Senate to Vote on Secret “Section 527” Money,

June 8, 2000

Senate to Vote on Secret “Section 527” Money,
Campaign Finance Reform

Sens. McCain and Feingold to Propose Soft Money Ban

WASHINGTON, D.C. — In a surprise move, Sen. John McCain (R-Ariz.) late Wednesday offered an amendment to the Defense Authorization bill requiring public disclosure of the identity and finances of “stealth PACs” formed under Section 527 of the federal tax code.

These tax-exempt groups, which come from all sides of the political spectrum, have been spending money to influence federal elections without any public reporting of their sponsorship, receipts, contributions and expenditures. Unlike other political committees, which must register with and report to the Federal Election Commission and abide by contribution limitations, groups employing the Section 527 legal loophole are totally unaccountable to the public. Along with soft money, they are undermining federal campaign finance law. The McCain disclosure amendment represents an important step toward holding these “stealth PACs” accountable.

Debate on the McCain amendment, which is co-sponsored by Sens. Joseph Lieberman (D-Conn.) and Russell Feingold (D-Wisc.), is scheduled to occur Thursday afternoon.

McCain and Feingold plan to offer another amendment to the Defense Authorization bill banning soft money — the unlimited contributions to political parties from corporations, unions and wealthy individuals that are used to influence federal elections. The amendment is expected to be offered either Friday, June 9, or early next week, with a cloture vote a couple of days later to end an expected Republican filibuster.

Essentially, McCain and Feingold are giving their colleagues an opportunity to show their constituents whether they favor limiting the role of big money in politics.

For the past three years, the Senate Republican Party leadership — directed by Majority Leader Trent Lott (R-Miss.) and National Republican Senatorial Committee fund-raising chief Mitch McConnell (R-Ky.) — has prevented the Senate from voting on versions of the McCain-Feingold campaign finance reform bill that have majority support. Last October, 55 senators — five short of the 60 needed — voted for at least one of two versions of campaign finance reform. This year, enemies of reform are again expected to filibuster successfully. If that happens, the American people will again be denied reform despite the clear bipartisan pro-reform stance of the House of Representatives. In both 1998 and 1999, the House decisively passed the Shays-Meehan bill, which would ban soft money and subject phony issue ads shortly before elections to the same contribution limits and disclosure requirements as other campaign ads.

Events in recent days have underlined the imperative to ban soft money:

A June 5 Federal Election Committee (FEC) report shows that the two major parties have already raised $163.4 million in soft money for the 2000 election, nearly double the amount they had raised by this time in 1996. The Republicans raised $86.4 million, a 93 percent increase from the 1995-96 election cycle, while the Democrats raised $77 million, a 94 percent increase. The parties are on track to pass the $500 million mark for soft money by the end of the year, doubling the $262 million they spent in the 1996 election cycle.

On May 25, the Democratic Party held a fund-raising dinner in Washington that raised $26.5 million, half of which came from 26 people and companies that each gave or raised $500,000. Similar galas by the Republican Party on April 26 and May 24 brought in $33.3 million.

Yesterday, a House Government Reform Committee hearing rekindled the controversy over whether an independent counsel should have been appointed to investigate Vice President Al Gore s fund-raising calls from the White House in 1996. Gore s defense, however, is that he thought he was raising soft money, which is unregulated, rather than hard money, which is controlled by federal campaign finance law.

Both the Democratic and Republican parties are reported to be planning major advertising campaigns financed by soft money to benefit their respective presidential candidates, Gore and Texas Gov. George W. Bush. In 1996, roughly $65 million in soft money was spent on such ads.

Sham Reforms

1. “Paycheck Protection”

Because they know that reform is popular, Lott and McConnell are likely to try to provide “political cover” for their followers by advocating sham reforms in place of the McCain-Feingold amendment. In the past, they have proposed as an alternative so-called “paycheck protection” legislation designed to stop unions from spending their members dues on political activities without individual authorization. This is discriminatory legislation aimed solely at largely pro-Democratic labor unions. It does nothing to curb business-financed political action committees (PACs) that raise more than three times as much money as labor PACs. Nor does it apply to other organizations that use members dues to support political activities, such as the pro-Republican National Rifle Association and National Federation of Independent Business. Finally, it ignores the fact that under the U.S. Supreme Court’s 1988 Beck decision, as well as National Labor Relations Board rulings, members of unions are free to resign. And while nonmembers may be required to pay agency fees for union representation, they cannot be obliged to pay anything for political activities.

2. The Hagel Bill (S. 1816)

Lott and McConnell may also seek to attach the Hagel bill to the McCain-Feingold bill, thereby eviscerating it. McConnell has spoken favorably of S. 1816, sponsored by Sen. Chuck Hagel (R-Neb.), as a “vehicle for some truly bipartisan reform.” Unfortunately, the major provisions of the proposed legislation fail to offer even modestly effective steps to curb the influence of big money in national elections.

Most importantly, the Hagel bill would do relatively little to stem the deluge of soft money that has subverted federal campaign finance law. In fact, it would permit corporations and unions to donate $120,000 in soft money per election cycle to national political parties. As for wealthy individual donors, an executive and the executive’s spouse could together give up to $240,000 in soft money.

These stunningly high “limits” flow from the bill’s provision that donors may provide as much as $60,000, in the aggregate, to national parties every year. Thus, S. 1816 would put Congress’s imprimatur on the parties continued wholesale evasion of the Federal Election Campaign Act — which now bars corporate and union contributions and limits individual contributions to national parties to $20,000 a year.

A new Public Citizen analysis of FEC data compiled by Public Disclosure Inc. shows that the Hagel bill would have left untouched $169.3 million of the $240.2 million in soft money raised by the national Democratic and Republican parties for the 1996 election. Only $70.9 million in soft money (29.5 percent) would have been banned. Thus, over 70 percent of the national party soft money banned under the McCain-Feingold bill would be permitted under the partial ban in the Hagel bill.

Furthermore, through its silence on state party soft money, the bill ensures that the overall impact of even this weak national party soft money limit on federal elections would likely be slight or even non-existent. There is no provision (such as that in S. 1593, the most recent McCain-Feingold bill) to curb state party soft money used for federal election activity. Under S. 1816, such contributions could be expected to rise in the 29 states allowing corporate and union donations and the 33 states allowing unlimited individual and PAC donations. Restricted national party soft money donors could easily gain credit with national parties and candidates and their intermediaries by helping state and local parties involved in federal races. Indeed one of the key elements of the 1996 campaign finance scandals was the national parties practice of encouraging donations to state parties to avoid disclosure or to benefit from the federal-state allocation rules for federal elections.

In other respects, the Hagel bill is either ineffective or explicitly anti-reform. Its purported “disclosure” of the sources of broadcast issue ads would not reveal to voters who is financing last-minute phony issue ads that attack candidates and other pre-election phony issue ads. Nor would it subject the ads to existing campaign contribution restrictions. And by tripling individual hard money contribution limits (from $1,000 to $3,000 for candidates, from $20,000 to $60,000 for parties, and from $25,000 to $75,000 in annual aggregate donations), the Hagel bill would substantially raise the percentage of campaign funds provided by wealthy donors — people who are already greatly overrepresented in the political process. (For additional detail on the Hagel bill and its impact, see Public Citizen testimony before the Senate Rules Committee.

This week the American people will be able to see again which of their senators is for real campaign finance reforms as opposed to sham reforms.

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