Show Me the Donors

What’s the point of disclosing campaign donations? Let’s review.

What’s the point of disclosing campaign donations? With all the controversy still swirling around whether the U.S. Chamber of Commerce is using foreign money to fund its $75 million effort to support Republican Congressional candidates, the secrecy of Karl Rove’s new political groups, and the emergence of new groups with anodyne-sounding names like the “Coalition to Protect Seniors,” it’s worth stepping back and asking why federal law requires campaign finance disclosure in the first place. Do we still need these laws? Do they work the way they’re supposed to?

For years, federal campaigns took place without effective disclosure laws. After Watergate, with its revelations of secret illegal corporate cash being funneled to candidates and with paper bags full of campaign money, Congress finally passed a law in 1974 requiring disclosure of contributions to candidates and political committees and the spending these groups engaged in. At this point, most political players were candidates, political parties or political action committees, and they all were subject to the disclosure rules.

For a long time following, there was a virtual consensus in Congress that disclosure was the way to keep campaigns clean. But, in recent years, as the Supreme Court has struck down more limits on election spending, the consensus has unraveled. Emboldened, opponents of campaign finance regulation have gone after disclosure, too.

Their arguments are not new. As soon as Congress passed its 1974 disclosure laws, a coalition of plaintiffs, including the ACLU, challenged the requirements as overly broad. They argued that at least some disclosure is unconstitutional under the First Amendment’s guarantee of free speech and association, because compelling someone to reveal who is funding political speech will chill vigorous participation in politics.

The Supreme Court rejected that constitutional challenge in the 1976 campaign finance case, Buckley v. Valeo. Confronted with a law that required disclosure of even very small contributions, the court held that the disclosure laws were justified by three important government interests. First, disclosure laws can prevent corruption and the appearance of corruption. Having no more paper bags of cash makes it harder to bribe a member of Congress. Second, disclosure laws provide valuable information to voters.  A busy public relies on disclosure information more than ever. This was apparent when California voters recently turned down a ballot proposition which would have benefited Pacific Gas and Electric. PG&E provided almost all of the $46 million to the “Yes on 16” campaign, compared with very little spent opposing the measure. Thanks to California’s disclosure laws, PG&E’s name appeared on every “Yes on 16” ad and the measure narrowly went down to defeat. Third, disclosure laws helpenforce other campaign finance laws. Worried about foreign money in elections? Disclosure tells you how much is coming in.

Still, after Buckley, the Supreme Court recognized that groups that face threats of harassment from either the government or private sources should have a constitutional right to be exempt from the disclosure laws. In 1982, the Court held that the Socialist Workers Party, which had faced FBI and other harassment, did not have to disclose their contributors to the FEC. This is a narrow exemption for very unpopular groups. But opponents of disclosure have continued to argue that chilling is a problem that affects not just these marginal groups but everyone who might contribute to a political cause.

This argument seemed to gain some traction in the Internet era. No longer is it necessary to trudge down to a government office to wade through disclosure reports. With a Web site like Fundrace, you can plug in your home address (or any address) and see to whom (and how much) your neighbors have donated in federal races. Same-sex marriage advocates created Eightmaps to find Californians who donated to “Yes on 8,” as in Proposition 8, the ballot measure outlawing gay unions. There’s an ongoing lawsuit over whether these Proposition 8 contributors should have been exempt from disclosing their names because of allegations that they have suffered economic boycotts, lost their jobs, and even faced the threat of violence.

The Supreme Court will eventually have to grapple with whether the Internet changes the constitutional calculus—in other words, whether the ease with which we can now discover who has contributed to what means that people won’t feel free to give and whether that outweighs the societal benefit of disclosure in preventing corruption, informing voters, and helping to enforce other campaign finance laws. In two cases last term, however, the court reaffirmed its strong support for disclosure rules. In Citizens United, the court struck down limits on corporate spending in campaigns; and at the same time, in an 8-1 vote, it endorsed disclosure as the better solution to preventing corruption from large spending. By the same 8-1 count, the court also, last term in Doe v. Reed, rejected an argument in a case similar to the Proposition 8 suit. The court ruled that Washington state residents who signed a petition for a voter referendum that would reverse an “everything but marriage” same-sex union law could not shield their identities.

In these cases, only Justice Clarence Thomas argued for a completely deregulated campaign finance system: no limits and no disclosure. But that doesn’t mean that the question of disclosure in the Internet era is really settled. The Reed majority was fractured, with six of the eight justices writing opinions—plus Thomas in dissent. At the end of the spectrum close to Thomas, Justice Alito suggested that disclosure in the Internet era can chill political activity and argued that exemptions like the one the court allowed for the Socialist Workers Party should be easy to get. On the other end, Justice Scalia strongly supported disclosure laws, writing that “[r]equiring people to stand up in public for their political acts fosters civic courage, without which democracy is doomed.”

The truth is probably somewhere in the middle. As law professors Bill McGeveran and Richard Briffault have persuasively argued, the Internet does have the potential to make individual small contributors skittish about political activity. So we should raise the threshold for disclosure, requiring it for larger contributors and spenders and leaving out the small timers.

That is a far cry from the way disclosure is actually working. Since they haven’t made real headway in court, groups that don’t want to reveal the identities of their donors look for ways to avoid the mess of regulations that requires it. The Chamber of Commerce says it won’t disclose the names of donors funding its multimillion-dollar political advertising blitz because it fears its members will be harassed. But the real reason is probably that the businesses that belong to the chamber don’t want to lose customers for taking controversial positions, as Target recently experienced when it backed an anti-gay candidate in Minnesota.

The disclosure chase has become a kind of Whac-A-Mole whereby groups that want to avoid disclosure choose different organizational forms in the tax code to hide donors. Before Congress passed the McCain-Feingold campaign finance reforms in 2002, groups avoided disclosure by refraining from expressly advocating for the election or defeat of a candidate. For example, in the 2000 election, a group called “Republicans for Clean Air” spent money in the New York presidential primary knocking John McCain’s environmental record to support the candidacy of George W. Bush. It turned out (and we know this thanks to some enterprising journalists) that Republicans for Clean Air was none other than Sam and Charles Wyly, two Texas supporters of Bush. Since their ads didn’t say “don’t vote for McCain,” they didn’t disclose their identities.

McCain-Feingold and other changes Congress made to the tax code at first put an end to this disclosure dodging. But the fixes only worked for a while. With the help of three Republican Commissioners at the Federal Election Commission, opponents of disclosure have found new ways around the law. This campaign season, the action has moved to 501(c)(4)s. This type of nonprofit generally must report contributions above $5,000 to the IRS—but that information is not made public. This really does open the spigot: For example, as I predicted, funding to the Rove political group American Crossroads skyrocketed when he opened up a 501(c)(4) affiliate, Crossroads GPS, to take anonymous donations. The Chamber, meanwhile, is a 501(c)(6) trade association, and it, too, does not have to disclose its members or their contributions publicly. 

All of these groups, and anyone else spending least $10,000 in TV or radio ads mentioning a candidate in the period close to an election, have to file public reports with the Federal Election Commission detailing their spending. But thanks to the FEC, no one needs to disclose who has contributed to pay for these ads, unless the donor is dumb enough specifically to direct the organization to use the money for a particular ad. This system just begs political operatives to set up innocuous-sounding front groups to launder contributions for ads.

This is what pro-disclosure reformers are up-in-arms about. They are filing complaints alleging that the 501(c)(4)s with the bland names are violating tax law because their primary purpose is politics rather than whatever they’ve declared it to be in the IRS paperwork that got them nonprofit status. But there are two problems with these complaints. We don’t know what a group’s primary purpose is until it’s had a chance to spend money over a year and we can see what share went for political activities. Also, the IRS rules are far from clear as to how to measure “primary purpose.”

The bottom line is that the 2010 election will be over long before the IRS decides whether the Coalition to Protect Seniors and its ilk are breaking the law. The same thing happened in the 2004 cycle, when Republicans complained that certain Democratic-leaning organizations were really political committees that the FEC should have regulated. By the time the complaints went anywhere and the groups were ordered to pay fines, they had stopped being politically active.

Democrats in Congress have proposed tightening up these rules yet again in the DISCLOSE Act, but they larded up the bill with new limits on corporate political activities and no Republicans were willing to back even a straight disclosure bill. Even if the bill passed, it’s not clear that it would solve the problem. It doesn’t bar secret contributions to nonprofit veterans organizations, leading to speculation that they could be the new front groups.

This election season, enterprising journalists, especially at the New York Times, have been digging into the shell game of contributions and spending, including activities by the American Future Fund, Crossroads GPS, and Americans for Job Security. The most important piece the Times has run, by Mike McIntire, demonstrated in vivid detail just how hard it is to follow the money without disclosure rules strongly enforced by the government. * As McIntire explains, after his extensive investigation into the backers of the “Coalition to Protect Seniors” led him to P.O. boxes and unanswered e-mails, it looked as if the health care industry might be behind an ad the group ran attacking the president’s health care plan. But in all likelihood, we’ll never know for sure. That’s how porous our disclosure rules have become.

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Correction, Oct. 15, 2010: This article originally misspelled Mike McIntire’s last name. (Return to the corrected sentence.)