operate in stealth. Companies like Aetna don’t run political ads themselves because they fear alienating their customers. Far better to funnel money through groups like AAN, which can do the dirty work for them, like impugning the reputation of a respected emergency room physician like Dr. Gill.
It is allowing anonymous donors to co-opt our elections that is “fundamentally at odds with the basic notions of democratic government,” not our efforts to stop it.
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