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Behind the Greenbacks

Sunshine boys: Schumer (left) and Van Hollen(Getty Images/Alex Wong)

photo of Eliza Newlin Carney
May 1, 2011

A White House plan to force federal contractors to more fully report their political spending has outraged business leaders and Senate Republicans, setting the stage for a legal challenge.

It’s only one of several contentious disputes that’s erupted lately over secret political money, which promises to define the 2012 election. Reform advocates and First Amendment champions are already at loggerheads over campaign reporting rules at the Federal Communications Commission, the Federal Election Commission and the Securities and Exchange Commission.

Still to come is an even bigger showdown over the role of tax-exempt groups in elections. Thanks to a landmark Supreme Court ruling last year that significantly relaxed the rules, nonprofits—which face virtually no disclosure requirements—are spending more than ever in campaigns. Such tax-exempt groups, including trade associations, unions, and social welfare groups, are already under scrutiny at the Internal Revenue Service and the FEC, and Congress might be next.


Also on the horizon is a renewed faceoff over the so-called Disclose Act, which Democrats sought to enact without success last year, but which will be reintroduced in a stripped-down form in both chambers. Sponsored by Sen. Chuck Schumer, D-N.Y., and Rep. Chris Van Hollen, D-Md., the bill is being redrafted to focus more narrowly on disclosure.

“Expect a lot of action on all the different fronts,” said Craig Holman, government affairs lobbyist for Public Citizen. “We are pursuing all avenues we can to try and open up the books on money in politics.”

The disclosure battle is intensifying amid two countervailing trends. On the one hand, conservatives who have successfully toppled a long list of campaign finance regulations in court have now set out to upend the disclosure rules, too. Pro-deregulation activists, such as Indiana lawyer James Bopp Jr., have mounted a fresh wave of court challenges arguing that disclosure chills free speech and subjects donors to harassment. A parade of conservative commentators has sounded a similar note.

At the same time, reform advocates both on and off Capitol Hill have mounted a multi-pronged campaign to defend transparency in elections, which they argue is basic to democracy. They’ve approached the SEC to explore new requirements that publicly traded corporations permit shareholders to weigh in when companies spend political money, for example. The SEC recently released a letter that gave Home Depot shareholders a say in the company’s political spending decisions.

Van Hollen has sued the FEC in a bid to force it to write stronger disclosure regulations for political players that make independent campaign expenditures. Separately, the Media Access Project has asked the FCC to expand its disclosure requirements for political ads.

Most controversial of all is the draft White House executive order, which proposes that federal contractors more fully disclose their political expenditures. Such contractors already report their political action committee donations, but the White House wants them to also disclose the money they give to politically active outside groups.

The Business Roundtable and the U.S. Chamber of Commerce have denounced it as a bid to intimidate business donors, and a legal challenge is expected. Close to 30 GOP senators, led by Minority Leader Mitch McConnell, R-Ky., and Sen. Susan Collins, R-Maine, wrote President Obama to object that the plan could have “a chilling effect” and subject contractors to political retaliation.

“It’s going to strip away the private right to associate, and the right to support causes you believe in without having your friends and your colleagues and your employers and members of your church know what your views are on that particular issue,” said Sean Parnell, president of the Center for Competitive Politics.

Reform advocates counter that a long list of Supreme Court and lower court decisions have resoundingly upheld the disclosure rules. Said Democracy 21 President Fred Wertheimer: “We would be happy to have the claims of the Chamber of Commerce and Sen. McConnell about the threats of disclosure tested in the courts.”

To be sure, even disclosure rules can be controversial when imposed on politically active tax-exempt groups. As free speech champions love to point out, the high court’s 1958 NAACP v. Alabama ruling upheld the civil rights group’s right to keep its membership lists confidential. Still, a distinction might be drawn between high-dollar campaign donors and membership lists, say some transparency advocates.

“There’s a difference between talking about large donations and significant transfers of money, and having to disclose the membership of a nonprofit,” said John Wonderlich, policy director of the Sunlight Foundation. “And I think we can distinguish between those two things.”

As undisclosed campaign spending escalates into 2012, scrutiny of politically active nonprofits will only intensify. Four complaints already are pending before the IRS and the FEC over alleged tax abuses by big spending nonprofits in 2010.

Senate Finance Chairman Max Baucus, D-Mont., also asked the IRS last year to investigate the political activity of major tax-exempt groups. Baucus “continues to monitor and remains in contact with the IRS on the subject,” said an aide. As the disclosure debate inevitably shoves nonprofits into the spotlight, expect the war over secrecy versus transparency to escalate.

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