Tax-exempt groups shield corporate political donors
Two years after the Supreme Court's Citizens United decision opened the door for corporate spending on elections, relatively little money has flowed from company treasuries into "super PACs," which can accept unlimited contributions but must also disclose their donors. Instead, there is growing evidence that large corporations are trying to influence campaigns by donating money to tax-exempt organizations that can spend millions of dollars without being subject to the disclosure requirements that apply to candidates, parties and PACs.
The New York Times
American Electric Power, one of the country's largest utilities, gave $1 million last November to the Founding Fund, a new tax-exempt group that intends to raise most of its money from corporations and push for limited government.
The giant insurer Aetna directed more than $3 million last year to the American Action Network, a Republican-leaning nonprofit that has spent millions of dollars attacking lawmakers who voted for President Obama's health-care bill — even as Aetna's president publicly voiced support for the legislation.
Other major corporations, including Prudential Financial, Dow Chemical and the drugmaker Merck, have poured millions of dollars more into the U.S. Chamber of Commerce, a tax-exempt trade organization that has pledged to spend at least $50 million on political advertising this election cycle.
Two years after the Supreme Court's Citizens United decision opened the door for corporate spending on elections, relatively little money has flowed from company treasuries into "super PACs," which can accept unlimited contributions but must also disclose their donors.
Instead, there is growing evidence that large corporations are trying to influence campaigns through another route: donating money to tax-exempt organizations that can spend millions of dollars without being subject to the disclosure requirements that apply to candidates, parties and PACs.
The secrecy shrouding these groups makes a full accounting of corporate influence on the electoral process impossible. But glimpses of their donors emerged in a New York Times review of corporate-governance reports, tax returns filed by nonprofit organizations and regulatory filings by insurers and labor unions.
The review found that corporate donations — many of them previously unreported — went to groups large and small, dedicated to shaping public policy on both the state and national levels. Corporations are opening their wallets and altering the political world.
Some of the biggest recipients of corporate money are organized under Section 501(c)(4) of the tax code, the federal designation for "social-welfare" groups dedicated to advancing broad community interests.
Because they are not technically political organizations, they do not have to register with or disclose their donors to the Federal Election Commission (FEC), potentially shielding corporate contributors from shareholders or others unhappy with their political positions.
"Companies want to be able to quietly push for their political agendas without being held accountable for it by their customers," said Melanie Sloan, the executive director of Citizens for Responsibility and Ethics in Washington, which has filed complaints against several issue groups. "I think the 501(c)(4)'s are likely to outweigh super PAC spending, because so many donors want to remain anonymous."
Because social-welfare groups are prohibited from devoting themselves primarily to political activity, many spend the bulk of their money on issue advertisements that purport to be educational, not political, in nature. In May, for example, Crossroads Grassroots Policy Strategies, a group co-founded by the Republican strategist Karl Rove, began a $25 million advertising campaign, carefully shaped with focus groups of undecided voters, that attacks Obama for increasing the federal deficit and urges him to cut spending.
The Internal Revenue Service has no clear test for determining what constitutes excessive political activity by a social-welfare group. And tax-exempt groups are permitted to begin raising and spending money even before the IRS formally recognizes them. Two years after helping Republicans win control of the House with millions of dollars in issue advertising, Crossroads GPS' application for tax-exempt status is still pending.
During the 2010 midterm elections, tax-exempt groups outspent super PACs by a 3-to-2 margin, according to a recent study by the Center for Responsive Politics and the Center for Public Integrity, with most of that devoted to attacking Democrats or defending Republicans. And such groups have accounted for two-thirds of the political advertising bought by the biggest outside spenders so far in the 2012 election cycle, according to Kantar Media's Campaign Media Analysis Group, with close to $100 million in issue ads.
The growing role of issue groups has prompted a rash of complaints and lawsuits from watchdog organizations accusing groups like the American Action Network, Crossroads and the pro-Obama Priorities USA of operating as sham charities whose primary purpose is not the promotion of social welfare, but winning elections. Efforts in Congress to force more disclosure for politically active nonprofit organizations have been repeatedly stymied by Republicans, who have described the push as an assault on free speech.
Labor unions — themselves among the beneficiaries of Citizens United — have also donated millions of dollars to national super PACs and state-level nonprofit groups involved in partisan battles over government spending, collective bargaining and health care.
Donations from corporations and unions alike must be disclosed if they go to expressly political groups like super PACs.
In April, for example, the air traffic controllers' union contributed $1 million to a pro-Obama super PAC. But other contributions are harder to trace. Last year, the American Federation of State, County and Municipal Employees gave $100,000 to Advancing Wisconsin, a tax-exempt group that supported labor's fight with Republicans in that state; the donation was reported nowhere in Wisconsin, but it emerged in an annual financial report that unions must file with the federal Department of Labor.
Among the largest beneficiaries of corporate donations in recent years have been trade organizations like the U.S. Chamber of Commerce, which largely backs Republican candidates. As a nonprofit "business league" under the tax code, the chamber does not have to disclose its supporters, who helped finance its $33 million in political ads in the 2010 midterm elections.
But voluntary disclosures by corporations — usually at the prodding of shareholder-advocacy groups — shed some light on the use of trade groups for lobbying or as pass-throughs for political spending.
A search of voluntary disclosures, some collected by the Center for Political Accountability, which advocates for transparency in corporate political spending, found more than $6 million in chamber donations by 10 companies last year.
Two of the largest came from Prudential Financial and Dow Chemical, which each gave $1.6 million, while Chevron, MetLife and Merck each contributed at least $500,000. Some of the donations were directed to the chamber's Institute for Legal Reform, which lobbies for limits on liability lawsuits.
Beyond the contributions to large, well-established nonprofits like the chamber and American Action Network, corporate money is also quietly shaping the political discourse through more obscure groups, none of which are required to disclose their donors.
The reasons behind American Electric Power's $1 million contribution to the little-known Founding Fund are not entirely clear. The company characterized it as "lobbying" in a corporate governance disclosure last year, but the fund says it does no lobbying. The fund, whose address is a mail drop in Alexandria, Va., would not make any of its directors available for an interview.
The fund's treasurer, Frank Sadler, is a lobbyist who worked for Koch Industries advising nonprofit organizations that support free-market causes, although he said the Kochs, major Republican donors, were not involved in the group. In its incorporation papers, the fund said it expected to raise about $10 million this election cycle, primarily from corporations, and use it to promote free markets, religious freedom and "the narrowing of the scope and reach of the federal government."