Follow The Money

McCain-Feingold Hobbles DNC, RNC But Not Outside Groups Gushing Cash

Peter Overby, who covers campaign-finance issues for NPR, reported on All Things Considered that some legal experts believe we may soon hear the death knell of the national party committees.

Blame McCain-Feingold they say. The law limits the contributions that can be made to the Republican and Democratic national committees.

So the money is going to outside political groups that call themselves "social welfare organizations," a designation that allows political donors to make contributions with virtually no disclosure and in unlimited amounts.

And because money is power in politics, the outside groups can and do exert ever more influence as the national party committees increasingly struggle.

From Peter's radio report:

PETER: Those expressing concern are mostly Washington insiders savvy about how political money flows and how the laws channel it here or there.

MAN'S VOICE: I think this may be the election cycle where we may see really the virtual death of the national party committees.

PETER: That's election law attorney Robert Kelner. He says the McCain-Feingold law of 2002 made it illegal for the national parties to use unregulated, "soft" money.

In practice, that means each party committee can only tap even its most generous donors for $30,800 each year.

KELNER: And so money flows where it can be most easily raised & spent, which is outside the political party structure.

PETER: And here's exhibit A. The Republican National Committee so far in 2011 has raised $37 million. Sounds like a lot. Right? But consider that right now
just one of the outside money groups is spending $20 million on a TV ad campaign.

WOMAN'S VOICE FROM AD: I supported President Obama because he spoke so beautifully. But since then things have gone from bad to much worse.

MAN's VOICE: We felt it was really important to place a big bet early.

PETER: This is Steven Law, president of the twin groups, called American Crossroads and Crossroads G-P-S.

LAW: Our instinct was that the debt limit debate would be the defining issue of 2011, setting up the debate for fiscal and economic policies going into next year.

PETER: This ad campaign is from Crossroads GPS. Officially, it's a social welfare organization so it doesn't have to disclose its donors.

If the ad had come from American Crossroads, a political committee, then disclosure would be mandatory.

There are groups like these on the left too.So Democrats may come to face similar issues about where the center of power lies.

So what's the upshot of all this? Peter continues:

PETER: One way to cure this headache both sides of the controversy agree would be to do away with the remnants of the McCain Feingold law and let everyone raise money without limits.

By the way, there's the possibility that groups that form as social-welfare organizations may avoid one "problem" — disclosure — only to run into another, taxes.

According to Donald Tobin, a lawyer and expert on such matters, donors to groups that form as social-welfare organizations under 501(c)4 of the Internal Revenue Service code may face tax liabilities.

In an article on this, he wrote:

We have seen a significant growth in the use of 501(c)(4) organizations in political campaigns. Fueling this growth, are large anonymous contributions to (c)(4) organizations. Had these large donations been made to section 527 political organizations, the contributions would not be subject to gift tax, but they would be subject to the disclosure rules in 527. By seeking to use 501(c)(4) organizations as a campaign vehicle, individuals may be able to avoid the disclosure rules in §527. As a consequence of attempting to subvert these disclosure provisions, large donors may find that their large contributions to 501(c)(4) organizations are subject to the gift tax.

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