Super PAC Tax Loophole Allows Non-Profits to Run Wild With Campaign Spending

The Federal Election Commission (FEC) should establish financial disclosure requirements for nonprofit organizations engaging in political activity or donating to political organizations and committees to increase transparency in election funding.

In the last three years, federal courts have dismantled numerous long-standing campaign finance regulations. Though Citizens United is the most well known of theses cases, the federal appeals courts ruled on two cases that are equally damaging. Together, the rulings in Emily’s List and Speachnow.org paved the way for a new class of independent expenditure-only Political Action Committees (PACs): Super PACs. In their debut election cycle, Super PACs spent over $65 million on advocacy expenditures, and as of May 2012, raised over $200 million for the November elections.

Although Super PACs are free from contribution and spending limits, they still must disclose their funding sources. However, many Super PACs are established as a subset of 501(c)(4) nonprofit organizations, which are free to spend unlimitedly on political activities without disclosing their donors. This allows corporations, unions, and individuals to donate unlimited amounts to a given nonprofit and remain anonymous. These nonprofits can then donate unlimited amounts to the Super PACs, which list only the nonprofit’s contribution, protecting the original donors identity. In the 2010 election, donations from nonprofit organizations comprised a significant portion of Super PACs’ funds. The Center for Responsive Politics reported in July 2011 that five Super PACs received over 80 percent of their contributions from nonprofits not required to disclose their donors. Additionally, American Crossroads, the second highest spending political committee in the 2010 elections, received over one-third of its contributions from nonprofit organizations. These organizations use the majority of their funds to create political advertisements, resulting in an influx of campaign ads funded by anonymous donors.

Analysis

Since Congress first implemented campaign finance regulations, public disclosure of funding sources has been a central component to promote transparency and reduce the potential for corruption. Public financial disclosure provides citizens with access to information about individuals and organizations that support or oppose candidates and allows voters the opportunity to make informed decisions. Because Super PACs can spend unlimited sums of money on political advertising intended to sway election results, they have a significantly greater potential to unduly influence candidates and voters. Therefore, elected officials may feel obligated to uphold the interest of their donors over those of their constituents, resulting in quid pro quo corruption. Without mandating financial disclosure for nonprofits engaging in political activity, voters have no way of knowing who is influencing their elected officials. Nonprofit disclosure requirements would guarantee that the origins of these monies be made public.

Next Steps

The FEC should establish disclosure requirements based upon current requirements for political committees and parties. These financial disclosure requirements would apply only to nonprofit organizations that elect to spend money on political activity. When making a contribution, donors must consent to the use of their contribution for political activity. This would ensure that the nonprofits know the origin of the money they are spending on political activity. Furthermore, these regulations would mandate that nonprofit organizations disclose donor information either directly to the FEC or to Super PACs, who would then list the contributions as a subset of the nonprofit’s donation. To implement these regulations, Congress would have to amend the Federal Election Campaign Act of 1971 to include nonprofit organizations in the disclosure requirements. This would give the FEC the authority and capacity to oversee the campaign spending of nonprofits.