Letter from Campaign Legal Center, Common Cause, Democracy 21, League of Women Voters and Public Citizen to Senators on supporting S. 271, "The 527 Reform Act of 2005."

March 28, 2005

Dear Senator:

The undersigned organizations urge you to support S. 271, "The 527 Reform Act of 2005." We also urge you to oppose any efforts to unravel, undermine or backtrack on the Bipartisan Reform Act of 2002 (BCRA), or to attach other "poison pill" provisions in an attempt to block this legislation from passing. A summary of the legislation is enclosed.

The organizations sending this letter include the Campaign Legal Center, Common Cause, Democracy 21, the League of Women Voters and Public Citizen.

"The 527 Reform Act of 2005" is necessary to close a loophole that allowed 527 groups to spend tens of millions of dollars in unlimited soft money contributions on ads and partisan voter mobilization efforts to influence the 2004 presidential election. Such soft money expenditures will no doubt be made in the 2006 congressional races unless this loophole is closed.

Without this legislation, it is virtually certain that the 527 loophole will grow and will re-create the old soft money system. Section 527 groups will continue to operate as barely disguised surrogates for the political parties and to serve as vehicles for the flow of unlimited corporate and union funds, and multi-million dollar contributions from wealthy individuals into federal elections.

The 527 reform legislation makes clear that 527 groups spending money to influence federal elections have to register as federal political committees and comply with federal campaign finance laws, including limits on the contributions they receive.

The 527 reform legislation would require only groups that voluntarily register with the IRS under section 527 as tax-exempt "political organizations" to operate as federal political committees when they spend money to influence federal elections. The bill explicitly states that it does not apply to 501(c) groups. Thus, it does not require 501(c) groups to register as political committees and it imposes no new tax law or campaign finance law requirements on 501(c) groups. Nor does the legislation give the FEC any authority over 501(c) groups.

Much of the soft money contributed to 527 groups to influence the 2004 federal elections came from a relatively small number of very wealthy individuals. According to campaign finance scholar Anthony Corrado, just twenty-five individuals accounted for $146 million raised by the pro-Democratic and pro-Republican 527 groups that spent money to influence the 2004 federal elections.

527 groups must be "organized and operated primarily" to influence elections in order to qualify as a 527 group under the Internal Revenue Code and receive tax-exempt status. They are, by definition, "political organizations," not "issue groups," and they should not be operating outside federal campaign finance laws when they are spending money to influence federal elections.

As the Supreme Court stated in the McConnell case upholding the constitutionality of the BCRA, 527 groups "by definition engage in partisan political activity." The Court also stated in McConnell that 527 groups "are, unlike [Sec.] 501(c) groups, organized for the express purpose of engaging in partisan political activity."

We also urge you to oppose any efforts to use "The 527 Reform Act of 2005" as a vehicle to undermine the reforms enacted in the BCRA. The BCRA accomplished its goals in the 2004 elections in shutting down the flow of soft money through the political parties into federal elections, and in breaking the nexus between influence-seeking soft money donors and federal candidates and officeholders.

And, contrary to the predictions made by reform opponents, the national political parties flourished in the 2004 election, raising a record $1.2 billion and attracting millions of new smaller donors. The national parties, in fact, raised more hard money for the 2004 federal elections than they raised in hard and soft money combined for the 2000 presidential election cycle. There is simply no justification for increasing the hard money limits on contributions to the parties and we oppose any efforts to do so, and any other changes that would undermine the BCRA.

The 527 reform legislation is based on the simple proposition that a 527 group that spends money to influence federal elections should abide by the same set of rules that apply to other political groups spending money to influence federal elections. There is no basis for a 527 group to claim the advantage of a tax exemption as a "political organization" under the tax laws, while at the same time dodging the federal campaign finance laws on the claim that it is not a "political committee."

We strongly urge you to support S. 271, and to oppose any efforts to undermine or rollback the BCRA or to attach "poison pill" amendments to the bill.

Signed by:

Campaign Legal Center
Common Cause
Democracy 21
League of Women Voters
Public Citizen