Spinning a Web of Money and Politics In the latest Politically Speaking column, NPR Correspondent Peter Overby takes readers on a tour of the convoluted -- and ever-changing -- rules of campaign finance.
NPR logo Spinning a Web of Money and Politics

Spinning a Web of Money and Politics

Oh what a tangled web we weave, when first we practice... campaign finance law.

This is my invitation to come along with me on a quick journey into the labyrinthine world of campaign finance law.

No, this isn't another story of strange political bedfellows. This time, the fellows have switched beds.

Two years ago, during the fight over the McCain-Feingold campaign finance law, Democrats made it clear they were eager to restrict the flow of political money — or at least be seen that way. Now they think the restricting has gone just far enough. Republicans just a few months ago were saying that McCain-Feingold is blatantly unconstitutional. Now they can't wait to extend its regulatory reach. And in another strange twist, the dispute has divided what's known as "the reform community" — the big network of liberal advocacy groups that lobbied for McCain-Feingold. The popular image is that these groups move in lockstep.

Nobody's in lockstep right now.

Hard-line reform advocates are calling for more reform — to the dismay of Democrats. Other reform groups are taking a softer approach, or even arguing against new regulations. As usual, the battle is about defining the line between money that's regulated and money that isn't.

The new law, named for Senate sponsors John McCain (R-Ariz.) and Russell Feingold (D-Wis.), moved the line by banning "soft money." That cost the national party committees a combined total of $500 million or so for this election cycle — money that would have come from corporations, unions and the wealthy.

The Supreme Court's decision upholding McCain-Feingold added nuance about how the line between regulated and unregulated money should be drawn. But nothing is definitive. After the court ruled in December, campaign finance scholars and advocates began parsing the statute and the decision. And to everyone's surprise, a new interpretation emerged:

It may be — perhaps — that McCain-Feingold allows the Federal Election Commission to regulate so-called 527 political organizations. Not that anyone said that when Congress was debating the bill.

(527s get their name — and a tax exemption — from Section 527 of the tax code, but don't want to register with the FEC. Unlike Section 501[c] of the code, which covers charities and other tax-exempt groups — groups we'll get to next — Section 527 is for groups that exist only to engage in politics.) Further, it may even be that McCain-Feingold lets the FEC regulate the 501(c)s, which engage in issue advocacy and do politics on the side.

Not only do many reform advocates like the idea of regulating 527s, but Republicans love it. Here's why:

Democrats responded to losing soft money by setting up a network of 527s, just outside the reach of McCain-Feingold. The 527s have raised millions of dollars to do what the national party committees can't do anymore — run TV ads and mobilize voters on behalf of the Democratic presidential nominee.

If Republicans can shut that down, President Bush's lavishly financed campaign committee and the Republican National Committee would have a huge advantage.

Next month, the FEC will start weighing regulations that would limit 527 money. The regulations would cripple the Democratic groups. In true Washington fashion, the outcome will hinge mainly on two fine points: the definition of a political committee — the term for groups regulated by the FEC; and whether the commission should write a fifth definition of what constitutes a political expenditure.

What's more, the legal logic of the new regulations could reach right past the 527s and hit the other tax-exempts too, groups of all political persuasions.

Plenty of ideological groups are organized as 501[c]4 corporations, which makes them tax-exempt. But a 501[c]4's political activity is taxable. So [c]4s create 527 accounts to pay for political work. If a 527 can't take $100,00 contributions anymore, the 501[c]4 has a tax problem. Worse, it conceivably organization might have to give up political activity entirely, because corporate or union contributions in its bank account would make that entire account unusable under McCain-Feingold. A 527 crackdown would also move big contributions from the sunshine back into the shadows. Since 2000, 527s have had to disclose their contributions. A 501[c]4 does not.

Even as you read this, there's probably a lawyer somewhere in Washington, combing through the records of the McCain-Feingold congressional debates, the 1,600-page lower-court decision and the 298-page Supreme Court opinion, just trying to find out who said what.

Confusing? You bet. It's what you get when election law and tax law collide with the Bill of Rights.

NPR's Peter Overby has been taking listeners behind the scenes of American politics, where the money is raised and deals are made, since 1994.