MAN IN AD: I served with John Kerry.
MAN IN AD: I served with John Kerry.
TERENCE SMITH: The recent airing of television ads attacking John Kerry's war record, a campaign sponsored by swift boat veterans for truth, has embittered an already heated debate over the workings of political groups called 527s.
That's Washington shorthand for the section of the Internal Revenue Code that regulates the financial activities of all political committees. When asked on Monday if he would condemn the message of the swift boat ads, President Bush instead issued a blanket denunciation of all 527s.
PRESIDENT GEORGE W. BUSH: I don't think we ought to have 527s. I can't be more plain about it. And I wish... I hope my opponent joins me in saying... condemning these activities of the 527s. It's... I think they're bad for the system. That's why I signed the bill, McCain-Feingold.
TERENCE SMITH: But it is as a direct result of McCain-Feingold, the 2002 campaign finance law named for its Senate co-sponsors, that 527 committees have become so powerful. While the new law no longer allows political parties to spend large sums of unregulated "soft money" they used to collect from corporations, unions and individuals, there are no such restrictions on independent 527 groups.
And this year, the bulk of that money is going to left-leaning 527s, such as America Coming Together, the Media fund, America votes and the moveon.org voter fund. Combined they have raised in excess of $60 million, most of that money going for ads like this one:
AD SPOKESMAN: George Bush used his father to get into the National Guard.
TERENCE SMITH: Last spring the Bush reelection campaign filed a formal complaint with the Federal Election Commission about the 527 ads, but current federal election law allows 527s to use soft money for political ads as long as they don't specifically urge the election or defeat of a particular candidate.
SPOKESMAN: The Media Fund is responsible for the content of this advertisement.
TERENCE SMITH: Republican National Committee Chairman Ed Gillespie spoke to the NewsHour at that time.
ED GILLESPIE (March 26): The only people who believe that what they're doing is legal are the people who are doing it.
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... if what the Democrats are doing is allowed to stand, you're kidding yourselves.
TERENCE SMITH: The FEC has announced it won't try to regulate 527s until after this election cycle. In the meantime, Gillespie's prophecy has been realized: A series of right-leaning 527s has sprouted up.
There's the Progress for America Voter Fund, which had only $2 million in June, but recently got a lift from two $5 million individual donations. It joins groups like American Resolve, the November Fund, and the Leadership Forum, and smaller, one-issue groups such as the Swift Boat Veterans for Truth.
MAN: How could we be loyal to him now?
TERENCE SMITH: Yesterday, the Bush campaign sought to further distance the president from the swift boat ads and the 527 issue, announcing it would join with Sen. McCain to take legal, and if necessary, legislative action to crackdown on the 527s.
TERENCE SMITH: Joining us to explain the ins and outs of these 527s is Aron Pilhofer, the co-author of the 527 project at the Center for Public Integrity, a nonpartisan watch dog group. Aron, welcome give also little context on these 527s, how old are they? And how long have they been around?
ARON PILHOFER: Well, they've been around a lot longer than most people think. There's been a lot of publicity just this year about these organizations. They first came into being in the mid 90s actually.
And around 2000 when we started our project, there were roughly 400 in existence. Today there's probably seventy or eighty that are actively raising and spending money.
TERENCE SMITH: And only a few of those actually are involved in these ads or the big ad twain?
ARON PILHOFER: That's right.
TERENCE SMITH: On the federal level?
ARON PILHOFER: That's right. There's maybe six or seven that make up the bulk of the fund raising.
TERENCE SMITH: Do they spend most of their money on ads?
ARON PILHOFER: It's a mix. Some organizations do do exclusively is advertisements, for example the Media Fund, which is one of the biggest 527s in this particular election, they spend their money exclusively on advertisements.
America Coming Together, which we mentioned in the opening, they don't spend any of their money on ads, they do nothing but ground work. Voter I'd indication, voter registration, activities like that.
TERENCE SMITH: Now they came into being and threw in a loophole in the law.
ARON PILHOFER: A classic loophole.
TERENCE SMITH: How so?
ARON PILHOFER: This was a decision by one federal agency that was not mirrored which another. The IRS redefined in the middle 90s what constituted a political committee for tax purposes. Section 527 is the part of the tax code under which all political committees get tax exempt status.
Unfortunately, their definition of a political committee didn't match the Federal Election Commission's definition, which created a loophole for organizations like the Media Fund, America Coming Together, to raise and spend unlimited sums of money, largely unregulated.
TERENCE SMITH: So they drove right through this loophole -
ARON PILHOFER: They did.
TERENCE SMITH: And they have raised how much money since you started tracking them?
ARON PILHOFER: Collectively they've raised over half a billion dollars, since we started tracking them, that's since 2000. In this particular election cycle which is headed toward- which is easily going to be the biggest two-year period for fund raising, they raised over 207 million dollars.
The seven or eight committees that are really involved in the presidential election were talking about $70 million.
TERENCE SMITH: They're enormous sum us. Where does the money come from?
ARON PILHOFER: Largely from individual donors, large contributors, individual contributors, folks like George Soros, very wealthy individuals, some corporations, not many. Unions is another source.
TERENCE SMITH: And in terms of proportion, those that favor Democrats or Democratic candidates or Democratic issues versus those that favor Republicans, what's the battle?
ARON PILHOFER: Overwhelmingly Democratic. We're tracking it about nine to one in terms of dollars…
TERENCE SMITH: Why is that so?
ARON PILHOFER: I'm not really sure. It's a matter of speculation really. The Democrats were of the two parties by far more reliant on soft money, that's the unregulated donations to the national parties that you mentioned.
So maybe that's one of the reasons. They're also a very convenient fun raising tool; that might be another reason. The third might be, and this might be the best explanation, Republicans have done a very, very good job of creating large networks of small individual donors, and by small I mean a few thousand dollars.
TERENCE SMITH: Well, this move that we just mentioned, of the Bush campaign and Sen. John McCain to go with the court to try to either regulate these things, I mean how practical is that at this stage in the campaign?
ARON PILHOFER: Well for this cycle, the chances that a court is going to step in and stop this activity, I'm no lawyer, but I would say the chances are fairly slim. Down the road I think this is an issue that will be decided in the courts.
TERENCE SMITH: But there's a real debate on both sides of this?
ARON PILHOFER: Absolutely. There are big, big constitutional issues at question. There's a very fine line between saying what these organizations can and cannot do with the money that they raise.
It's worth noting that a number of these organizations are working exclusively on the state level, which is completely outside the regulatory purview of the Federal Election Commission. So these are organizations the FEC couldn't regulate even if it wanted to.
TERENCE SMITH: There's something called the 60 Day Rule, what is that?
ARON PILHOFER: Well, the McCain Feingold law put in place a new rule that says within 60 days of a general election, you cannot use corporate or union money in advertisements, broadcasts, radio, advertisements that identify a federal candidate.
So as of the beginning of September, organizations like the Media Fund that do raise union and corporate money will not be able to do advertising that identifies either President Bush or John Kerry.
TERENCE SMITH: But if you're funded by private money, individual money?
ARON PILHOFER: If you're funded exclusively by individuals, and this does definitely into the minutia, but if you are funded exclusively by individual contributors, and the organization itself is not a corporation and nonprofit corporation in this case, then you might be able to avoid regulation.
But there are a whole host of things you can up until election day.
TERENCE SMITH: For example?
ARON PILHOFER: Well, you can do any sort of activities involving voter registration, which is what I said ACT is up to; you can do voter identification. You can do Internet advertising.
The Internet, any ads put on the Internet are exempt under the McCain-Feingold law. So there's a lot that you can do.
TERENCE SMITH: So they may remain very active, but not quite as visible on television?
ARON PILHOFER: That's right. They will probably shift their activities more toward the organizing aspect of collections and away from the media.
TERENCE SMITH: This is 60 days, that's next week.
ARON PILHOFER: That is, yeah.
TERENCE SMITH: So indeed the window for any court action is extremely tight.
ARON PILHOFER: At least on the broadcast ads, yes.
TERENCE SMITH: On that aspect.
ARON PILHOFER: Yes.
TERENCE SMITH: Okay, Aron Pilhofer, thank you very much.