Column: How the budget deal opens the door even wider for secret money in politics

By Michael HiltzikBusiness Columnist

Dec. 16, 2015 9:05 AM PT

When Congress legislates at night and in haste, you can be sure mischief is being done. Sure enough, the budget deal announced late Tuesday by House Speaker Paul D. Ryan (R-Wis.), takes an ax to efforts to limit the torrent of big money into politics.

Two provisions buried in the 2,009-page bill -- one on page 472 and the other on page 1,982 -- emasculate efforts by the Internal Revenue Service and Securities and Exchange Commission to force public disclosure of donations by individuals and corporations.

These are donors who represent no one’s interests but their own, and their influence over politics and the electoral process has only grown since the Supreme Court’s wretched Citizens United decision in 2010.

The omnibus proposal keeps the government’s lights on in exchange for more secret money in politics.

— Miles Rapoport, president of Common Cause

It’s now poised to get even bigger, thanks to the riders’ inclusion in an omnibus budget bill that’s being handled as must-pass legislation to avoid a government shutdown. As Common Cause President Miles Rapoport said in a prepared statement Wednesday: “The omnibus proposal keeps the government’s lights on in exchange for more secret money in politics.”

Here’s how the deal protects big secret donors.

The IRS provision prohibits the agency from taking any step toward issuing a rule governing the political activities of so-called 501(c)4 nonprofit organizations. By law, these nonprofits aren’t supposed to be involved in politics at all. They’re “social welfare” organizations that by law must be devoted primarily to programs broadly serving their communities, not private groups; the category used to be limited to religious groups; cultural, educational and veterans organizations, homeowners associations, volunteer fire departments; and the like.

But they’re allowed to keep their donors secret, a benefit that made them into an all-too-tempting instrument for political contributions. Over the years, the IRS loosened its strictures on political activities by C4s, ultimately allowing them to spend money on politics as long as they kept the activity under 50%. (We tracked this evolution starting back in 2012.)

In 2013, the IRS tried to crack down on political C4s masquerading as social welfare groups. The ultimate harvest was the ginned-up IRS “scandal,” in which Rep. Darrell Issa (R-Vista) tried, and ultimately failed, to prove that the agency crackdown was focused on conservative organizations.

The real goal of the IRS attackers was to hamstring its regulation of any political C4s, which were too good a funnel for secret money. Instead, the IRS sat down to write bright-line regulations defining the permissible activities of C4s once and for all.

You shouldn’t be surprised that front persons for big-money donors -- that is, almost everyone in Congress -- are exploiting the budget negotiations to stop that effort in its tracks. According to the budget bill, no funds can be used by the IRS to “issue, revise, or finalize any regulation, revenue ruling, or other guidance” related to 501(c)4s. Who benefits from this stricture? The secret donors, that’s who.

The second provision relates to a campaign by investors and Democrats to prod the SEC into forcing corporations to disclose their political spending. The idea gained steam from a 2011 petition by a group of corporate law experts arguing that the Citizens United decision made corporate disclosure especially urgent. The petition has attracted 1.2 million public comments, the most in the SEC’s history. The budget bill prohibits the agency from spending any funds to “finalize, issue, or implement” any rule on disclosure of political contributions.

As the petition observed, shareholder interest in such disclosure was so strong that more than half the companies in the Standard & Poor’s 100 index had voluntarily adopted the policy by 2011. But the pace of adoption had slowed considerably in recent years, suggesting that SEC action is needed.

Indeed, the Supreme Court in Citizens United placed great weight on the value of disclosure -- perhaps naively so. “With the advent of the Internet,” Justice Anthony M. Kennedy wrote for the majority, “prompt disclosure of expenditures can provide shareholders and citizens with the information needed to hold corporations and elected officials accountable for their positions and supporters.” Disclosure would enable shareholders to “determine whether their corporation’s political speech advances the corporation’s interest in making profits, and citizens can see whether elected officials are ‘in the pocket’ of so-called moneyed interests.”

But as the law professors noted, this system doesn’t work unless shareholders “have information about the company’s political speech....Absent disclosure, shareholders are unable to hold directors and executives accountable when they spend corporate funds on politics in a way that departs from shareholder interests.”

The budget bill advances only donors’ interests by cutting off the SEC rulemaking. “They’re halting the most-requested rule in SEC history,” says Lisa Gilbert, the director of Public Citizen’s Congress Watch.

The restrictions raise the profile of some other regulatory initiatives that aren’t affected by the budget bill. Among the most important is an executive order under consideration at the White House that would require government contractors to disclose their political contributions. Since about 70% of Fortune 500 corporations are government contractors, Gilbert says, they’d be forced to disclose even without an SEC rule. But it’s still unclear whether President Obama will issue the order.

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