Senators McCain and Feingold recently introduced legislation to close the so-called 527 loop-hole. When Congress passed the Bipartisan Campaign Reform Act (BCRA), it significantly limited the amount of soft money that could be contributed to political parties. It also restricted union and corporate contributions.
As a result of these limitations, large donors sought ways around the BCRA limitations. Major donors started making contributions to 527 Political Organizations. These are independent entities organized under section 527 of the Internal Revenue Code that have as their primary purpose influencing elections.
As the money started pouring in to 527s, Professor Foley and I argued that some 527s were really political committees and should be registered as such. If a 527 was also a political committee, it would be subject to stricter rules applicable to political committees and would not be able to accept unlimited contributions. Relying on language in the Supreme Court's opinion in Buckley v. Valeo we argued that a 527 that had as its primary purpose influencing federal elections was a political committee and should be regulated as such. The Federal Election Commission had hearings and proposed rulemaking on this matter and rejected proposed rules that would have regulated political committees.
Partially in response to inaction at the FEC, Senators McCain and Feingold recently introduced legislation to regulate 527s as political committees. Their proposal, however, is far more sweeping than anything proposed so far (including the proposal of the FEC General Council that the Commission rejected) and raises serious constitutional questions. Although I believe that many 527s can be regulated as political committees, the current version of the bill proposed by Senators McCain and Feingold is very broad and likely reaches organizations that cannot be regulated under the First Amendment.
In Buckley, the Supreme Court held that Congress could not restrict expenditures by individuals made on their own behalf even if those expenditures were express advocacy (expressly advocated the election or defeat of a candidate for federal office). Thus George Soros, Bill Gates, or anyone else with a sizeable fortune, can spend unlimited funds on behalf of a candidate of his or her choice.
So if George Soros can spend millions on his own, why can't he contribute millions to a 527? The reason is that the Court created a different standard for contributions than for expenditures. The Court in McConnell noted "[b]ecause the communicative value of large contributions inheres mainly in their ability to facilitate the speech of their recipients . . . contribution limits impose serious burdens on free speech only if they are so low as to 'preven[t] candidates and political committees from amassing the resources necessary for effective advocacy.'"
There is no evidence that restricting contributions to political organizations to $5,000 will prevent organizations from amassing enough resources for effective advocacy. The question then is whether there is a sufficient Congressional justification for the restriction on a political organizations First Amendment rights. In Buckley and McConnell the Supreme Court has recognized that corruption and the appearance of corruption are acceptable reasons for restricting the amount of contributions to a candidate or party. If contributions to 527 organizations raise similar corruptions concerns, contributions to them can be regulated for similar reasons.
The McCain-Feingold legislation attempts to do just that. It classifies 527 political organizations engaged in over $1,000 of federal advocacy as a political committee and thus limits contributions to them to $5,000.
Whether this is constitutional turns on whether the corruptions concerns present are sufficient to allow regulation. The Supreme Court indicated in Buckley that organizations that have as their major purpose influence federal elections are can be regulated because they "can be assumed to all within the core area sought to be addressed by Congress." They are, the Court recognized "by definition, campaign related." So many 527s, those that have as their major purpose influencing federal elections, can constitutionally be regulated. Section 527s that do not have as their primary purpose influencing federal elections, however, must present a serious possibility of corruption before they can be subject to regulation as political committees.
It is hard to imagine that contributions to a 527 that engages in $1,001 in federal advocacy raises a real threat of corruption. Donors can regularly give candidates far more than $1,001 and Congress has found this amount not to be corrupting. PACs, individuals, and candidate committees can routinely accept contributions of this amount. Why is $1,001 corrupting when it is received by a 527 organization, but not by a candidate?
Professor Foley and I have argued sometimes a 527 can be engaged in so much federal advocacy, that a contribution to the 527 is similar to a contribution to a candidate. When a 527 has as its major purpose the influencing of a federal election, the 527 can operate as an effective surrogate for a contribution to a candidate. Contributions to the 527 can thus raise corruption concerns even if they are not coordinating with a candidate.
This justification, however, is much weaker when the 527 does not have as its major purpose the influencing of federal elections. A contributor does not know that his contribution will benefit a specific candidate unless the organization spends a significant amount of its resources on that candidate. So when influencing federal elections is not an organization's major purpose, it is thus harder to argue that the contribution is corrupting.
The McCain-Feingold bill also limits the amount an organization can accept in its non-federal segregated account to $25,000. This provision also raises serious constitutional questions. A similar limitation was upheld in McConnell as applied to state political parties engaged in federal election activities. The Court upheld this limitation as "Congress' judgment that if a large donation is capable of putting a federal candidate in the debt of the contributor, it poses a threat of corruption or the appearance of corruption." This logic, however, does not necessarily apply to independent organizations that are not engaged in federal elections. Proponents of the measure should at least put forward strong evidence that these type of contributions pose a serious corruption threat for federal elections.
Although the new McCain-Feingold legislation attempts to close some loopholes exploited by some advocacy group, there is a serious question whether the legislation as written is constitutional. Advocates need to provide strong evidence that contributions to 527 political organizations that engage in only a minimal level of federal advocacy pose significant corruption concerns to warrant the infringement on their First Amendment rights. This should be fairly easy to prove when considering 527s that engage in significant federal activity, but it will likely be a tough hurdle when trying to regulated 527s with only small amounts of federal activities.