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Despite Campaign Finance Reform, Soft Money Flows

Last week, when television ads run by Swift Boat Veterans for Truth (search) began to have an impact on John Kerry’s (search) poll numbers, a new word entered the popular political lexicon: “527s.”

By week’s end, President Bush — whose campaign Democrats alleged was behind the ads — was calling on Sen. John McCain (search) to take legal action against such “shadowy groups.”

Most people living outside Washington’s Beltway had never heard of 527s and couldn’t fathom why they were suddenly so relevant to the election. Until this past May, even campaign strategists could not have predicted the role 527s would play.

Sen. McCain was the right person to speak about the activities of such groups, being that the emergence of the 527 is one of the unanticipated results of the campaign finance reform he pushed to passage. 

Prior to McCain-Feingold, political parties could raise an unlimited amount of money from corporations, unions and individuals — "soft money" — for “party building activities,” as long as that money was not used for electioneering. Electioneering is a somewhat vague term, and what does and does not constitute electioneering is the subject of interminable debate. But it has been held repeatedly that advocating the election or defeat of a political candidate constitutes outright "electioneering," and soft money cannot be used for that purpose.

McCain-Feingold, now the law, bans entirely a political party’s use of soft money.

“527” refers to Section 527 of the Internal Revenue Code, the section under which these groups are organized. Section 527 gives tax-exempt status to groups that raise money for political activity other than "electioneering."

In May, the Federal Election Commission determined that the McCain-Feingold bill’s ban on “soft money” did not extend to 527s. Even before the FEC ruling, many election law experts predicted that at least some of the soft money previously directed to political parties would instead flow to 527s. But none could have predicted that it would flow in such huge amounts. Some 527s now find themselves endowed with amounts of money that dwarf the budgets of some recent presidential campaigns.

If current donations to 527s are any indication, the amount of soft money previously consumed by the two major political parties is staggering. Americans had some hint of it in 1996, when the Clinton and Dole campaigns used soft money to buy primary advertising in amounts that came close to the congressionally mandated spending cap for the entire campaign, and with none of that money counting toward the total primary campaign spending limit of $35 million.

Today, according to Opensecrets.com, the top 527, Joint Victory Campaign, boasts more than $41 million in receipts and has spent more than $35 million to date.

One of the better-known 527s is Swift Boat Veterans for Truth, or SBVT. Anyone looking at one of their ads would be forgiven for thinking that it actually does advocate defeat of John Kerry’s presidential bid, particularly since one of the two ads it runs speaks directly to Kerry’s ability to function as commander in chief. But because the ad stops just short of saying “Vote for George Bush” or “Defeat John Kerry,” it does not qualify as electioneering and the same unregulated soft money whose use by the parties is banned may be given freely to SBVT.

Even voter registration efforts are capable of becoming electioneering. If a 527, or any other non-profit group, urges an individual to register to vote because of a planned initiative of one of the candidates, the act of seeking registration can be regarded as indirect endorsement or opposition of a candidate. Training materials created for 527s instruct that even such phrases as “Let’s choose leaders who will lead us away from the oppression of big government. Vote … Our future depends on it” can amount to electioneering.

527s raise soft money from essentially the same sources and use it for essentially the same purposes as the political parties did before McCain-Feingold became law. As long as they refrain from electioneering, these groups are not bound by meaningful disclosure requirements.

While we can debate the utility of McCain-Feingold’s soft money ban, there’s one thing that can’t really be debated: The millions of dollars that flow into presidential campaigns are still there, they’re just going to a different place.

Last week, President Bush said, "I don't think we ought to have 527s.'' If Swift Boat Veterans for Truth continues to run ads as effective as its first two, he couldn't be blamed for changing his mind.

Matt Hayes began practicing immigration law shortly after graduating from Pace University School of Law in 1994, representing new immigrants in civil and criminal matters. He is the author of The New Immigration Law and Practice, to be published in October.

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