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New report shows tectonic shifts in campaign spending

a photo of Karl Rove on television
Flickr photo by Dutchlad

The U.S. Supreme Court was so determined to treat outside groups fairly in its 2010 Citizens United v. Federal Election Commission (FEC) decision that it put these groups on course to supplant the candidates themselves as the dominant voices in our elections.

That is the finding of a newly released Public Citizen report, Outside Money Takes the Inside Track. The report compares spending by outside groups, which were permitted as a result of Citizens United to use unlimited contributions to influence elections, with that of candidates and national parties, which are subject to contribution limits.

Our findings: There is a tectonic shift in how American campaigns are being funded. Outside groups surpassed candidate spending in four of the 10 most expensive U.S. Senate races this year. That had only happened once in the last four election cycles (in 2010, which also postdated Citizens United). Outside groups’ spending this year nearly equaled that of the national parties. In no election cycle since 2004 had outside groups spent as much as a third as the parties (and that was also in 2010). Meanwhile, outside groups spent more money in the 2012 election cycle than the past four cycles combined.

Unless Citizens United is reversed by the court or nullified by a constitutional amendment, it’s not difficult to see where things are going.

But there are some interim steps that can be taken while we await the end of the Citizens United era. For starters, Congress can immediately give the public the ability to see who all these outside speakers are.

When it comes to outside advertisements, the public can usually identify the puppet doing the talking (such as the American Future Fund) but often, the puppeteers controlling the show (or the corporate and special interest funders behind the outside group) are hidden.

There are many ways that outside groups dodge disclosure. The simplest method is for a group to incorporate as a 501(c) nonprofit. These groups, which made up several of the top spending outside groups in 2012, do not have to disclose their donors. By law, the primary function of a 501(c) group cannot be to influence elections, but the Internal Revenue Service has not yet cracked down on even the most blatant violators from 2010 or 2012. The ability of a group to accept unlimited contributions and spend limitlessly to influence elections without any sort of public accountability is undeniably corrosive to the electoral process.

In addition to the gaping 501(c) disclosure loophole, outside groups can use phony donors to disguise the true origin of their political war chests. Super PACs, which do exist to influence elections, must disclose their donors. But these shadowy organizations can dodge the intent of the disclosure law by disclosing anonymous, pass-through groups as their source of income rather than the actual donors who contributed to the front group itself.

For instance, in 2012’s Indiana Republican primary for the U.S. Senate, Indiana Values, a super PAC, spent more than $450,000 in support of Sen. Richard Lugar. Indiana Values’ biggest donor was Indiana Values Inc., a 501(c)4 entity that contributed more than $130,000 to Indiana Values.  If that seems confusing, that’s because it is, and intentionally so. These transfers, especially when the initial source is a 501(c)4, make it impossible to follow the money back to the original source.

Current disclosure laws also suffer from a timing problem. The law requiring super PACs to reveal their donors does not require disclosure of fundraising activity in the last two weeks before Election Day.

This timing problem leads to a reality in which the super wealthy can write seven- or eight-figure checks to super PACs in the closing weeks of an election to fund negative television advertisements, but not show up in disclosure reports until December. For instance, GOP mega-donor Sheldon Adelson and his wife gave a $22 million donation to Karl Rove’s American Crossroads and $10 million to Restore our Future during this dark period. The general scope of Adelson’s giving was well chronicled during the election, such that his enormous late contributions probably wouldn’t have surprised many people. But Adelson’s late donations show the potential for an anonymous donor to pour game changing sums into a race and escape identification until after the election.

The best short-term proposals to fill the disclosure gap are the DISCLOSE Act and the Shareholder Protection Act. The DISCLOSE Act would require an organization (including super PACs, 501(c) groups, trade associations, corporations and labor unions) that spends more than $10,000 on independent expenditures to report the major donors behind its expenditure within 24 hours. The Shareholder Protection Act would require publicly traded corporations to win the approval of their owners before spending money to influence elections—then to disclose the contents of such spending. The Securities and Exchange Commission is also considering a rule that would accomplish the disclosure objectives of the Shareholder Protection Act for public companies.

As long as outside groups are going to be put up on a pedestal, the least we could ask is for Congress to require them to tell us who they are.

Join Public Citizen’s campaign for a constitution amendment to overturn Citizens United.