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.
reason: Can you explain to the lay reader what the problems are with identifying 527s as Political Action Committees, beyond merely legal precedent…specifically, why is that an improper thing to do?
Smith: I really want to emphasize [that] in this debate I've tried to avoid these sorts of underlying policy arguments, because in some respects I don't think they matter to us here at the FEC. But what is significant about it is that all kinds of groups are organized under section 527 to engage in various types of political activity. It includes a lot of campaigns for state offices, it includes groups that work on ballot initiatives, it includes groups that lobby for judges. As one person said, Section 527 of the tax code is sort of like the drawer you have in the kitchen where you just throw everything….
And what we would be doing with the proposals before us here is turning all these groups into federally regulated groups-which involves a number of registration requirements, very detailed and costly compliance issues and reporting-and ultimately subject them to a level of federal regulation that I just think is bad for political discourse.
And again as I see it, the net effect of these kinds of proposals would simply be to chase money to other groups, groups organized under Section 501(c), and it will also have the effect of strengthening established interests over new interests. Because a 501(c) group can only do up to half its activity this way. So if you've got a great big 501(c)-like a chamber of commerce, Planned Parenthood, or the National Abortion Rights Action League, or any of those groups-they can then spend large sums of money for this kind of election activity, as long as it doesn't make up more than half of their total expenditures….
But if you are a new group of citizens, and suddenly you see your interests being threatened in the election and there's something you want to address, you've got to start a new group; you're not going to have time to establish a huge group that allows you to spend a million dollars while keeping it under half of your [total] activity. You're much more likely to form a 527 organization, and [under the proposal] this makes you automatically a political committee, and thus limits who you can take money from and how much you can take….
From a policy standpoint, it would federalize a great deal of state and local political activity, and it would advantage large groups and pre-existing groups at the expense of small groups and newly formed grassroots groups, and I don't think that's a good development.
reason: Are you of the opinion that if the 527s should now be regulated and brought under these rules, that also 501s should be regulated?
Smith: Well I don't generally tend to favor regulation; I would prefer not to regulate either. But I think from a standpoint of having a sensible system of regulation, it would make more sense probably to regulate 501(c)s than just to regulate 527s. In other words, like I said, if you just regulate 527s, you're just shoving the activity over to 501(c)s, and you haven't really accomplished anything….
reason: Can you also explain briefly…for the skeptical out there, how a decision on regulating these 527s would affect [free] speech?
Smith: Well, the idea behind campaign finance regulation, at least the one that has been accepted as constitutional, is that it's necessary to prevent corruption of government officials. There are a lot of people who like it just because they think it's equalizing-they want to equalize what everybody can spend, and that's a whole other discussion we could have; what's just worth knowing at this point is that the Supreme Court has said that's not a constitutionally permissible basis, any more than you could, you know, limit how much the New York Times can publish, or how many hours a day Rush Limbaugh can be on the radio….You can't limit people's speech to promote equality.
So the constitutionally accepted rationale to date is this prevention of corruption. Well the question is, where is it corrupt if thousands of individuals give money to MoveOn.org, and MoveOn.org runs ads that are critical of the president? Where is it corrupt if these groups are functioning in this way? The office-holders themselves are not asking them for money, so there's not that danger of "Well, look, give my campaign, you know, a million dollars then you'll get more access to my campaign."…That kind of danger isn't there; instead we're simply out there to limit people's speech on the grounds that it might influence the election. I don't think that's by any standard acceptable in American constitutional jurisprudence….
Generally speaking the Court has required that sort of nexus of some kind of corruption, so it has not allowed limits on individual spending if it's done independently of a candidate. And of course that's another issue-these groups are operating independently of candidates, so why should they be limited this way? The argument seems to be, well, if we make them political committees we won't be limiting them because of their spending, we'll be limiting them because they're political committees! Well, that's a little constitutional sleight-of-hand that I don't think carries the day….
reason: John McCain talked about abolishing the FEC recently. Is that proposal going anywhere, and what is your reaction to it?
Smith: Well whether it's going anywhere you'd have to ask members of Congress. What's important to note is-McCain doesn't really want to abolish the FEC, in the sense of not having an agency, he wants to create another agency, where there'll be a single person who'll have much more power. All I can say is, I don't think very many people in this country like the idea of sort of an Election Speech Czar. I mean think about it: if you're a person who doesn't like George Bush right now-and a lot of people already complain that this whole effort to regulate 527s is a partisan effort to silence Democratic groups, and I think there's some evidence for that-well, imagine if we had an agency where essentially the president appointed one guy who ran it for 10 years!… And if you're a person who likes George Bush, imagine…Janet Reno making such a decision.
I note that over and over, Senator McCain keeps saying that this proposal that's before us tomorrow is a "bipartisan proposal." Yet he doesn't seem to like the idea of a bipartisan Commission. You know, there's some weaknesses to bipartisan commissions, but on the whole I think when we're talking about regulating political speech, I think most people should like that.