Today, the Federal Election Commission ruled that for the next three months at least, the McCain-Feingold campaign finance reform regulations will not be interpreted to cover "527s"—political organizations such as George Soros' Media Fund that are not affiliated with specific politicians and therefore exempt from certain federal taxes under Section 527 of the tax code.
The campaign-finance lobby, which has traditionally skewed Democratic, sees 527s as blatant loophole-exploiters, gobbling up $59 million in unregulated soft money the first three months of 2004 alone. Republicans, meanwhile, note that the 10 biggest 527s this year are all gunning for President George W. Bush.
Yet the bipartisan, six-member FEC shot down the bipartisan 527 proposal by a vote of 4-2, then decided to table the question until at least August, effectively nixing any new rules for the 2004 election cycle. Which means that the views of FEC Chairman Bradley Smith, John McCain's Republican nemesis, have carried the day.
Smith, who has long criticized campaign-finance restrictions (such as in this July 2001 Reason interview) even while enforcing them the last four years, has become Public Enemy Number One of the Senator from Arizona.
"While some may look upon his views as principles, I can only conclude that they again illustrate the same unfitness to serve on the Federal Election Commission he has shown since he was appointed five years ago," McCain barked on the Senate floor April 28, adding that Smith's characterization of reform advocates in the May 3 edition of the National Review as "groups hostile to freedom" was "perhaps the most inflammatory and inappropriate comment I have ever seen by an individual who is supposed to be enforcing existing law." McCain, who is introducing a bill to scrap the FEC and "start over," is sure to be cursing Smith's name ere nightfall.
Twenty-three hours before the vote was cast, Reason's Matt Welch spoke with Brad Smith by phone:
reason: Do you want to explain [your "no" vote]?
Smith: Well, this would be a massive expansion in federal regulation. It would be, I think, the biggest expansion since the original Federal Election Campaign Act was passed in 1974. And I think that it is an expansion of regulation which is clearly not contemplated by BiCRA [the Bipartisan Campaign Reform Act], the McCain-Feingold bill.... And not only is it not contemplated by that law, I think quite arguably it is precluded by that law, because that law works around well-established, long-standing interpretations of the underlying Federal Election Campaign Act.... [BiCRA] did not amend the definition of what constitutes a political committee, it did not amend the definition of what constitutes a contribution or an expenditure, which is the way that the law requires you define a political committee....
So I think it's simply a very bad approach to law. It's an effort to accomplish by regulatory fiat something that Congress did not approve itself and almost certainly would not have approved, I think. I mean, over half the members of the House who voted for the bill, I think, have signed comments that have suggested they did not anticipate these to be regulated.
reason: The McCain response to that is, clearly the intent or the spirit, let's say, of McCain-Feingold, was to limit the kind of influence of soft money that is now being allowed by 527s.
Smith: Right. Well, whenever somebody says somebody's violating "the spirit of the law," I always point out that the immediate assumption should be that the activity is legal, otherwise we'd say we're violating "the letter of the law." You know, you can't pass a law and then say "Well, our intention was kind of generally to do good things." Laws have meanings, and they deal with precise purposes, and people vote for them assuming that is what they are going to do.
And essentially what these guys are doing is they're admitting that McCain-Feingold really isn't accomplishing anything they thought it was going to accomplish, and so now they're saying, "Hey, well you guys at the FEC, fix it!" Well, again, I think that's a bad way to make a law; I don't think it's appropriate for a regulatory agency to do.
Now I will say as well, I don't think the fix that is being proposed would fix the problem. Because if we limited contributions to these 527 groups as they're called-for the section of the tax code under which they're organized-I think the money would just swing over to groups that are organized under section 501(c) of the tax code, and those groups are even less regulated than 527s, if you like the regulations. So we're not really accomplishing anything here, we're just kind of chasing a tail at this point.
But leave that aside: To me the big issue is simply that it is very obvious that this was not contemplated by BiCRA. If you look at the congressional debates over BiCRA, the opponents of the bill said, "If you pass this, you know, it's not going to change a thing, it's just going to mean that the money is going to be spent by shadow party groups, 527 organizations." The sponsors of the bill said, "Well, that's probably true, but we've got this Electioneering Communication provision"-that's the part that limits your ability to run broadcast ads within 60 days of the election-and they said, "and this will stop office-holders from raising money for these groups, at least, and that's the best we can do; we think that's an improvement." Everybody knew, in other words, that this is what would happen.
What you've got here is an opportunistic combination of opportunistic reformers who see a chance to get something done through bureaucratic fiat what they couldn't get done through Congress, joined together with certain segments of opportunistic Republicans who think that they can gain a partisan advantage out of it.