Why "Swift Boat Veterans for Truth" and Other "527" Organizations Can't Be Silenced

When asked whether he supports the attacks on John Kerry's Vietnam War record by "Swift Boat Veterans for Truth," President Bush has repeatedly dodged the question.

To his credit, the President has said that Kerry admirably served his country. But he has not specifically condemned the Swift Boat advertisements, which falsely claim that Kerry lied about the events that led to his combat medals.

Instead, Bush has called for an end to all political ads by so-called "527" organizations, which are not subject to the restrictions on campaign finance that apply to campaigns and the major parties. His position would eliminate ads by the Swift Boat Veterans for Truth, which is a 527, but would also shut down wholly truthful ads by every other such organization as well.

Last week, Bush upped the ante. Calling the "shadowy" 527s "bad for the system," he enlisted campaign finance hero John McCain's support for new legislation. Their proposed law would forbid 527s from raising and spending money outside of the federal restrictions.

It's true that, as Bush and McCain claim, 527s do circumvent the spirit--if not the letter--of existing campaign finance limits. Yet new legislation is unlikely to cure the problem. That's because the "problem" is that the people who contribute to 527s are thereby exercising their First Amendment rights to engage in political speech.

What is a 527 Organization?

Section 527 of the Internal Revenue Code sets forth the very limited circumstances under which a political organization may be required to pay federal tax. The key to a 527, however, is not the tax rules that apply to it, but the campaign finance laws that do not apply to it.

To be more precise, the campaign finance laws don't apply to one particular kind of 527. Political Action Committees or "PACs" and some other political entities are 527s, but they are subject to campaign finance restrictions. In contrast, there are non-PAC 527s like Swift Boat Veterans for Truth or "America Coming Together" (a pro-Democratic group), which, as of this writing, are not subject to such restrictions.

Under the current interpretation of the laws governing federal elections, a political organization can raise and spend unlimited sums of money if it fits two criteria: First, it must raise money only from individuals (as opposed to raising so-called "soft money" from corporations and unions). Second, it cannot coordinate its activities with the candidates or parties.

Thus, while an individual billionaire can give no more than $2,000 to Bush or Kerry, he can give millions to Swift Boat Veterans or America Coming Together. And unlike an organization that receives soft money funding from unions or corporations, a 527 is free to run as many political advertisements as it wants, as close to the election as it wants, as long as it doesn't coordinate its activities with the official campaigns.

Will Pending FEC or Court Actions Affect the Rules?

President Bush's opposition to 527 spending, it turns out, is not simply altruistic. Republicans traditionally enjoy a fundraising edge over Democrats. But pro-Kerry (or at least anti-Bush) 527s have had greater fundraising success than pro-Bush 527s in the current electoral cycle --thus cutting into the Republicans' overall dollar advantage.

In March, the Bush-Cheney campaign filed a complaint with the Federal Election Commission (or FEC). The campaign charged that various pro-Kerry 527s were violating federal campaign finance laws. It alleged, among other things, that the supposed non-PAC 527s are in fact PACs subject to campaign finance restrictions--because their primary purpose is to support or oppose a particular candidate.

Meanwhile, both campaigns have complained that 527s supporting the other candidate have been violating the rules--by accepting soft money, and by coordinating their activities with the candidates and parties.

Will the FEC take action clarifying the status of 527s? That is extremely unlikely, at least until after the 2004 Presidential election. For that reason, the Bush-Cheney campaign has dropped its action before the FEC and taken its case to court.

The prospects of the litigation are uncertain. But whatever the outcome, making 527s subject to campaign finance laws will not, in the end, do much to address the underlying issue that the lawsuits, FEC actions, and proposed legislation have raised.

A Perverse Consequence of Campaign Finance Reform

Last year, in its well-known decision in McConnell v. FEC, the Supreme Court upheld most of the Bipartisan Campaign Reform Act (or BCRA). The majority opinion, jointly written by Justices Stevens and O'Connor, explained why: According to the Court, the law serves a compelling interest in avoiding the appearance and reality of corruption that can arise when candidates are beholden to large donors, and this interest is sufficient to justify the Act's free speech restrictions.

Interestingly, however, even as the majority justices upheld BCRA, they concluded their opinion with the frank admission that they did not expect BCRA to be fully effective: "Money, like water, will always find an outlet."

Here's why BCRA is at best a partial solution to the influence of money on politics. Suppose a person with cash to spend really wants to support a candidate. Then she will donate to that candidate's campaign. If she is limited in how much money she can give to the campaign, she will give to the candidate's party. If she is limited in how much she can give to a party, she will give to an independent organization that shares her goals, like a 527. And if all 527s are brought within the campaign finance system, she will become more creative still, perhaps fronting large sums of money to would-be Michael Moores interested in making films with a political message she supports.

Does that mean that laws like BCRA are wholly ineffective? Not necessarily. One effect of successive rounds of legislation and court rulings has been to move money further upstream from the candidates. That is probably the right thing to do if one is concerned about the appearance of corruption.

If they are large enough, direct campaign contributions to candidates do look suspiciously like bribes. In contrast, truly independent expenditures create less suspicion of a quid pro quo.

Yet corruption in the sense of bribery is not, or should not be, the law's only concern in this area. There is also the matter of truth and accountability, and pushing money upstream from the candidates works against these values.

For example, one of the provisions of BCRA requires that a federal candidate appear in his television advertisement and state that he approved it. The "stand-by-your-ad" provision was designed to promote positive campaigning by making candidates take the heat for their negative or unfair ads. But of course, this provision, while applicable to candidates, does not apply to independent ads by 527s.

That explains, to some extent, the actions of one non-PAC 527 organization--Swift Boat Veterans for Truth. They presumably felt free to sling mud at Senator Kerry without worrying that it would splash back on President Bush because they thought they could plausibly claim to be independent of the President's campaign.

Suppose that our campaign finance laws permitted the people now contributing to groups like Swift Boat Veterans to give more money to the campaigns. They probably would redirect their funds to the candidates, who would then have an incentive to spend the money on more responsible ads--or, at least, if the candidates chose to spend their money on irresponsible ads, they could be held accountable for that choice.

The First Amendment

Faced with these perverse consequences, one may be tempted to follow the course outlined by President Bush: make the non-PAC 527s comply with the same federal fundraising and spending rules as other political organizations.

But the individuals who give money to non-PAC 527s are exercising their constitutional rights. Taken together, the right to freedom of speech and the right of political association entail a right of individuals to band together and pool their resources to support a common message.

To be sure, McConnell and other Supreme Court decisions recognize that this right can be restricted to avoid corruption. At some point, however, the anti-corruption rationale runs out, and the constitutional rights of the speaker take over.

Plausible arguments can be made that 527s are engaged in campaign speech, and that they are thus subject to regulation under existing law--or, at least, that our laws could be amended to make 527s subject to regulation without doing violence to the First Amendment. But if the Supreme Court is right, the effect of doing so would simply be to push the money still further upstream.

Is that what we want? Recall the tradeoff: As the speakers have to be more and more distant from the candidates, in order to escape campaign finance regulation, the candidates become less and less accountable for that speech. In other words, the effect of closing the 527 "loophole" could be to spur the creation of even less responsible speakers next time around.

The Alternative: Fighting Speech with Speech

There is, however, an alternative response to irresponsible advertisements by groups like Swift Boat Veterans for Truth, one that is true to our First Amendment heritage: More speech. As Justice Brandeis memorably stated in his concurrence in the 1927 case of Whitney v. California, "the fitting remedy for evil counsels is good ones."

So what action should be taken by Kerry supporters upset by the falsehoods presented by Swiftboat Veterans for Truth, or by Bush supporters distressed by the conspiracy theories fostered by Fahrenheit 9/11? Don't run to the FEC or the courts. Instead, rally your own 527s. As both of these candidates like to say, bring it on.