You'd think that social welfare groups would promote, well, social welfare causes. When you hear the phrase "social welfare organization," you might think of public advocacy groups like the American Civil Liberties Union or the Human Rights Campaign.
In reality, a growing number of these nonprofit organizations are less focused on promoting social welfare and more interested in pumping millions of dollars worth of anonymous donations into politics.
In response to the growing "dark money" controversy, the Internal Revenue Service (IRS) and the Department of Treasury announced last week new guidelines that would redefine what constitutes political activity for nonprofit organizations. While the proposed rules are a step in the right direction, they still don't do enough to increase transparency. Social welfare groups can still hide their donors’ identities from voters. If politicians can keep the identities of their campaign donors a secret, we have no way of knowing whose interests they really represent. More importantly, we don’t know if major donors are receiving political favors in return for their contributions because we have no idea who those donors are.
Under current IRS rules, tax-exempt social welfare groups — also known as 501(c)(4)s — can participate in political campaigns as long as their "primary activity" is the promotion of social welfare. Due to the guideline’s ambiguity, it is generally assumed that social welfare organizations cannot devote more than 49% of its resources to politics.
However, any funds that social welfare organizations give to other nonprofits do not qualify as political spending – even if the recipient groups are politically active. Therefore, 501(c)(4) organizations can sidestep this political spending cap by granting money to other social welfare groups.
For example, the Center to Protect Patient Rights (CPRP) — a secretive social welfare group with ties to billionaire conservatives Charles and David Koch — reported zero political spending to the IRS since 2008. In reality, the CPRP has given over $93 million to other nonprofit groups that then spent those millions on political campaigns.
But the problem with 501(c)(4)s isn't just their ability to pass off money to other politically active groups. The IRS also permits social welfare organizations to keep their donors’ identities hidden. Anonymous donors are therefore able to direct millions of dollars into political campaigns.
According to the Center for Responsive Politics (CRP), politically active nonprofits spent a record $336 million in the 2012 election. Anonymous donations to social welfare groups alone accounted for almost $260 million. In other words, more than a quarter of a billion dollars in campaign contributions is simply untraceable. Are a handful of wealthy donors exerting excessive influence on national politics? It’s impossible to answer that question when we don’t even know who those donors are.
The IRS's newly proposed rules would categorize grants to other nonprofit groups that engage in "candidate-related political activity" as political rather than social welfare spending. But what does that really mean?
This new interactive data visualization from the CRP helps show just how these new rules would affect political nonprofits. Let’s look at a specific example. The data below illustrates the November 2010 money trail of Crossroads GPS, the most politicized nonprofit group in the country. Crossroads GPS is the social welfare group that works in conjunction with Karl Rove's conservative Super PAC, American Crossroads. Together, the two groups raised $70 million in 2010. The following data visualization shows that Crossroads GPS is actually "a vehicle of choice for big donors to hide large donations in politics."
If the proposed rules go into effect — something that's not expected to happen until after the 2014 elections, if at all — Crossroads GPS would not be permitted to dole out all of its money to politically active nonprofits like Grover Norquist's Americans for Tax Reform. Crossroads and all other 501(c)(4)s would actually have to spend most of its revenue on social welfare spending to further "the common good and general welfare of the community."
What the new rules do not address is the much larger issue of anonymity in political spending. The proposed guidelines may reduce the flow of dark money into federal political campaigns, but they do not solve the problem of an overall lack of transparency.
The IRS has yet to set a limit on how much political activity is allowed for 501(c)(4) groups. But the IRS is now seeking public comments on "the proportion of a 501(c)(4) organization's activities that must promote social welfare."
If we want to increase transparency in federal politics, social welfare groups should not be permitted to devote half of their revenue to political activity. Rather, the vast majority of a 501(c)(4) activity should benefit the community, not just a handful of anonymous millionaire donors.