Are We Better Off: The Billion-Dollar Loophole

The McCain-Feingold reform law didn’t take soft money out of political campaigns; it simply redirected it to a new center of power.

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If there were a prize for the most creative attempt to evade the new campaign finance rules, it would have to go to Tom DeLay, the House Majority whip. Faced with the new rules promulgated by the 2002 McCain-Feingold finance reform law – rules which prevent office holders from collecting the unregulated five- and six-figure ‘soft money’ checks that so colored political campaigns in the 1990s — the Texas Republican has gone philanthropic. Late last year, DeLay fashioned a charity, Celebrations for Children, ostensibly to funnel money to other charities’ youth programs. But the most ambitious, headline-grabbing step the charity will take this year – indeed, the only step it will take — has nothing to do with needy kids.

This summer, at the Republican National Convention in New York, corporations and individuals who pony up $500,000 or more in anonymous contributions to Celebrations for Children will get exclusive invites to golf games with Republican members of Congress, a “private” yacht cruise with DeLay, tickets to Broadway shows, and admission to a “late night party” that will be “the hottest ticket at the GOP convention,” according to the official invitation. Last month, a DeLay spokesperson insisted that at least 75 percent of the money raised will go to help various charities which in turn help needy children. But only after DeLay skims his share to wine and dine politicians and big donors.

Celebrations for Children may be the most cynical product of Washington’s end-run around McCain-Feingold, but it’s hardly unique. Dozens of nonprofit corporations have sprouted up in preparation for this fall’s campaign, all designed to fill the soft money void. While politicians can no longer solicit unregulated contributions from corporations, unions and individuals, soft money is already finding its way into the 2004 campaign. Even the architects of the finance reform bill admit that relatively little has changed.

“The game is the same,” Sen. John McCain (R-Ariz.) said at a recent hearing. “Groups are raising huge corporate and union contributions and multi-million dollar donations from wealthy individuals.”

Like other Republicans, McCain has focused most of his fire at the highly-publicized efforts of a handful of Democratic supporters and liberal interest groups that have been particularly active in finding a way around the soft money ban. So far, most of the Democratic spending has been going through explicitly political non-profits, commonly referred to as 527’s after the tax code under which they are organized.

Hoping to counteract President Bush’s $117 million advantage in regulated fundraising over Sen. John Kerry, the Democratic nominee, major Democratic donors, like financier George Soros, insurance magnate Peter Lewis, and Hyatt hotel heiress Linda Pritzker, have been lavishing millions on a short list of non-profit groups such as Move On, Americans Coming Together, and the Media Fund. Promising to raise more than $100 million, these liberal groups have already started spending in key swing districts, outpacing the Bush-Cheney campaign’s own television buys. Founded by former Clinton advisor Harold Ickes, the Media Fund has collected $1 million from Lewis and $500,000 from Fred Eychaner, a television executive from Chicago who has long supported Democratic and gay rights causes.

So far, Republican donors and activists have largely stayed on the sidelines of the 527 game. But that’s not to say that GOP funders have been idle. Scores of the most generous Republican campaign donors have signed on as fundraisers for the Bush-Cheney campaign, ‘bundling’ hundreds of hard-money checks from their friends and associates and hosting campaign fundraising events at their homes. And few people expect that the Republicans will stay away from the soft money maneuvering, particularly if the Republican Party fails in its campaign to convince the Federal Election Commission that the Democratic groups are flouting an never-enforced 1974 finance law – a provision long bypassed by Republicans and Democrats alike. The commission will hear arguments in the case on April 14 and 15, and is expected to rule as early as mid-May. And, while arguing vociferously against the soft money groups, Republican activists have been quietly setting up non-profit front groups of their own under other sections of the tax code requiring far less disclosure.

“You can be sure that [Republicans] will do the same thing,” says Fred Wertheimer, director of the reform group Democracy 21. “And you can be sure that they will outraise the Democrats.”

Democratic strategists who have studied past Republican fundraising estimate that there is at least $100 million in uncommitted soft money waiting for an opening to support the Bush reelection campaign. And even conservative stalwarts admit that the Republican soft-money spending blitz will come.

“It has to happen,” says Grover Norquist, a conservative strategist with close ties to the White House. He says there are active talks right now with one donor from Pennsylvania who has promised to begin matching the spending of Soros and Lewis.

“We’re scrambling,” admits Dan Perrin, another conservative organizer, who also says he’s heard of the Pennsylvania donor. “I can’t stress enough how much in flux this all is,” he adds. “It’s never been like this before an election.”

One thing is almost certain. When the money does show up — in the form of political attack ads, bulk mailings and phone calls — the public will likely know far less about its origins than in previous campaigns. “We’ve driven the money away from the candidates,” said Pennsylvania Sen. Rick Santorum, a Republican who opposed campaign finance reform, at a recent hearing. But rather than pushing soft money out of politics, Santorum declared, the new rules have simply driven it into the hands of “little organizations that have a post office box somewhere.” “And we don’t know who is giving,” he added.

In fact, Santorum’s assertion is only partly accurate. The big non-profit soft money groups established by Democratic supporters – MoveOn, Americans Coming Together, the Media Fund, and others – are required to disclose the identities of their donors. Most 527 groups are not required to file regular disclosure forms with the FEC, but they are required to file with the states in which they are located or the Internal Revenue Service, and they must identify their donors. That is not true for other sorts of non-profit groups, including the kind so far favored by Republicans. Those groups, referred to as 501(c)3s and 501(c)4s, face stiffer taxes than 527s but are not required to disclose their funding sources.

The groups being formed by Republicans have anodyne names like Progress for America, which was founded by Bush strategist Tony Feather, the National Committee for a Responsible Senate, founded by the law firm representing the Bush-Cheney campaign, and the American Taxpayer Alliance, which Perrin helps to run with Scott Reed, a Republican lobbyist and campaign strategist. Ed Gillespie, the head of the Republican National Committee, founded one such group, 21st Century Energy, to run advertisements supporting the President’s energy policy in key Congressional districts two years ago. According to press reports, that group was funded by several of Gillespie’s lobbying clients, including Daimler Chrysler and Enron.

Finally, corporations and their national trade groups are poised to push millions in soft money through the non-profit loopholes via so-called voter education campaigns. In January, Tom Donahue, the chair of the U.S. Chamber of Commerce, announced his group will direct “unprecedented resources to 33 of the most competitive congressional races” in an effort to “determine whether the next Congress is pro- or anti-growth.” Groups like the National Association of Manufacturers, long a source of large soft money contributions to Republican campaigns, have announced similar efforts.

The rules could change again, depending on the inclination of the FEC. But one thing is inescapably clear: Two years after lawmakers on both sides of the aisle vowed to strip soft money from the political process, unfettered giving is proceeding much as before.

“It’s like energy—you can’t stop it,” says Craig Shirley, a Republican campaign consultant who has formed a 527 shell group called Americans For A Better Country to test the waters of the new campaign finance system. “If you push down in one place it shows up in another place.”


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