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IRS could help clean up campaigns by rule shifts

The campaign is over, but the broken campaign finance system remains. The flood of money into politics in the past two years, including millions of dollars from hidden donors, was unlike anything since the post-Watergate reforms of the 1970s and will only grow worse unless something is done.

Many fingers have been pointed at the Supreme Court’s 2010 Citizens United decision for opening the floodgates to unlimited donations by corporations, wealthy citizens and labor unions. Certainly, that was a major factor but not the only one.

The biggest expansion has been in so-called outside money – contributions that are not directly to a candidate or a party and on which there are no limits. A notable portion of this outside money has flowed to nonprofit, tax-exempt “social welfare” organizations, which launched huge advertising blitzes in the campaign. These organizations, known as 501(c)(4) groups for the section of the Internal Revenue Code that governs them, must report their donors to the Internal Revenue Service but do not have to disclose them to the public. Some became important players this year: Crossroads GPS, founded by Republicans Karl Rove and Ed Gillespie, and Priorities USA, which supported President Obama, to name two. By contrast, super PACs, another part of the big-money rush, are subject to rules that require public disclosure of their donors.

By the IRS definition, social welfare groups must “operate primarily to further (in some way) the common good and general welfare of the people.” According to the IRS, a group that meets this requirement can participate in some political activity, as long as the political part is not the “primary” activity of the organization. But how much is less than primary? The IRS has tolerated a rather loose definition.

Crossroads was front and center this year; by Rove’s account, it contributed more than half of the $107.4 million in ads from outside groups attacking the president or boosting Republican nominee Mitt Romney. Crossroads says that it adheres to the law and that its direct electioneering activities were less than half of its overall activity; the rest was issue advocacy on taxes, deficits and other topics. The IRS has insisted that “social welfare” cannot be for the benefit of a private group of individuals, including a political party. The IRS has drawn very clear distinctions in some areas. Now it is time to draw similar distinctions regarding political activity. Certainly, some politicking would be allowed. But social welfare groups should not be allowed to serve as a conduit for hidden cash to political campaigns.