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Editorial: Tax-exempt spending supervision necessary

Sun., Dec. 1, 2013

Political spending by tax-exempt “social welfare” groups ballooned to $300 million in 2012 from about $5 million in 2006. That 60-fold increase didn’t come from a sudden wave of civic-minded concern. It sprang from the U.S. Supreme Court’s Citizens United ruling in 2010, which erased some limits on campaign spending, and creative money-funneling schemes that finessed vague federal tax code rules.

These campaign-focused players are formed as 501(c)4 entities, which are supposed to be engaged in social welfare work. Once granted that status, they can keep the identity of their contributors secret. The guarantee of anonymity has triggered an explosion of dark money in politics, which means the public can’t identify who is trying to exert influence.

The U.S. Treasury Department announced last week it wants to write new rules for this shadowy world. The concept is fine, as far as it goes. The details will be crucial, and if secret donors aren’t flushed into the open, the reforms will be only a partial remedy.

As it stands now, the situation is impossibly murky. It doesn’t help that the Internal Revenue Service got into hot water last spring when it was discovered that it was looking into tea party organizations more than liberal ones in an effort to enforce what rules there are.

The guidelines are so loosely written that abusing them is child’s play. As an informal rule of thumb, 501(c)4 groups cannot devote 50 percent or more of their spending on campaign-related activities. This violates the intent of the statute, which is designed to promote the general welfare, not encourage partisan electioneering. Also, election lawyers employ creative interpretations of what is deemed political activity, and they’ve been allowed to get away with it.

The Treasury Department’s initial proposal is focused more on the latter, and that is important. During the last election cycle, nonprofits spent more than $240 million on candidate-related ads, according to the Center for Responsive Politics, but often such ads weren’t identified as political. For instance, the American Energy Alliance told the Federal Election Commission that it spent $1.36 million on ads in Ohio and Virginia urging residents to “vote no on Obama’s failing energy policy,” CRP reports. It reported to the IRS that this political spending amounted to zero.

Such groups could form “super PACs” and conduct campaigns unfettered, but they’d lose the cloak of anonymity that’s afforded 501(c)4 groups. The Treasury Department did not provide details on how it would curtail this gambit, so open government proponents should remain wary.

Secrecy proponents say anonymity is important to the exercise of First Amendment rights, but that’s absurd. As Associate U.S. Supreme Court Justice Antonin Scalia has said, “The First Amendment does not protect you from criticism or even nasty phone calls when you exercise your political rights to legislate, or to take part in the legislative process.”

With that in mind, the Treasury Department should shine a light in the dark corners of campaign finance machinery.