Today, the Campaign Legal Center, together with more than a dozen government watchdog organizations, urged the Senate to oppose legislation that would block disclosure of campaign spending by government contractors.  In a letter to the full Senate Committee on Homeland Security and Governmental Affairs, the groups emphasized that, despite the claims of its Senate sponsors, the bill would not depoliticize government contracting.  Rather, it will encourage further abuses by banning transparency from the process.

S. 1100, sponsored by Sen. Susan Collins (R-ME), would prohibit requiring those seeking Federal contracts to reveal their political contribution information in order to be eligible to receive government funding.

“This proposal would allow contractors cashing government checks to buy influence through campaign spending and keep it secret from taxpayers and voters,” said Meredith McGehee, Campaign Legal Center Policy Director.  “These businesses are not spending this money out of the goodness of their hearts.  They expect something in return.  You can bet they will make sure the politicians they seek to influence will know about any money the government contractors spend.  Only the public, which foots the bill, would be left in the dark under this proposal.”

The Committee is expected to take up the proposed legislation at a business meeting tomorrow.

The full letter follows below.

May 15, 2012

The Hon. Joseph Lieberman, Chairman
The Hon. Susan Collins, Ranking Member
Committee on Homeland Security & Governmental Affairs
U.S. Senate
Washington, D.C. 20510
 
End Pay-to-Play Politics Through Transparency
Oppose S. 1100 that Would Keep Political Spending in the Shadows
 
Dear Senator:
 
Our 14 civic organizations write to you in solid opposition to S. 1100, the so-called “Keeping Politics Out of Federal Contracting Act,” and urge the Senate to reject this legislation that would block public disclosure of campaign contributions and spending by government contractors.
 
This effort to keep the campaign money of government contractors in the shadows runs afoul of the honesty of our elections and the integrity of the government contracting process. Disclosure is the solution, not the problem.
 
The organizations writing in opposition to S. 1100 include: Campaign Legal Center, Center for Media and Democracy, Citizens for Responsibility and Ethics in Washington, Common Cause, Democracy 21, Demos, League of Women Voters, MapLight, New Progressive Alliance, Project on Government Oversight, Public Citizen, Sunlight Foundation, U.S. PIRG and Union of Concerned Scientists.
 
“Pay-to-play” is the all-too-common practice of a business entity making campaign contributions or expenditures in support of public officials with the hope of gaining a lucrative government contract. The timing and targeting of campaign contributions demonstrates that contractors seek access to politicians with oversight of contracting,[1] and interviews with contractors reveal that they believe this access helps them win contracts.[2] Just how frequently such pay-to-play corruption takes place is a matter of dispute, but there is no disputing that the public perceives this problem is widespread.
 
S. 1100, sponsored by Sen. Susan Collins (R-ME), would create a very dangerous obstacle to reining in pay-to-play abuses in government contracting.
 
Pay-to-play corruption thrives in the shadows. As long as the public is generally kept in the dark as to how much a corporation is spending on behalf of public officials and their respective parties, pay-to-play can be an exceedingly effective tool in winning government contracts. Though it is extraordinarily difficult for the public to connect the dots of which company is spending how much in support of which candidates, contractors and their lobbyists are not at all shy about selectively informing officeholders and party officials who they are supporting and who they oppose.
 
While officeholders generally know their financial benefactors, the public is routinely left in the dark. This dichotomy between what politicians know and what the public knows about contractor campaign money is the greatest single recipe for pay-to-play abuse in federal contracting.
 
One of the single most important means to rein in this type of pay-to-play abuse in government contracting is to create a system of full disclosure so that the public also knows which contractors supported which officeholders. This transparency in contractor campaign spending would provide the public with the means to discern when contracts are being awarded based on money rather than merit – and a powerful tool to check pay-to-play abuses in government contracting.
 
There is nothing new about the idea of requiring government contractors to disclose their campaign financial activity. More than a dozen states already impose special disclosure requirements on government contractors, and federal contractors have been disclosing their PAC contributions for decades.
 
Full disclosure of money in politics is overwhelmingly supported by the American public, and it is one of the most effective means to ensure that the integrity of the government contracting process is not being compromised by the campaign money of “insider” influence peddlers.
 
We strongly urge you to vote against S. 1100.
 
Sincerely,
 
Campaign Legal Center
Center for Media and Democracy
Citizens for Responsibility and Ethics in Washington
Common Cause
Democracy 21
Demos
League of Women Voters
MapLight
New Progressive Alliance
Project on Government Oversight
Public Citizen
Sunlight Foundation
U.S. PIRG
Union of Concerned Scientists

[1] Roland Zullo, “Public-Private Contracting and Political Reciprocity,” Political Research Quarterly (2006) at 273-281.

[2] Kimberly Palmer, “Schmooze or Lose,” Government Executive (2005) available at:  www.govexec.com/features/1205-01/1205-01s4.htm

Today, the Campaign Legal Center, together with Democracy 21, filed comments urging the Federal Election Commission (FEC) to reject an attempt by America Future Fund (AFF) to avoid filing electioneering communications reports and disclosing donors for a series of proposed ads.  In Advisory Opinion Request 2012-19, AFF asks the agency whether eight submitted television advertisements would trigger the reporting requirements for electioneering communications.

“Electioneering communication” is a broadcast ad within a defined pre-election time frame that “refers to a clearly identified candidate for Federal office.”  An FEC regulation defines the phrase “refers to a clearly identified candidate” to mean: “[T]he candidate’s name, nickname, photograph, or drawing appears, or the identity of the candidate is otherwise apparent through an unambiguous reference. . . .”

Seven of AFF’s eight proposed ads identify President Obama without actually using the phrase “President Obama”—instead making repeated references to “the White House,” “the Administration,” or “Obamacare,” displaying images of the White House and in one instance even using a recording of President Obama’s voice.

“Although the proposed ads don’t include the words ‘President Obama,’ they nevertheless clearly identify President Obama using unambiguous references such as ‘the White House’ and ‘the Administration,’” said Paul S. Ryan, Campaign Legal Center Senior Counsel.  “AFF is certainly free to air these ads, but the ads are ‘electioneering communications’ and must be reported to the FEC with disclosure of the sources of funds used to pay for the ads.”

To read the complaint, click here.

Today, the Campaign Legal Center, together with Democracy 21, filed a complaint with the Federal Election Commission against Rep. Aaron Schock (R-IL) for his illegal solicitation of Majority Leader Eric Cantor (R-VA) to make a contribution of $25,000 to the super PAC Campaign For Primary Accountability.  Press reports quote both Rep. Shock and a spokesman for Leader Cantor freely admitting that the solicitation was made for an amount five times the legal limit.

The FEC made clear in an advisory opinion last year (AO 2011-12) that a federal officeholder “may only solicit contributions of up to $5000 from individuals . . . and Federal political action committees” for a super PAC such as Campaign For Primary Accountability.  But an article published in Roll Call makes very clear that Rep. Schock asked Majority Leader Cantor to make a $25,000 contribution to the super PAC.

“Rep. Schock and Leader Cantor’s campaign spokesman Ray Allen told Roll Callin no uncertain terms that a solicitation was made for $25,000, which amounts to a public confession to a clear violation of the law,” said Paul S. Ryan, Campaign Legal Center Senior Counsel.  “The FEC must pursue this violation by Rep. Schock or the agency would in effect be green-lighting candidates soliciting multi-million dollar contributions to the ostensibly ‘independent’ Super PACs that have been doing the dirty work of presidential candidates in the primaries – an activity expressly banned by the agency.”

“The FEC last year correctly recognized that Members of Congress are not free to solicit large contributions to super PACs,” said Donald Simon, counsel to Democracy 21.  “It must now enforce the law against what appears to be a clear violation of it by Rep. Schock.  As bad as the super PAC problem is, it would be worse if the FEC allows Members of Congress to get into the business of soliciting huge contributions for super PACs, in violation of the law.”

The complaint asked the FEC to conduct an immediate investigation of the matter and impose appropriate sanctions.

To read the complaint, click here.

Today the Federal Communications Commission took an important step to bring broadcasting into the 21st Century by requiring television broadcasters to put their public and political files online beginning this year.

Since 1965, TV broadcast stations that hold licenses from the FCC to use the publicly owned airwaves to serve specific communities have been required to disclose information about “community-relevant information for public review.”  The purpose of the disclosure was to help ensure that the broadcasters are meeting their public interest obligations and, in the case of the political file, especially to ensure they are abiding by their statutory obligations to offer candidates lower cost advertising in the heat of a campaign – an “anti-gouging” assurance.

The FCC voted 2-1 today to move the public file from the back room file cabinets onto a central, online database hosted by the FCC.  Those files include information about who purchased political ad time, the disposition of any request to purchase time for a political ad, the amount charged and when the political ad actually ran.  For the first two years, the new rule applies only to stations that are affiliated with the top four national networks (ABC, CBS, NBC, and Fox) and are licensed to serve communities in the top 50 Designated Market Areas (DMAs).

“The Commission’s action is an important victory for transparency and accountability in our nation’s public policy making broadcasters’ public files truly public,” said Meredith McGehee, Policy Director of the Campaign Legal Center.  “Keeping this information in file cabinets that required a personal visit to the TV station served only to make it difficult to hold broadcasters accountable for meeting the few requirements they have – reasonable access, equal opportunity and lowest unit charge.

“It is unfortunate that in this year’s election, there will still be many markets that are expected to see massive advertising campaigns by outside groups where this information will remain difficult to access,” McGehee said.  “It is in the smaller, more affordable markets where political ads for congressional and state races play a more significant role in the outcome of elections.  Just look at the races for Senate in New Mexico, Virginia, Nebraska, and Montana.

“But hopefully this FCC action has set a process in place that will continue and cover those markets in time for the next election.  Commissioners Genachowski and Clyburn deserve credit for withstanding the onslaught of opposition that the broadcasters are always skilled at bringing on matters about which they are concerned.”

Today, Campaign Legal Center Senior Counsel Paul S. Ryan testified before the Senate Committee on Rules & Administration in support of the Senate Campaign Disclosure Parity Act (S. 219), to require electronic filing of campaign finance disclosure reports by Senate candidates, as House and Presidential candidates have done for more than a decade.

Candidates for the U.S. House of Representatives and for the office of President, and nearly all federal political committees, currently file their campaign finance disclosure reports electronically with the FEC.  This data is typically uploaded onto the FEC website for public access within 24 hours.  By contrast Senate filings generally take weeks to become publicly available.  Mr. Ryan’s testimony emphasized the public harm inherent in the current system:

What reason can the Senate possibly have for clinging to its archaic paper-based disclosure system?  Unless the Senate’s goal is to deny voters important information and waste millions of taxpayer dollars in this time of fiscal crisis, the Campaign Legal Center can fathom no excuse for Senate’s continued refusal to mandate electronic filing of campaign finance disclosure reports.

The bill introduced by Sen. Jon Tester (D-MT) currently has 24 cosponsors, including a number of Republicans.  Mr. Ryan and Secretary of the Senate Nancy Erickson were the only witnesses.

To view video of the full hearing, click here.

Paul S. Ryan’s full opening statement to the Committee follows below.

Testimony of Paul S. Ryan
Senior Counsel, Campaign Legal Center
Before the Senate Committee on Rules and Administration
Re: The Senate Campaign Disclosure Parity Act (S.219)
April 25, 2012

Distinguished committee members, thank you for this opportunity to provide my views on S. 219, the Senate Campaign Disclosure Parity Act.

The Campaign Legal Center (CLC) is a nonpartisan, nonprofit organization founded in 2002 that works in the areas of campaign finance, elections and government ethics.  The CLC offers nonpartisan analyses of issues and represents the public interest in administrative, legislative and legal proceedings.  The CLC also participates in generating and shaping our nation’s policy debate about money in politics, disclosure, political advertising, and enforcement issues before the Congress, the Federal Election Commission (FEC), the Federal Communications Commission (FCC) and the Internal Revenue Service (IRS).  The CLC’s President is Trevor Potter, former Chair of the FEC, and our Executive Director is Gerry Hebert, former acting head of the Voting Section of the Civil Rights Division at the Department of Justice.  I serve as Senior Counsel at the Campaign Legal Center and have more than a decade of experience practicing election law.

The improvement in Senate-related campaign finance disclosure that would result from passage of S. 219 is long overdue.  The CLC strongly supports the Senate Campaign Disclosure Parity Act.

All or nearly all federal candidates and political committees compile their campaign finance data using computers and sophisticated software—including software provided free of charge by the FEC.  Computerization of this data collection process has been the norm for more than a decade.  Nearly all candidates for the U.S. House of Representatives and the office of President, and nearly all federal political committees, also file their campaign finance disclosure reports electronically with the FEC.  This data is then made available to the public via the FEC’s website, typically within 24 hours.  See 2 U.S.C. § 434(a)(11).

Senate candidates and their committees, however, willfully remain stuck in the Dark Ages—filing their disclosure reports on paper and denying the public timely access to information the Supreme Court has repeatedly recognized as vitally important to effective democracy.

In Citizens United v. FEC, for example, eight of the Supreme Court’s nine justices upheld a challenged disclosure law and stressed the importance of timely disclosure, noting that “modern technology makes disclosures rapid and informative.”  Citizens United v. FEC, 130 S. Ct. 876, 916 (2010).  The Court continued:

With the advent of the Internet, prompt disclosure of expenditures can provide shareholders and citizens with the information needed to hold corporations and elected officials accountable for their positions and supporters.  . . .  The First Amendment protects political speech; and disclosure permits citizens and shareholders to react to the speech of corporate entities in a proper way.  This transparency enables the electorate to make informed decisions and give proper weight to different speakers and messages.

Id. (internal citations omitted).

Though modern technology and the Internet undoubtedly make “rapid” and “prompt” disclosure possible, the Senate has for more than a decade refused to utilize such technology, exempting itself from mandatory electronic filing requirements applicable since 2001 to candidates for the offices of the House and President.  In doing so, the Senate has kept voters in the dark regarding campaign financing and wasted millions of taxpayer dollars along the way.

Under current law, candidates for the office of Senator, their principal campaign committees, and the Republican and Democratic Senatorial Campaign Committees compile their campaign finance data electronically, but then nonsensically hit “print” and file their disclosure reports with the Secretary of the Senate in paper format.  See 2 U.S.C. § 432(g).  The reports are then delivered to the FEC, which reportedly spends more than $250,000 per year paying people to retype the data back into a searchable digital format that is eventually uploaded to the FEC’s website and made assessable to the public.  This process can take weeks and may deny voters access to important campaign finance data until after Election Day.

What reason can the Senate possibly have for clinging to its archaic paper-based disclosure system?  Unless the Senate’s goal is to deny voters important information and waste millions of taxpayer dollars in this time of fiscal crisis, the Campaign Legal Center can fathom no excuse for Senate’s continued refusal to mandate electronic filing of campaign finance disclosure reports.

S. 219 presents a simple, tax-dollar-saving fix to the Senate’s broken disclosure system.  S. 219 would amend section 432(g) of the Federal Election Campaign Act to repeal the electronic filing exemption for candidates for the office of Senator, their principal campaign committees, and the Republican and Democratic Senatorial Campaign Committees.  Under the Senate Campaign Disclosure Parity Act, these candidates and committees would file campaign finance disclosure reports electronically with the FEC, by the same rules applicable to other federal candidates and committees.[1]

Enactment of S. 219 would save candidates and committees the printing costs of the present paper-based system and would save tax payers the needless expense of turning those paper reports back into digital, searchable data.

More importantly, enactment of S. 219 would bring Senate-related campaign finance disclosure in step with the “rapid,” “prompt” and “effective” disclosure promised to voters by the Supreme Court in Citizens United—“enabl[ing] the electorate to make informed decisions and give proper weight to different speakers and messages.”

Past efforts to provide for electronic disclosure have been repeatedly derailed in this body by threats to offer poison pill amendments—such as banning outside groups from filing ethics complaints against Senators.  What on earth is the Senate waiting for?  We call on the Senate to schedule an up-or-down vote on S. 219 immediately and pass this overdue legislation.

Thank you for the opportunity to testify before you today.

[1] FEC rules provide that any committee required to file reports with the Commission (i.e., committees other than Senate candidate committees and the Republican and Democratic Senatorial Campaign Committees, which file reports with the Secretary of the Senate) must file reports in an electronic format if the committee receives or spends, or has reason to expect to receive or spend, in excess of $50,000 in a calendar year.  See 11 C.F.R. § 104.18(a).  This $50,000 threshold would likewise apply to committees brought into the mandatory electronic filing system by S. 219.

Late yesterday, the Campaign Legal Center filed an amicus brief inProtectMarriage.com v. Bowen in the U.S. Court of Appeals for the Ninth Circuit, in support of disclosure provisions in California’s Political Reform Act.  The brief urges the court to affirm a district court decision upholding the state ballot measure committee contribution disclosure requirements.

This ProtectMarriage.com case is part of coordinated campaign that has resulted in a flood of litigation nationwide with the goal of undermining disclosure laws.  The plaintiffs in ProtectMarriage.com, who are seeking to overturn California disclosure laws, raised and spent tens of millions of dollars in support of Proposition 8, a successful statewide ballot initiative that amended the California Constitution to define marriage as valid only between a man and a woman.

“The groups bringing these challenges across the country have repeatedly tried to draw flimsy parallels between any criticisms they may have received from their political opponents to the very rare exemptions to disclosure laws granted by the courts in the past,” said Paul S. Ryan, Campaign Legal Center Associate Legal Counsel.  “It is shameless to attempt to compare themselves to groups like the Socialist Workers Party or the Alabama NAACP circa 1950, groups granted exemption from disclosure laws because their members suffered serious threats to their lives and livelihoods.  The courts have repeatedly seen through these grossly disproportionate comparisons and remained loathe to liberally grant exemptions and undermine a democratic cornerstone like disclosure.”

In the last decade alone the Supreme Court has upheld disclosure laws by votes of 8-1 three times, most recently in Doe v. Reed. In his concurrence in the case, Justice Scalia made very clear the importance of transparency to the health of our democracy:

Requiring people to stand up in public for their political acts fosters civic courage, without which democracy is doomed.  For my part, I do not look forward to a society which, thanks to the Supreme Court, campaigns anonymously (McIntyre) and even exercises the direct democracy of initiative and referendum hidden from public scrutiny and protected from the accountability of criticism.  This does not resemble the Home of the Brave.

To read the Legal Center brief ProtectMarriage.com v. Bowen, click here.

Today, Campaign Legal Center Senior Counsel Paul S. Ryan testified before a Congressional Forum on Campaign Finance in the U.S. House of Representatives.  The Forum focused on the drastically changed playing field and the flood of outside money into the federal campaign finance system over the past two years.
 
Ryan’s testimony focused on the faulty assumptions in the Supreme Court’s highly controversial decision in Citizens United and how those assumptions are playing out in the current election cycle.  His testimony detailed how current laws and regulations, along with a dysfunctional FEC, have “made this year’s elections a ‘Wild West’ of money in politics.”
 
The full opening statement follows below.
 
April 18, 2012
 
Distinguished committee members, thank you for this opportunity to provide my views on significant changes that have occurred in campaign finance law and practice over the past two years, since the Supreme Court’s landmark decision inCitizens United v. Federal Election Commission (FEC) and the D.C. Circuit Court decision built upon it, SpeechNow v. FEC.
 
The Campaign Legal Center (CLC) is a nonpartisan, nonprofit organization founded in 2002 that works in the areas of campaign finance, elections and government ethics.  The Legal Center offers nonpartisan analyses of issues and represents the public interest in administrative, legislative and legal proceedings.  The Legal Center also participates in generating and shaping our nation’s policy debate about money in politics, disclosure, political advertising, and enforcement issues before the Congress, the FEC, the Federal Communications Commission (FCC) and the Internal Revenue Service (IRS).  The Legal Center’s President is Trevor Potter, former Chair of the FEC, and our Executive Director is Gerry Hebert, former acting head of the Voting Section of the Civil Rights Division at the Department of
Justice.  I serve as Senior Counsel at the Legal Center and have more than a decade of experience practicing election law.
 
Citizens United and Speech Now
 
The Supreme Court in Citizens United based its decision to unleash a flood of corporate money into U.S. election on two faulty assumptions.  First, the Court wrongly assumed that such funds would be spent “independently” of candidates and, therefore, could not give rise to corruption or the appearance of corruption.  Second, the Court assumed that the source of such funds would be disclosed, permitting “citizens and shareholders to react to the speech of corporate entities in a proper way” and enabling the “electorate to make informed decisions and give proper weight to different speakers and messages.”
 
Several months after the Citizens United decision, the Supreme Court’s faulty assumptions were compounded by the D.C. Circuit Court of Appeals inSpeechNow, when it relied on Citizens United and held that if independent expenditures cannot give rise to corruption, then contributions to groups making such expenditures cannot be limited.  The SpeechNow decision gave birth to “Super PACs.”
 
I welcome the opportunity to discuss with you today the Citizens United Court’s faulty assumptions and how they are playing out in the elections currently underway.  Specifically, I will detail how current laws and regulations, combined with a dysfunctional FEC, have made this year’s elections a “Wild West” of money in politics.
 
Super PACs
 
The ability of Super PACs to accept unlimited contributions, including contributions from corporations and labor unions that had for decades been off-limits for federal political committees, poses a serious threat of corruption in U.S. elections.  Notwithstanding the Supreme Court’s promise that the corporate money it was unleashing would be spent independently of candidates, current laws have been interpreted by the FEC to allow very close relationships between Super PACs and candidates.
 

Coordination Rules
 
Congress, in passing the McCain-Feingold law in 2002, ordered the FEC to rewrite its long-ineffective coordination rules.  The FEC’s coordination rules (11 C.F.R. § 109.21) responding to the mandate of Congress were woefully, and some would argue intentionally, inadequate.  They have twice been invalidated by federal courts in two separate lawsuits brought by former Representatives Shays and Meehan over the past decade and remain ineffective today.
 
Many assume that the coordination rules regulate and restrict general interaction between candidates and outside groups, but instead, current coordination rules regulate only discreet expenditures—discreet ad buys, for example—made by outside groups.  Current coordination rules accommodate close personal relationships and regular interaction between candidates and individuals operating Super PACs wholly dedicated to electing those candidates.  Indeed, the most prominent Super PACs today are operated by friends and former employees of the candidates they support.  And we have seen prominent funders of Super PACs closely involved with candidate campaigns.
 
Solicitation
 
The McCain-Feingold law prohibits candidates and officeholders from soliciting unlimited funds, as well as corporate and union funds in any amount—so-called “soft money”—in connection with any election.
 
However, last year the FEC nonsensically ruled in an advisory opinion (AO 2011-12, Majority PAC) that candidates and their staff may attend, speak and be featured guests at Super PAC fundraising events without violating the soft money solicitation ban—so long as they do not make the actual pitch for unlimited contributions.
 
Threat of Corruption
 
The FEC’s failure to effectively regulate soft money solicitation and coordination between Super PACs and candidates has allowed the rise of candidate-specific Super PACs operating as shadow campaign committees fueled by soft money.  The close relationships between Super PACs and candidates fall far short of the “independence” likely envisioned by the Citizens United Court.  And unlimited contributions to candidate-specific Super PACs pose precisely the same threat of corruption posed by unlimited contributions directly to candidates.
 
501(c) Organizations
 
The Citizens United Court’s second faulty assumption was that disclosure laws would provide voters with the information needed to hold corporate America accountable for its political activities and to make informed decisions on election day.
 
Section 501(c)(4) organizations like Crossroads GPS, as well as 501(c)(6) organizations like the U.S. Chamber of Commerce, will likely spend hundreds of millions of dollars on election ads this year without disclosing their donors.  Indeed, such tax-exempt corporations will likely play an even bigger role in this year’s elections than Super PACs—precisely because they offer donors anonymity.
 
This explosion in use of such tax-exempt entities to evade campaign finance disclosure laws was entirely predictable at the time of the Supreme Court’s decision in Citizens United.
 
FEC-Created Disclosure Loopholes
 
Back in 2007, the FEC promulgated a rule (11 C.F.R. § 104.20(c)(9)) gutting the McCain-Feingold law’s donor disclosure requirement for “electioneering communication.”  Whereas the statute (2 U.S.C. § 434(f)) requires groups that spend more than $10,000 in a year on electioneering communication to disclose the names of “all contributors who contributed . . . a $1,000 or more” to the group, the FEC’s rule only requires disclosure if the donor gave their funds “for the purpose of furthering electioneering communications.”  Under the FEC’s rule, donors to 501(c)(4) groups have simply refrained from designating their contributions for the specific purpose of funding electioneering communications and, therefore, have evaded disclosure.
 
Last year Representative Van Hollen sued the FEC challenging this 2007 regulation and, several weeks ago, prevailed in his challenge before a federal district court.  However, an appeal is pending and it is unlikely that the FEC will act anytime soon to comply with the court’s order.  The Campaign Legal Center is proud to be part of the legal team representing Representative Van Hollen.
 
A similar hole exists in the disclosure law and regulation pertaining to “independent expenditures” (2 U.S.C. § 434(c)(2)(C) and 11 C.F.R. § 109.10(e)(1)(vi)).
 
The Campaign Legal Center urges Congress to enact the DISCLOSE Act of 2012, which would close these loopholes and dramatically improve our federal campaign finance disclosure laws.
 
Tax Law Disclosure Loopholes
 
Section 501(c)(4) of the Internal Revenue Code establishes tax-exempt status for “[c]ivic leagues or organizations not organized for profit but operated exclusivelyfor the promotion of social welfare….”  (26 U.S.C. § 501(c)(4)).  Internal Revenue Service (IRS) regulations make clear that spending to influence candidate campaigns does not constitute “promotion of social welfare.”  (26 C.F.R. § 1.501(c)(4)-l(a)(2)(ii))
 
The courts, however, have held that section 501(c)(4) organizations are permitted to engage in an “insubstantial” amount of activities that do not further their exempt purposes—including candidate election intervention.
 
The IRS has interpreted these court decisions allowing “insubstantial” candidate election activities by 501(c)(4)s to allow such organizations to intervene in candidate elections as long as such campaign activities do not constitute the “primary” activity of the organization.  (26 C.F.R. § 1.501(c)(4)–1(a)(2)(i))
 
These regulations are commonly interpreted by practitioners to allow section 501(c)(4) organizations to engage in substantial candidate election intervention—as much as 49 percent of the organization’s activities—so long as such activity does not constitute the organization’s “primary” purpose.
 
Importantly, section 501(c)(4) groups are not required by tax law to disclose their donors to the public.  Consequently, 501(c)(4) groups have become attractive vehicles for spending millions of dollars on election ads without having to reveal the identities of donor who would rather stay hidden from public scrutiny.
 
Many newly-created 501(c)(4) groups—including Crossroads GPS, the American Action Network, Americans Elect and Priorities USA—clearly have the overriding purpose of influencing candidate elections and should be deemed ineligible for their claimed tax-exempt status under section 501(c)(4).
 
The Campaign Legal Center urges Congress to amend the federal tax code to make clear that 501(c)(4) groups may not engage in more than an “insubstantial” amount of candidate election spending, and defining “insubstantial” using a bright-line ceiling on campaign expenditures of no more than 10 percent of an organization’s total annual expenditures.
 
Conclusion
 
Thank you for the opportunity to testify before you today.