Preparing for 2006: a constitutional argument for closing the 527 soft money loophole.

• Author: Geiger, Jeffrey P.

INTRODUCTION I. OVERVIEW OF FEDERAL CAMPAIGN FINANCE LAW A. Current Federal Campaign Finance Law B. First Attempt to Limit Contributions to Certain Independent Groups C. The Political Party Soft Money Loophole D. Closing the Political Party Soft Money Loophole II. HISTORY OF 527 POLITICAL ORGANIZATIONS A. Section 527 of the Internal Revenue Code B. The 527 Soft Money Loophole C. FEC Declines to Close the 527 Soft Money Loophole III. LEGISLATION'S BASIC FRAMEWORK AND CONSTITUTIONAL CONCERNS IV. CONSTITUTIONAL ANALYSIS OF THE BASIC FRAMEWORK A. Standard of Review B. Compelling Government Interests 1. Preventing Corruption and the Appearance of Corruption 2. Preventing Circumvention of Federal Election Law C. Functional Equivalents Prove Sufficiently Narrow 1. Vagueness Avoided 2. Overbreadth Avoided CONCLUSION INTRODUCTION

In the 2004 election, 527 political organizations (1) emerged from the fringes of the American election system to become defining and dominating players in a close electoral contest. (2) The names of these organizations were just as familiar as the candidates themselves: MoveOn.org, Swift Boat Veterans for Truth, The Media Fund, and Progress for America Voter Fund, to name a few. (3) Unlike the candidates, these organizations operated with few restraints on their financial ability to affect the outcome of the 2004 election. (4) As a result, 527 political organizations produced and disseminated communications that defined and dominated the 2004 election. (5) Their political communications were often the most "hard-hitting and misleading" of the campaign. (6) To protect the integrity of our election system, reform is needed.

The 527 political organizations achieved their dominance by raising and spending "soft money." The term soft money denotes unlimited monetary contributions provided by a single source that is given outside the reach of federal campaign finance law. (7) In the 2004 election, 527 political organizations received more than $400 million. (8) The soft money was raised from individuals, corporations, and labor unions interested in a specific electoral outcome. The most generous of these contributors made donations ranging from $3.9 million to $30 million. (9) Their contributions funded television advertising, partisan voter registration, and partisan get-out-the-vote efforts. (10)

The emergence of these 527 political organizations was a direct result of the enactment of the Bipartisan Campaign Reform Act of 2002 (BCRA). (11) BCRA sought to eliminate single-source contributions that ran into the hundreds of thousands or millions of dollars by restricting the ability of political parties to raise soft money to influence federal elections. (12) Prior to BCRA, soft money contributions were channeled through the national political parties. (13) Stymied by BCRA's ban, the political parties sought a new method of raising soft money. (14) They turned to 527 political organizations. (15) The 527 political organizations are independent groups (16) organized for the primary purpose of influencing elections. (17) Operating as independent groups, 527 political organizations may exist beyond the reach of hard money limits. (18) Thus, they are able to raise soft money in order to try to influence the outcome of federal elections. (19)

Reform legislation was introduced in 2004 to stop the circumvention of BCRA's intent and protect the integrity of the American election system by closing this 527 soft money loophole. (20) The legislation proposed bringing 527 political organizations that promote, attack, support, or oppose an identified federal candidate within the scope of the hard money limits. (21) Although this legislation was not acted on in the 108th Congress, congressional campaign reform advocates continued their efforts to close the loophole by introducing similar legislation in the next congressional session. (22) This Note examines whether the basic framework proposed in the reform legislation is constitutional. Part I provides an overview of federal campaign finance law. Part II summarizes the history of 527 political organizations and their role in the American election system. Part III discusses the basic framework of the proposed reform legislation and the constitutional arguments leveled against it. Part IV examines the constitutionality of bringing 527 political organizations within the scope of the federal hard money limits. This Note concludes that the basic framework of the proposed legislation provides a constitutional reform of the election system, a reform that will protect the integrity of the system from wealthy individuals seeking to influence the outcome of an election for their favored candidate.

1. OVERVIEW OF FEDERAL CAMPAIGN FINANCE LAW

   1. Current Federal Campaign Finance Law

      The financing of federal elections is governed by the Federal Election Campaign Act (FECA). (23) FECA was enacted in response to the concern that large monetary contributions were being made to influence elections and secure political favors. (24) To help maintain the integrity of the election system, FECA limits contributions to federal candidates and requires public disclosure of funds raised and spent to influence federal elections. (25) The application of FECA varies depending on the actor and the type of electioneering activity. (26)

      Under FECA's requirements, federal candidate committees, party committees, political committees, (27) and certain independent groups must disclose contributions and expenditures of more than $200. (28) Independent groups who spend more than $10,000 airing television ads that can be received by 50,000 or more persons in the federal candidate's district thirty days before a primary election or sixty days before a general election must disclose contributions of more than $1000 and expenditures of more than $200. (29) Public disclosure is achieved by filing periodic reports with the Federal Election Commission (FEC). (30) The FEC then makes these disclosures available to the public. (31)

      FECA's hard money limits are based on the recipient's classification. A federal candidate's committee is limited to receiving $2100 per election from an individual. (32) Federal committees run by national parties are limited to receiving $26,700 per election from individuals; state and local party federal committees are limited to $10,000. (33) Political committees are limited to receiving $5000 per election from individuals. (34) Additionally, individuals may give up to $101,400 in federal contributions every two years. (35) FECA also prohibits corporations, labor organizations, government contractors, and foreign nationals from contributing funds or expenditures to influence federal elections. (36) Independent groups such as 527 political organizations are not subject to any of these contribution limits unless their activities qualify them as a political committee. (37)

   2. First Attempt to Limit Contributions to Certain Independent Groups

      With FECA, Congress originally sought to bring certain independent groups within the scope of the political committee contribution limits. To do so, Congress created a very broad definition for the term "political committee." Under the definition, an independent group would be considered a political committee if it '"receives contributions or makes expenditures during a calendar year in an aggregate amount exceeding $1000.'" (38)

      This attempt to capture independent groups within federal campaign finance law was challenged as an unconstitutional infringement on First Amendment rights. (39) The Supreme Court considered the constitutionality of the political committee definition under strict scrutiny review because of the First Amendment implications. (40) The Court held that the government had a compelling interest in enacting FECA--preventing corruption and the appearance of corruption in the election system. (41) This compelling interest was derived from the risk to the election system presented by the mere possibility of giving federal candidates unlimited campaign contributions in exchange for political favors. (42) The Court did not agree, however, that the political committee definition was sufficiently narrow to achieve this compelling interest. (43)

      The Court determined that the political committee definition could be construed so broadly that it would unconstitutionally infringe on the First Amendment rights of independent groups. (44) The Court found that independent groups were vital participants in the discussion of public issues and in the debate on the qualifications of candidates. (45) The Court believed that this role was vital to the operation of the American system of government. (46) Thus, the Court stated: "The First Amendment affords the broadest protection to such political expression in order 'to assure [the] unfettered interchange of ideas for the bringing about of political and social changes desired by the people."' (47)

      Rather than invalidate the political committee definition, the Court narrowed its breadth by providing a new definition. (48) The Court stated that an independent group does not fall within the political committee definition unless its major purpose is to influence elections and it makes expenditures in an aggregate amount exceeding $1000 "for communications that expressly advocate the election or defeat of a clearly identified candidate." (49) Express advocacy was defined as public communications that use magic words such as "vote for," "elect," "support," "cast your ballot for," "Smith for Congress," "vote against," "defeat," and "reject." (50) Thus, an independent group was considered a political committee within the scope of FECA only if the group's major purpose was to influence elections and the group expended more than $1000 of its resources on communications of express advocacy containing the magic words.

      The Court's decision had the effect of creating two different forms of...