Show us your money: halting the use of trade organizations as covert conduits for corporate campaign contributions.

Author:Kasel, Shayla
  1. INTRODUCTION II. HISTORY OF CORPORATE POLITICAL CONTRIBUTIONS: CORPORATIONS ALWAYS HAVE AND ALWAYS WILL INFLUENCE POLITICS A. Turn of the Century: Ban on Corporate Contributions B. The First Substantial Regulation: The Federal Election Campaign Acts of the 1970s C. Buckley v. Valeo: The Case that Determined the Course of Campaign Finance 1. The Level of Scrutiny for Limiting Political Speech 2. "Magic Words" 3. Soft Money Loophole D. 2002 Bipartisan Campaign Reform Act and the Judicial Aftermath 1. Changing Levels of Scrutiny 2. Issue Ads Are Here to Stay 3. The Elimination of Soft Money E. 527s F. Trade Organizations G. Regulating Corporate Speech III. TRADE ORGANIZATIONS: CORPORATIONS' NEWEST LOOPHOLE FOR CORPORATE POLITICAL EXPENDITURES IV. CONGRESS SHOULD REQUIRE TRADE ORGANIZATION DISCLOSURE WITH IRS OVERSIGHT A. Contributions and Expenditures Should be Disclosed 1. Goals of Disclosure 2. Congressional and Court Support B. IRS is Best to Regulate Disclosures 1. Utilization of Existing Relationships 2. Utilization of Existing Structure 3. IRS Could Reach All Contributions V. CONCLUSION I. INTRODUCTION

    The U.S. Chamber of Commerce (the Chamber) is the "world's largest business federation," (1) and the most financially influential trade organization, (2) representing three million large and small businesses and thousands of smaller trade associations. (3) The Chamber is not only the nation's strongest business advocate and the top spender on lobbying efforts in Washington, D.C., but also is one of the top independent organizational contributors to state and federal political campaigns. (4) The national Chamber alone spent $30 million in both the 2004 and 2006 elections. (5) However, the public will never know who is funding the Chamber's attack ads and get-out-the-vote efforts because the Chamber is a registered 501(c)(6) trade organization, and therefore is not required to itemize its political activities or comply with federal election donor limits. (6)

    The Chamber's campaign activities extend across the country to every level of election, and it acts as a conduit for corporate donations. (7) When companies have exhausted their federal political action committee (PAC) contribution limits or wish to remain anonymous, they can turn to the Chamber or other trade organizations to hide their campaign contributions. (8) In 2006, the Chamber poured money into the effort to reelect Democratic Congresswoman Melissa Bean, financing $700,000 in independent advertisements, almost doubling the amount spent in the average congressional race. (9) However, the full extent of the Chamber's involvement in political campaigns remains unclear. Despite its claim of victories from 2000 to 2004, and admissions of political spending, the Chamber and its affiliate, Institute for Legal Reform, claimed zero political expenditures on their 2000 tax form and reported only half of their claimed election spending in 2004. (10) The growth of trade organizations as a vehicle for covert political contributions is a consequence of recent campaign finance reform. (11) Despite legislative efforts to limit campaign contributions, election costs continue to rise: the 2006 election was the most expensive midterm election ever, with an estimated $2.8 billion spent. (12)

    Historically, campaign finance reforms have not decreased or slowed the amount of money flowing into politics. Congress began limiting corporate political contributions 100 years ago, prohibiting direct donations from corporate treasury funds to federal candidates. (13) While this prohibition remains in place, corporations utilize loopholes to make political contributions and to independently run "issue ads" that directly influence elections. (14) In 2002, Congress sought to eliminate some of these loopholes by passing the Bipartisan Campaign Reform Act (BCRA). (15) However, "[m]oney, like water, will almost instantly find its way undiluted into the cracks, no matter how the law changes." (16) As the cost of elections continues to rise, money finds new outlets and new ways to influence elections. (17) One of those outlets is 501(c)(6) trade organizations.

    While political organizations, like 527s (18) and PACs, attract media scrutiny, less attention is paid to the trade organization loophole because little is known about trade organizations' activities. (19) Trade organizations are sometimes called "stealth PACs" because they only report their total amount spent on election activities and are not required to itemize their donors or expenditures. (20) This Note argues that the political activities of trade organizations should be disclosed to the public through the Internal Revenue Service (IRS). Part II outlines the history of corporate political contributions and the development of trade organizations. Part III lays out the problem of trade organizations acting as covert conduits. Part IV advocates that Congress should require trade organizations to disclose federal political donors and expenditures to the IRS because it has a working system in place for similar disclosures by 527 organizations and can uncover both donations and expenditures. (21)


    The campaign finance system has continuously evolved since the 1830s, (22) with each new change prompted by finger pointing and partisan concerns. (23) The regulatory system developed through reactionary legislation enacted in response to each new scandal and public outcry. (24) Often, the remedy for the appearance of corruption was a new disclosure system. (25) Each law addressed the most recent problems, but with every enacted law new loopholes were uncovered and exploited. (26)

    1. Turn of the Century: Ban on Corporate Contributions

      Benjamin Harrison's campaign for President in 1888 marked the "full scale development" of corporate contributions. (27) A department store magnate donated $50,000 to Harrison's campaign, the equivalent of $500,000 in 2000. (28) Even as campaign costs rose rapidly in the 1890s,29 no laws limited how much money candidates could take from corporations or business leaders. (30) William McKinley's use of contributions from "large Wall Street Corporations" garnered $3 million dollars for each of his presidential campaigns in 1896 and 1900. (31) Mark Hanna, who organized McKinley's campaigns, "asked each company to 'pay according to its stake in the general prosperity of the country and according to its special interest in a region where ... a large amount of expensive canvassing had to be done.'" (32)

      McKinley's corporate fundraising alarmed progressives, who demanded reform, claiming there was corruption in the form of favors exchanged for contributions. (33) The only response was four states banning corporate contributions in 1897. (34) Theodore Roosevelt's campaign for president increased progressive concern because 73% of his 1904 campaign was funded by corporate donations and a quarter of his contributions came from four corporate leaders. (35) Additionally, three large life insurance companies made substantial contributions to the Republican National Committee, sparking a scandal and public outrage. (36) An organized movement grew and lobbied Congress for campaign finance reform. (37) Ironically, President Roosevelt subsequently became a strong supporter of reform, calling on Congress to pass strict campaign finance laws in his 1905 and 1906 State of the Union addresses. (38)

      In 1907, Congress passed the Tillman Act, which prohibited political contributions from corporate treasury funds. (39) Congress articulated concerns that corporations were using their concentrated wealth to distort and corrupt the democratic government. (40) However, the Act allowed gaping loopholes for contributions and was so easy to "evade" that there was never an occasion for the Act to be challenged in court. (41) In 1910, the Act was superseded by the Federal Corrupt Practice Acts, also known as the Publicity Act of 1910, which required some post-election disclosure of contributions in congressional campaigns. (42) However, the Act had little effect and corporate political contributions continued, easily circumventing the prohibitions. (43)

      The next congressional action on campaign finance was a response to the Tea Pot Dome Scandal in 1925. (44) The Federal Corrupt Practices Act of 1925 tried again to stop corporate contributions by requiring quarterly disclosure reports. (45) However, the Act contained no enforcement mechanism or penalties for noncompliance, and the disclosure requirements did not include publishing the reports or public access to the reports. (46) Thus, it was wholly ineffective. (47)

    2. The First Substantial Regulation: The Federal Election Campaign Acts of the 1970s

      The current election regulatory system was established by the 1971 Federal Election Campaign Act (FECA), and its amendments in 1974, 1976, and 1979. (48) FECA was intended both to correct the inadequacies from the Federal Corrupt Practices Act of 1925 and to halt growing campaign costs. (49) FECA required meaningful disclosure and reporting of campaign contributions and expenditures for the first time. (50) However, the Watergate Scandal highlighted the limitations of the new regulations, as Nixon's campaign committee attempted to circumvent FECA's restrictions. (51) Subsequent amendments to FECA were the most sweeping reforms ever in campaign finance, and they left little of the 1971 law intact. (52) The goal was to ban corporate and union contributions and to end illegal corporate gifts and hidden "slush funds"--which were already prohibited--by adding penalties for candidates who accepted such money. (53)

      The 1974 Amendment created the Federal Election Commission (FEC), a regulatory board to enforce the Act and strengthen the disclosure system. (54) However, while the FEC was empowered to enforce contribution limits and...

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