Friday, May 14, 2004

527 Soft Money Loophole Stays Open
Yesterday, the Federal Election Commission rejected a proposal that would have set $5000 limits on contributions to political groups that attack, promote, support, or oppose federal candidates. They say they might look at the issue again in 3 months. These groups, organized under section 527 of the IRS code, are formed for the explicit purpose of influencing elections. However, under longstanding FEC precedent, as long as those groups don't specifically tell people to vote for or against a candidate, they are not subject to the $5000 contribution limit that political action committees (PACs) are. The Los Angeles Times has a good story on this here.

Contrary to what many are saying, the McCain-Feingold bill did nothing to change this. An editorial in The New York Times says this decision will "reopen" the taps to again flood us with soft money. Wrong. These taps were never closed.

One of the many flaws with the McCain-Feingold law was its failure to really ban soft money. As I pointed out here, in a March 2002 letter released just after McCain-Feingold passed Congress:

Soft money will not vanish. McCain-Feingold proponents claim that this dramatic increase in hard money is justified by a ban on soft money. We should first remember that soft money is just a small part of the problem, comprising only 17% of all money raised by federal candidates and parties in the last election cycle, up from 15% in the 1998 cycle and 13% in 1996. Even this relatively small slice of the problem won't go away under McCain-Feingold. Some current soft money will simply be converted into hard money using the higher hard money limits. Much-or perhaps most-of the soft money that currently goes to federal parties will go to state and local parties, to independent expenditures, and to non-party issue groups to use for electioneering-all of which is legal under McCain-Feingold.

There are a lot of things going on here:

1) Extremely wealthy liberals, like George Soros, are using 527s to spend big money to defeat president Bush. Many of these liberals, including Soros, backed the McCain-Feingold bill, so they know all the loopholes to exploit.

2) Wealthy business interests, like the Bush Rangers, love McCain-Feingold because it allows them to give twice as much money directly to Bush as they could before. So, even though most of them opposed McCain-Feingold, they have wrapped themselves in the mantle of reform and are attacking the liberals for using these 527 groups. However, now that the fat cat liberals have all screamed about how this flood of 527 money is quite legitimate, the Republicans are now well positioned to raise boatloads of it themselves with nobody left on the left to complain about it. See the Republican press release here and this AP story here where they are bragging about their intention to do just that.

3) Looking to remove the egg on their faces, the people who brought us McCain-Feingold (like the New York Times editorial pages) are now seeking to blame the FEC for creating a loophole in the law. But, they didn't. They simply left open the same loophole that Congress did in passing McCain-Feingold. And, these same folks have been crying for years (correctly it turns out) that the FEC is a toothless tiger. So yesterday's inaction really comes as a surprise to nobody.

4) The $5000 limit to PACs is so high anyhow, and these 527 groups are such a small slice of the overall problem, that even if the FEC had applied these modest regulations to them yesterday, it would have done little to bring politics back to the level of ordinary Americans.

What all of this demonstrates, of course, is that we shouldn't count on liberals, conservatives, Congress, or the FEC to get big money out of politics. The rest of us will have to take matters into our own hands if something is ever to be done about this mess.

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