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Election 2004
Politics and Economy:
Election 2004
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527s and the Soft Money Loophole

"527" organizations — named for the section of the federal tax code that allows for their existence — are making their first major appearance in a presidential election since the Bipartisan Campaign Reform Act of 2002 (BCRA) was passed... and their presence has not gone unnoticed. 527s such as Swift Boat Veterans for Truth and have taken heat over the past few weeks for their scathing ads on television and on the Web. According to the Center for Responsive Politics, 527s have spent more than $200 million on the campaign so far this year; that's more than either the Bush or Kerry campaign.

So just what are these 527s and why are they suddenly so visible this election season? These groups actually have been around since 1974 when section 527 — exempting political organizations from federal income tax — was added to the Internal Revenue Code. But after BCRA took effect, 527s saw a sharp increase in contributions. Here's why: BCRA forbids federal candidates and national parties from raising unlimited contributions from corporations labor unions, and wealthy individuals. But 527s have no such restrictions; they can receive unlimited donations from corporations, unions, and individuals and use them to influence elections. The key constraint is that 527s can't endorse specific candidates, and must be totally independent from the political parties. And on this point, critics say that some 527s are walking a fine line.

The Center for Responsive Politics found that most of the top fifty 527s are "advocacy groups trying to influence federal elections through voter mobilization efforts and so-called issue ads that tout or criticize a candidate's record." Congressman Christopher Shays (R-CT), a sponsor of multiple bills on campaign finance reform, recognizes flaws in the current laws. In an interview with NOW, Shays explained:

A 527 is basically an organization that is a campaign organization but doesn't call itself a campaign organization. There are many different kinds of 527s. But 527s whose primary purpose is the defeat or victory of a particular candidate [are] now involved in campaign activities. So it's a circumvention of our law.

Shays isn't the only one who sees it this way. The nonprofit groups Democracy 21, the Campaign Legal Center and the Center for Responsive Politics have filed a complaint with the Federal Elections Committee (FEC) challenging four organizations — America Coming Together (ACT), Leadership Forum, the Media Fund, and Progress for America Voter Fund — as "illegal schemes to circumvent the BCRA and inject millions of dollars of soft money into the 2004 federal elections."

This week, Benjamin L. Ginsberg resigned from his post as one of the top lawyers to the Bush-Cheney campaign after revealing that he had done work for the Swift Boat group responsible for attack ads on John Kerry. But the ties between candidates and 527s may not end there. INSIGHT magazine remarks, "[W]hile Democrats continue to hammer the Republicans for their connections, the Bush-Cheney campaign has issued its own statement outlining the 'Top 10 Connections Between John Kerry and 527s.'"

This week, the Bush campaign has announced its plans to take legal action to force the FEC to crack down on 527s. THE WASHINGTON POST comments that this announcement is "largely symbolic," as there is "virtually no chance that a lawsuit could be resolved before the Nov. 2 election."

In the midst of all the controversy, last week the FEC voted in favor of rules closing some of the loopholes governing 527s, including a $5,000 limit on donations by individuals. The rules, however, will not go into effect until 2006.

The 527 Debate

The talk doesn't seem to be dying down. Editorials and opinion columns have sprung up all over the country voicing a wide array of complaints about the rules — or lack of rules — governing 527s. In one, DETROIT FREE PRESS columnist Brian Dickerson complains that candidates don't have to take responsibility for the 527 ads that seek to help them:

All the new arrangement seems to have done is to provide both sides with the means to wipe their fingerprints from the most unseemly and duplicitous attack ads.... Slander masquerading as political discourse is no different than stolen property. It's not enough to deny responsibility for unfounded accusations; candidates who stand to benefit from a well-financed smear campaign should be required to opine on the substance of the smear — to say, explicitly, whether they stand with the character assassins or their victims.

Meanwhile, the Henderson, North Carolina DAILY DISPATCH printed an opinion column defending the right of 527 groups to have their say:

It isn't enough that campaign-finance laws limit how much people may donate to the candidates of their choice and how much those candidates may spend to get out their messages, all under the misguided notion that people can buy influence only with campaign contributions. Now Bush and such prophets of campaign-finance reform as Sen. John McCain, R-Ariz., want to remove the right of private groups to express their views.... In this third century of our American democracy, we need a strong First Amendment to keep the candidates fearful of citizen groups with messages instead of the other way around.
Sylvia Smith of the FORT WAYNE JOURNAL GAZETTE has no problem with the attack ads funded by 527 organizations. She writes that the ads "prompt the media to dig deeper into allegations," continuing:
Voters are pretty smart, and only hard-core partisans will be convinced of the veracity of the liar, liar pants on fire ads from either the Bush bashers or the anti-Kerry vets. But they will be part of the fabric of this election, and we'd do well to consider the tapestry as a whole in deciding which level to pull, what laws to change and how important it is to have a vigorous media.
What's your opinion on 527 organizations? Take our poll or talk back on the message boards.

Sources: Alliance for Better Campaigns; Center for Public Integrity; Center for Responsive Politics; Federal Elections Commission; Internal Revenue Service

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