AD SPOKESMAN: During the past three years, it's true George W. Bush has created more jobs. Unfortunately, they were created in places like China.
MARGARET WARNER: It's just the sort of political ad you might expect from the Democratic National Committee, or John Kerry's campaign.
AD SPOKESMAN: George W. Bush is taking our country in the wrong direction. It's time to make America work for every American.
MARGARET WARNER: It doesn't say explicitly "vote for John Kerry," but the message is clear. Yet this ad, now running in 17 battleground states, wasn't produced by the Kerry camp or the DNC, but by the Media Fund, one of the new kids on the block on the Democratic side in this 2004 campaign.
They're called 527s, named for a section of the tax code that actually applies to all political committees. But these Democratic 527s have stirred up a real hornet's nest. What makes these democratic groups special, and makes the Republicans furious, is that they are raising and spending what's called "soft money," the kind of unregulated contributions that the McCain-Feingold campaign finance law outlawed for the political parties. And yet the irony is these new groups are, to a great degree, creatures of McCain-Feingold.
The McCain-Feingold law of 2002 outlawed all corporate or union donations to the political parties. And it imposed what's called "hard money" limits on what private individuals could give: No more than $2,000 to a candidate, or $25,000 to a party. These new 527s are raising much heftier sums than that. And the soft money they're raising includes huge, unregulated contributions from wealthy donors, corporations and labor unions. It's the sort of money that generated such scandal when then-President Clinton and Vice President Gore raised huge sums for the party in the '96 and 2000 campaigns.
Former top Clinton aide Harold Ickes, who's now president of the Media Fund, predicted two years ago that McCain-Feingold would give President Bush and the republicans, with their far bigger base of upper-middle-class supporters, a huge advantage over the Democratic nominee.
HAROLD ICKES: The Republicans have a much broader reach on raising hard money. That's just a fact. So the Republicans on their side will be outspending the Democrats by at least two, maybe even three to one.
GROUP: Kerry! Kerry! Kerry!
MARGARET WARNER: Worse still, Ickes figured, the Democratic nominee would probably be broke after a grueling primary season and unable to defend himself against a likely barrage of negative ads from the Republicans.
AD SPOKESPERSON: Mr. Kerry? No, wrong on defense.
MARGARET WARNER: So Ickes, a master of soft money raising techniques in the Clinton years, went at it again for the media fund, tapping big-time liberal donors who might have given to the party in years past. So in other words, McCain- Feingold created the need and also the opportunity?
HAROLD ICKES: It created the need, and I suppose the opportunity. I mean, people can only give, say, $25,000 to the Democratic National Committee. People with some considerable means want to participate more than that, and so they...
MARGARET WARNER: Ickes joined forces with Ellen Malcolm, founder of a noted fund-raising group for women candidates called Emily's List, and former AFL-CIO political director Steve Rosenthal. They created five interlocking 527 groups.
Just up the street from the White House, they work out of shared space in this office building, and cover the entire gamut of a typical campaign. The top three are the Media Fund, for advertising; America Coming Together, known as ACT, for voter contact; and America Votes, to coordinate campaign activities by private organizations like the Sierra Club and the AFL-CIO.
Steve Rosenthal, the CEO of ACT, insists they have no contact with the Kerry campaign or the DNC but he makes no bones about the fact that these groups are working on Kerry and the Democrats' behalf.
STEVE ROSENTHAL: The stated purpose of ACT, as a federal/nonfederal PAC, is to defeat President Bush, to elect progressives up and down the ticket, and to bring more Americans into the political process.
MARGARET WARNER: And that, says Republican National Committee Chairman Ed Gillespie, means these groups are violating the law.
ED GILLESPIE: It's pure and simple they are operating illegally. If you use nonfederal dollars, as prescribed by the new campaign finance law, commonly known as McCain-Feingold, to elect or defeat a candidate for federal office, you're in violation of the law. And these 527s are taking nonfederal soft money, and they're spending them clearly and explicitly to defeat the president in his bid for reelection.
ELLEN MALCOLM: Well, the Republicans are blowing smoke all over the place trying to intimidate donors and talk about legal issues.
MARGARET WARNER: Ellen Malcolm is president of ACT, and a chief fundraiser for all these groups.
ELLEN MALCOLM: We are doing absolutely the appropriate thing, and they know it. This is much more about politics than it is about law.
MARGARET WARNER: Malcolm and Ickes have spent the past year on the phone and on airplanes, tapping ultra-wealthy donors. The top two: billionaire George Soros, who's committed $10 million, and Cleveland insurance magnate Peter Lewis, who pledged the same. More typical are less wealthy, but still well-heeled, ideologically driven liberal activists like San Francisco philanthropist Anne Bartley, who's committed $250,000.
ANNE BARTLEY: This is part of civic participation. This is what I've been doing all my life. Bush and the Republicans are just leading us in the absolutely wrong direction. For every ... every single issue I've ever been involved in, I think that they're ... it's just misdirected.
MARGARET WARNER: Seattle public interest lawyer Peter Goldman, who's given $150,000, is particularly upset with the Bush administration's environmental record.
PETER GOLDMAN: We've seen pollution laws labeled cleaner skies. We've rolled back wetland laws. We've rolled back almost every single thing. This is an unprecedented attack on the environment. And I am not going through my life knowing that I had the capacity to try to make things better and sit here and not do something about it.
MARGARET WARNER: ACT and the Media Fund say they've raised $75 million so far -- less than half their ultimate goal, but enough to make them players. It was enough to pay for $10 million in ads this month, criticizing President Bush on the issues, though that's only half of what Bush campaign spent attacking John Kerry. The money also helped launch ACT's voter ID, registration and turnout drive in 17 swing states. Act's major voter target: progressive-minded people who haven't voted recently.
STEVE ROSENTHAL: About a third of Americans who are eligible to vote aren't registered, and about half of those who are registered don't bother voting. Our democracy is in real trouble here.
MARGARET WARNER: Last week, ACT canvassers were going door to door in Toledo, Ohio, armed with palm pilots with detailed information about the residents, and asking them about the issues they care about.
MAN: Do you have any one in particular you would like to suggest?
WOMAN: I think health care.
MAN: Health care?
MARGARET WARNER: The information gathered will become part of a vast database of potential voters to register, stay in contact with, and turn out on election day. Already, ACT says, it's registered 200,000 new Democratic voters in important swing states.
MARGARET WARNER: Are we seeing, essentially, the privatization of politics here, in a way?
STEVE ROSENTHAL: The work that we're doing is ages old. It's what the parties should have been doing, but really have gotten away from over the last several years. What we're trying to do is bring people back into politics again.
MARGARET WARNER: The Bush campaign and Republican National Committee have similar operations underway. The difference is, theirs are funded by smaller, regulated, hard money contributions. Gillespie insists the independent Democratic groups have to be funded the same way.
ED GILLESPIE: The only people who believe that what they're doing is legal are the people who are doing it.
MARGARET WARNER: The RNC has urged the Federal Election Commission to force the new 527s to register with the agency and abide by a $5,000 per donor contribution limit imposed on FEC-regulated groups. In addition, the Bush-Cheney campaign has filed a formal FEC complaint. But the 527s are fighting back.
HAROLD ICKES: The Republicans are going to use every means at their disposal -- legitimate and illegitimate -- to try to shut us down. So they are going to try and intimidate contributors. They are going to try to divert our attention. They're going to try to tie us up. That is their goal.
MARGARET WARNER: Ickes concedes the Republicans have made some potential donors apprehensive about the Media Fund's legal status. He and Malcolm try to reassure donors that under long-standing FEC rules, 527s can use soft money as long as they aren't affiliated with a campaign, and as long as they simply discuss issues, without explicitly urging the election or defeat of a particular candidate.
SPOKESPERSON: It's time to take our country back from corporate greed and make America work for every American.
ELLEN MALCOLM: Under the First Amendment, one of the wonderful things about our democracy is we can talk about issues. That's what the Media Fund is doing. It's talking about issues with voters. It's not making any statements about who people should vote for.
MARGARET WARNER: That argument is disputed by one of the RNC's unlikely allies in this fight, former Common Cause president Fred Wertheimer. His new group, Democracy 21, joined other campaign finance watchdogs in urging the FEC to end the 527s' use of soft money.
FRED WERTHEIMER: If a group's principal purpose is to run campaign ads to influence campaigns, you judge them on what that purpose is, not whether they use these narrow, magic words "vote for" or "vote against." And we believe the Federal Election Commission has an obligation and responsibility to make that clear now for the 2004 elections.
MARGARET WARNER: Also urging the FEC to intervene are Republican Sen. John McCain and Democratic Sen. Russ Feingold, sponsors of the campaign reform law.
SEN. JOHN McCAIN: It's plain as the nose on your face that these 527s are organized and are engaged in partisan political activity. They should therefore be regulated under those rules.
MARGARET WARNER: But Rosenthal and his colleagues point out that McCain-Feingold didn't even mention 527s.
SPOKESPERSON: America votes.
MARGARET WARNER: And they insist their operation isn't even violating the spirit of the reform law because they don't use candidates or elected officials to raise the money, so there's no quid pro quo or danger of corruption, they say.
STEVE ROSENTHAL: The idea behind McCain-Feingold was to cut off the nexus between federal elected officials and soft money; between candidates for federal office and raising soft money. They've succeeded in doing that.
ELLEN MALCOLM: We are not a lobbying organization. We have no intention to march up to Capitol Hill after this election and ask for any special favors.
MARGARET WARNER: The whole legal wrangle is now before the FEC. If the agency doesn't rein in these Democratic groups, Gillespie warns, the Republicans will move quickly to match them, and create a whole new arms race of soft money.
ED GILLESPIE: These things will sprout like mushrooms. If you don't think that people who support the president won't come together and match what the groups on the left are doing in taking soft money and using them to influence federal elections, if that's where ... if what the Democrats are doing is allowed to stand, you're kidding yourselves.
MARGARET WARNER: It's not clear how much impact an FEC decision will have on the 527s in this year's election. The agency's ruling, expected in May, wouldn't become final until summer, not long before the Democrats hold their July convention. At that point, John Kerry, with the infusion of $75 million in federal campaign funds, will be able to pay for plenty of campaign ads on his own.