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

Journal of Corporation Law, The, Fall, 2007 by Shayla Kasel

   I. 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)