Why the Federal Election Commission Should Not Limit Contributions to Political Issue Organizations

As the November 2004 election approaches, fundraising by issue-oriented political organizations (known as "527 organizations") will certainly impact the outcome. Groups such as the left-leaning Americans Coming Together, or the right-leaning Progress for America, will doubtless seek to use their funds to place print and television advertising that will give a boost to certain causes -- and, inevitably, certain candidates. They may also spearhead get-out-the-vote efforts to support their respective causes -- and, inevitably, certain candidates.

Currently, campaign finance laws permit such groups to do all of these things -- without regulation as to how much money can be spent. Contributions to particular candidates and parties are capped. But contributions to issue-oriented groups are not.

The result is that wealthy individuals, after they hit the cap on contributions to particular candidates and parties, can just keep on spending. After they max out their contributions to particular candidates, they can give their money, instead, to issue-oriented groups whose efforts are likely to end up helping those very same candidates and parties.

Is this a loophole in the campaign finance laws that should be closed? In the last few weeks, the Federal Election Commission (FEC) has increasingly focused on this very issue. Indeed, it is considering setting a $5,000 cap on individual contributions to each 527 organization.

I will argue, however, that imposing such a cap would be a mistake -- and a First Amendment violation even if the FEC believes that it has the authority to impose the cap.

What defines a "527 organization," and why are they in the news right now?

The name comes from a tax code provision -- 26 U.S.C. §527. That provision provides a tax exemption to certain political entities -- such as party committees, congressional committees and Political Action Committees (PACs) -- organized for the primary purpose of influencing federal, state, or local elections.

The exemption provides such organizations with a sizeable tax advantage: Once granted 527 status, they need pay no tax either on contributions they receive from individuals, or expenditures they make.

It's important to recognize that 527 organizations can include a party, a party's PAC, or a union's PAC -- not just strictly issue organizations such as, say, Americans United to Increase the Salaries of Law Professors. And to make things even more complicated, some of these entities are subject to federal campaign finance laws; others are not; and still others are in a gray area where it is unclear if they should be.

Why are 527 organizations controversial right now? First, as noted above, the Bipartisan Campaign Reform Act of 2002 (BCRA) caps individual contributions to political candidates and parties, no matter what purpose they might have. But arguably, issue-oriented groups can allow individuals who want to contribute more to circumvent the contribution limit: Once I've maxed out my contribution to a candidate, I can send more money to the organization whose sole purpose is to defeat his opponent.

Second, after the Supreme Court's recent decision in McConnell v. FEC, many commentators have expressed the view that this potential loophole need not exist. Under the Court's decision, they argue, contributions to 527 organizations can be capped, just as contributions to individual candidates are.

I believe, however, that this is a misreading of McConnell.

Granted, McConnell acknowledged that the goal of campaign finance reform is to reduce the role that "wealthy contributors play in the electoral process," and that this is a reasonable goal for government to pursue.

And granted, McConnell also acknowledged that reform can legitimately have the goal of fighting corruption, the appearance of corruption, or circumventing the lawful aims of campaign finance reform. For this reason, the Court upheld a provision that prohibited candidates for state office from spending non-regulated funds for get-out-the-vote activity for elections in which federal candidates are on the ballot.

But in that instance, there was a special risk of corruption: The Court noted that the "close relationship" between state and federal officials (through political parties) enables state officials to serve as "conduits for donors desiring to corrupt federal candidates and officeholders."

Could the risk of corruption similarly justify regulating 527 organizations, as the FEC is contemplating? I believe the answer is no -- for several reasons.

First, even as McConnell allowed some campaign finance reform, it also re-emphasized that the First Amendment protects the right of individuals and issue groups to advocate in favor of, or against, the election of federal candidates. McConnell must be understood within the context from which it arose.

Talk about political issues is core First Amendment activity. If we cannot talk about the issues -- and contribute money to make sure that talk is broadcast, heard, and listened to -- then what shred of democracy do we have left?

Second, McConnell may be as far as the Court is willing to go. It found a special risk of corruption when state and federal officials mix. Would it also find a special risk of corruption when candidates and issue groups mix? I doubt it.

If it so easily finds "special" risks of corruption, then its exception allowing limited reform will someday swallow the rule. The only logical stopping point, if one takes the right of association seriously, will be to limit independent expenditures by individuals. In addition, candidates and issues groups must mix for our democracy to work -- the First Amendment includes a right of association with like-minded individuals, not just the right to speak out on one's own.

Third, if anyone should be limiting contributions to 527 organizations -- and I am not persuaded anyone should be -- it's Congress, not the FEC. Congress passed the relevant tax code provision in the first place. Congress has a mechanism, through hearings and the like, to examine relevant facts and build a sufficient evidentiary record to provide a basis for regulation.

Significantly, McConnell blessed Congressional, not FEC regulation. There, the Court was apparently persuaded that Congress thought deeply about the problems raised by non-regulated contributions and their impact on federal officeholders. And it relied heavily on the findings of the Senate Committee on Governmental Affairs, and noted the extent to which Congress itself relied upon the Committee. Unless Congress compiles an evidentiary record sustaining the belief that issue-oriented political organizations undermine the lawful goals of campaign finance reform, the FEC should back off.

In sum, those who have seen in McConnell a broad invitation for reform -- especially FEC reform -- relating to 527 organizations, may well be mistaken. Issue advocacy groups are likely to be the last type of groups the Court will touch, and that's a good thing.