The problem with section 527 organizations is that Congress spoke at
cross-purposes when it drafted section 527 of the Internal Revenue Code
in a world that also included campaign limits in the Federal Elections
and Campaign Act (FECA). FECA limited contributions to fund express
advocacy for the election of candidates. The current campaign
finance limitations do the same with some stricter definitions of
campaign advocacy. Section 527 provides a tax exemption for
organizations that are engaged in the activity of electing candidates to
office. The problem is that the definitions of advocacy aimed at
the election of candidates are not the same under section 527 and the
campaign finance restrictions. The Internal Revenue Service opened
the door to the current problems with its interpretations of section 527
that allowed 527 organizations to advocate the election of candidates
with communications that were not express advocacy subject to the
campaign finance limitations.
The solution to the section 527 issue is not, as President Bush expressly
stated, to eliminate advocacy by section 527 organizations, but rather,
as I said in the second to the last sentence of my Essay on Federal
Income Taxation and Campaign Finance Reform, 54 Fla. Law Review 1, 118
(2002), [T]ax exemption under section 527 should be limited to campaign
contributions and expenditures that are treated a contributions and
expenditures under the FECA." I would of course add the
current limitations to that statement.
It seems relatively straight forward to me that the federal policy behind
providing the subsidy of tax exemption to certain organizations should be
consistent with federal election law policy. That is, as I quoted
myself above, the tax exemption of section 527 should be limited to
organizations that undertake campaign advocacy within the regulatory
structure of the federal election law. As I discussed in detail in
the Florida article, I think that the Supreme Court has been pretty clear
that such restrictions on the grant of tax exemption would be
constitutional. Realistically, however, I doubt that Congress will
have the political will to eliminate this lucrative source of campaign
support by restricting the definition of campaign advocacy in section
527.
Dan Simmons
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From: "Marty Lederman" <marty.lederman@comcast.net>
To: "Kelner, Robert" <rkelner@cov.com>,
"election-law"
<election-law@majordomo.lls.edu>
Subject: Re: What in the World is Bush Talking About?
Date: Thu, 26 Aug 2004 11:34:38 -0400
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Well, the President's comments speak (or not)
for themselves. If someone is not persuaded, nothing I'll write is
likely to change that. Suffice it to say that, given the context, I
think Bush would be very reluctant to clarify that the problem is that
527's are receiving more than $5000 from some individuals. He was
asked to repudiate the Swift Boat ads because of their
content. He responded that all 527 ads, and all 527s, for that
matter, should be stopped. He did not say: "You
know, I have nothing against organizations running ads to affect the
outcome of this election -- the more ads, the merrier. But what's
really outrageous is that these organizations have received large
donations from a few individuals. That should be stopped -- they
should be required to receive donations in increments of $5000 or
less." Of course he didn't say, or suggest, any such thing --
because he was trying to insinuate that not only should the Swift Boat
ads be taken off the air, but all 527 ads should be
eliminated. That is certainly how the general public is
understanding the President's statements -- indeed, how even Bush
supporters are understanding them. See, e.g.,
http://volokh.com/archives/archive_2004_08_14.shtml#1093017246;
http://volokh.com/archives/archive_2004_08_21.shtml#1093382899.
And that is no mere accident -- it is the impression that his
statements (and McClellan's) are designed to convey.
- ----- Original Message -----
- From: Kelner, Robert
- To: Marty
Lederman ;
election-law
- Sent: Thursday, August 26, 2004 11:15 AM
- Subject: RE: What in the World is Bush Talking About?
- Marty gets a whole lot of
rhetorical, partisan mileage out of a very broad extrapolation from what
the President actually said. The President was asked about the
activities of 527s, which, as currently constituted, are raising and
spending large amounts of corporate and individual money on broadcast
advertisements. In comments Marty elided, the President
specifically criticized the use of "soft money" for these
purposes (soft money that some said would be very difficult for outside
groups to raise, absent the political parties' supposed power of
"extortion"). The President said he thought the 527s
should stop using soft money to run ads. He certainly did not say
that he thought all outside groups, using hard money, should be banned,
as Marty seems to suggest. Of course, the President may well have
understood the reality that imposing PAC-type registration requirements
and contribution limits on 527s would cause many of them to die out
(leaving the 501(c)s to rule the day).
-
- Rob Kelner
- -----Original Message-----
- From: owner-election-law_gl@majordomo.lls.edu
[mailto:owner-election-law_gl@majordomo.lls.edu]
On Behalf Of Marty Lederman
- Sent: Thursday, August 26, 2004 10:33 AM
- To: election-law
- Subject: What in the World is Bush Talking About?
- The President's mantra this week is that all ads run by 527's ought
to be "stopped" -- and that, in fact, 527's themselves ought to
be eliminated. According to the New York Times, when asked whether
he specifically meant that the veteran's group's ad against Mr. Kerry
should be stopped, Bush replied: "all of them . . . that means
that ad, every other ad. Absolutely. I don't think we ought to have
527's. I can't be more plain about it, and I wish ÷ I hope my opponent
joins me in saying ÷ condemning these activities of the 527's. It's ÷ I
think they're bad for the system."
-
- Now, of course, I'm under no illusion that the White House means to
say anything of real substance here -- this is merely a politically
expedient response to the requests that the President repudiate the Swift
Boat ads. But I do find it fairly remarkable that the President is
expressing a view that is so patently unconstitutional, and that, as far
as I know, would not be favored by any campaign finance reform
advocates. Many of those advocates argue that contributions to
527's should and can (ordinarily) be capped at $5000 per person annually;
but no one is arguing (are they?) that 527s' advertisements should be
banned or limited -- a fairly absurd suggestion, in light of the fact
that the very definition of a 527 organization is an entity organized
and operated primaruily for the purpose of influencing elections.
And what would it mean not to "have" 527's? That they
would lose their tax status?
-
- As long as "repudiation" is the catchword of the day, I
wonder: Wouldn't it be worthwhile for advocates on both (or all)
sides of the campaign-finance debate to jointly and publicly repudiate
the President's absurd views on 527s and their advertising? After
all, it is not often that everyone in this debate could find common
ground on something so fundamental . . .
Daniel L. Simmons
Professor of Law
School of Law
University of California
400 Mrak Drive
Davis, California 95616
Telephone 530 752-2757
Fax 530 754-5311