The New Soft Money Campaign Finance Regime

According to this Los Angeles Times article, outside interest group organizations -- known as 527 committees under federal law -- have received close to $300 million in contributions from a variety of sources in the 2006 election cycle.

The piece refers to the 527s as "unregulated political groups" who are accepting "special interest" contibutions while "skirting" campaign limits. This is an amazing display of journalistic spin. A close look at the article's tabular data reveals a very healthy competition between the parties in the contribution game. Not only that, 527 groups are perfectly legal and entirely legitimate within our Madisonian system of governance.

This new group financing regime is the direct result of the 2002 McCain-Feingold legislation, which prohibited unlimited contributions to the national parties (who had tended to funnel these monies back into national campaigns through issue advocacy advertisments, violating the spirit if not the letter of the law). But the resulting loss for the parties was a gain for groups:

Unions, corporations and wealthy individuals have pumped nearly $300 million this year into unregulated political groups, funding dozens of aggressive and sometimes shadowy campaigns independent of party machines.

The groups, both liberal and conservative, air TV and radio spots, conduct polls, run phone banks, canvass door-to-door and stage get-out-the-vote rallies, with no oversight by the Federal Election Commission. Set up as tax-exempt "issue advocacy" committees, they cannot explicitly endorse candidates. But they can do everything short of telling voters how to mark their ballots.

Because they can accept unlimited donations from any source, the committees — known as 527s — have emerged as the favored vehicle for millionaires and interest groups seeking to set the political agenda."It's become the new way to do business in politics," said Pete Maysmith, a national director of Common Cause, a nonprofit that lobbies for more transparency in campaign finance.

Named for a section of the IRS code, 527s have been around for years but became a political force in 2004 after the Bipartisan Campaign Reform Act of 2002 — also known as the McCain--Feingold Bill — limited donations to political parties. Groups such as Swift Boat Veterans for Truth on the right and America Coming Together on the left contributed $600 million that year, with a heavy focus on the presidential race.

The cash flow is lower this year because it's a midterm campaign, but 527s and a related type of organization known as 501(c)s have expanded their reach. With the Nov. 7 election days away, the groups are flooding the airwaves in state and local races as well as congressional contests.

By far the largest chunk of unregulated money — nearly $60 million — comes straight out of union treasuries and is used mostly to benefit Democratic candidates and causes. Conservatives are fighting back with multimillion-dollar donations from a California TV executive and the Texas developer who financed the Swift Boat ads.

In California, unregulated funds — mostly donated by New York developer Howard S. Rich — are bankrolling the campaign for Proposition 90, which would limit the government's ability to seize private property. In Missouri, such money paid for a celebrity-studded TV ad opposing a ballot initiative on stem-cell research....

The campaign finance reforms that took effect for 2004 limit individuals to about $100,000 in total contributions to all candidates, parties and political action committees per election cycle. Parties and PACs remain extremely influential. PACs, for instance, are expected to funnel more than $1 billion to candidates this year by bundling contributions from trial lawyers, beer wholesalers, pharmaceutical makers and other groups.

But more than 70 individuals have maxed out their PAC and party contributions; if they want to pump more cash into the election, they must donate to 527s and 501(c)s. Many prefer that approach because they can control how the money is used.The 501(c) groups do not have to disclose donors or itemize spending. The 527s must report donors and expenses, but the groups are often ephemeral, forming under a generic name for a few months and then dissolving. That makes it all but impossible to sort through IRS filings and pick out which organizations will get involved in which races. By law, these groups cannot coordinate their activity with candidates.

I imagine there's a "good government" motivation for the tone of the article. Since campaign finance reform is usually pushed by left-leaning organizations - like Common Cause -- one might see a liberal agenda in exposing the pattern of interest group influence under the 2002 reforms.

But check the data at the end of the piece: Seven out of ten of the top individual contributors gave to the Democrats, and three out of the top five 527 committees lean toward the Democratic Party.

Additionally, as the elections near, the Democrats have seen a surge in corporate contributions, as businesses have starting hedging their bets amid the possibility of a Democratic takeover of Congress.

All of this activity is evidence that the American pluralist democracy is healthy -- and working as the founders intended.