issue guide: 527s & Campaign Finance Reform

The Skinny

see also background & facts, pro & con, links

What's Up

During the 2004 election season, 527s—the political groups named for the section of the tax-code that governs them—became the bane of campaign finance reformers. In the wake of the Bipartisan Campaign Reform Act of 2002 (aka McCain-Feingold), soft money donations from corporations, unions, and wealthy individuals were supposed to be an issue of the past. Instead, a loophole in the new law allowed 527s to become both popular portals for partisan money and major players in the last presidential election. The finance frenzy they created prompted the Federal Election Commission (FEC) to set new limits on 527 funding, which went into effect January 1, 2005. But these groups won't be regulated without a fight; opponents of the new regulations have gone to court protesting that the regulations violate their freedom of speech. Meanwhile, Congress may follow in the footsteps of the FEC and pass their own set of rules to tame 527s. At the same time competing bills would go the other way, loosening donation rules set by McCain-Feingold.

What the Debate's About

At the heart of the debate over McCain-Feingold is what role money should play in elections, if any. Supporters of a strengthened McCain-Feingold believe that Congress should continue tightening regulations to reduce what they see as special interest money influencing politics. Nonprofit and special interest groups believe that McCain-Feingold and the new FEC regulations unconstitutionally limit their ability to speak freely about the merits or pitfalls of a particular candidate or issue.

The cornerstone of McCain-Feingold is the elimination of soft-money donations to political parties. In place of these unlimited donations from corporations, unions, and wealthy individuals, political parties have to rely on hard-money—limited contributions from individuals of up to $2,100 for a specific candidate and $26,700 to the party itself.

Not included McCain-Feingold back in 2002 were 527s, the tax-exempt, partisan organizations that became the new home for soft-money. While 527s were prohibited from coordinating with political parties, it quickly became apparent that these groups were not independent and their partisan approach benefited their candidate of choice. After the hoopla the 527s caused during election 2004 (think Swift Boat Veterans for Truth and MoveOn.org), the FEC passed regulations that seek to continue the work of McCain-Feingold by tightening the collar on soft-money contributions to 527s.

Some critics of McCain-Feingold and the new FEC regulations argue that restrictions on raising and spending money violate their freedom of speech and their ability to weigh-in on an election. Others say campaign finance rules are ineffective at best, and harmful at worst; they only succeed in shifting money to less accountable sources and giving an edge to politicians already in office.

Supporters point out that relying on hard money is not so difficult and that, in fact, it energizes political participation; the two major party 2004 presidential candidates broke previous fundraising records by using Internet technology and mobilizing party fundraisers. They don't look at 527s as proof that campaign finance reform doesn't work, but rather as another wrinkle in the system that needs to be ironed out by tighter rules.

Where Things Stand Now

Emily's List, a 527, has taken the FEC to court, arguing that their regulations violate free speech; that court case is yet to be resolved. Congress, meanwhile, was thinking of including 527 changes in its 2006 lobby reform bill - but that never happened. citizenJoe is guessing a Democrat Congress won't be eager to rein in 527s in 2007.

Updated November, 2006

Written by Courtney Doggart and vetted by Jeremy Goodridge

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