Thursday, September 11, 2014

Thomas Edsall explains Karl Rove: lawlessness prevails in campaign finance activities, and here is how … by gimleteye

A decade ago Karl Rove told a reporter from the New York Times (“Without a Doubt”, Ron Suskind, October 17, 2004) ; “… that guys like me were "in what we call the reality-based community," which he defined as people who "believe that solutions emerge from your judicious study of discernible reality." I nodded and murmured something about enlightenment principles and empiricism. He cut me off. "That's not the way the world really works anymore," Rove continued. "We're an empire now, and when we act, we create our own reality. And while you're studying that reality -- judiciously, as you will -- we'll act again, creating other new realities, which you can study too, and that's how things will sort out. We're history's actors… and you, all of you, will be left to just study what we do."

Karl Rove remains a magnet for hundreds of millions of contributions to various conservative political entities despite a dismal performance record in recent election cycles. Voters need to understand what the extremist wing of the GOP represents.

Economist and critic Thomas B. Edsall wrote in the Times recently: "A kind of lawlessness prevails that is incompatible with the goals of democracy." It is worth reading his entire OPED.

Who Needs a Smoke-Filled Room?
Karl Rove, the Koch Brothers and the End of Political Transparency

SEPT. 9, 2014, New York Times
Thomas B. Edsall

Tax-exempt “social welfare” organizations, the new political weapons of choice, are widening the gap between the rich people who control campaign financing and the economically anxious voters targeted by their ads.

We don’t know who the contributors are to Karl Rove’s Crossroads GPS because they can hide behind provisions in federal tax law designed to protect donors to “social welfare” charities, but we do know how much each gave, and we do know generally, from Crossroads’s annual 990 filings with the I.R.S., how the money was spent. In 2012, according to its own statement, Crossroads GPS spent $74.2 million not on commonly understood social welfare objectives but on direct political activities.

Crossroads raised the money for its 2012 tax-exempt activities from 291 unnamed men and women who wrote checks for a total of $179.7 million, an average contribution of $617,525 – nearly 12 times the 2012 median household income in the United States of $53,046, and 22 times the 2012 per capita income of $28,051.

The financial resources of the anonymous donors to Crossroads are striking, according to the organization’s 990 filing. Among the donors were 53 who contributed at least $1 million. Even more generously, one donor gave $22.5 million, another gave $18 million, and two gave $10 million each.

The right to veil the identity of contributors to such groups as Crossroads GPS is based on provisions in section 501(c)(4) of the Internal Revenue Code, provisions that offer anonymity to those who support tax exempt organizations engaged in activities defined as permissible by the Internal Revenue Code. Here is the language: “IRC 501(c)(4) requires that organizations operate primarily in promoting in some way the common good and general welfare of the people of the community.” The section continues, “Generally, political educational organizations must conduct their activities in a non-partisan manner.”

At the current rate of growth, the Center for Responsive Politics projects that spending in the current election cycle by 501(c)(4) groups that do not disclose donors will break all previous records, including those of 2012. Spending by these groups rose from $1.3 million in 2006 to $256.3 million in 2012, according to C.R.P.

Regulations adopted in 1959 by the I.R.S. to govern the implementation of the 501©(4) section of the tax code (you have to live in Washington to believe this) opened up a loophole intended for a mixed group of nonprofits – “Charitable Organizations, Churches & Religious Organizations, Political Organizations, and Private Foundations” – that Crossroads and similar groups have turned to great advantage.

Here is the regulatory language: “The promotion of social welfare does not include direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office. However, a section 501©(4) social welfare organization may engage in some political activities, so long as that is not its primary activity.”

The word “primary,” in turn, has been interpreted by election lawyers and political operatives to mean that a group like Crossroads GPS, with an expressly conservative partisan orientation (or another group with an expressly liberal partisan orientation), can spend as much as 49 percent of its budget on political activities.

How, precisely, does Crossroads use the money collected from secret megadonors to further social welfare and education, its mandate under the tax code? Crossroads has posted on YouTube its own political attack ads, including those being used for the 2014 elections.

In one of those commercials, which criticizes Mark Pryor, a Democratic senator from Arkansas up for re-election this fall, the narrator says, “On TV, Mark Pryor talks about the health care act he helped pass. What Pryor doesn’t say is that it was Obamacare or that it cuts over $700 billion from our Medicare, and will cut benefits seniors are relying on.” At the end of the ad, a large headline appears: “It’s time to fire Mark Pryor.”

In a 2012 Crossroads ad faulting President Obama, a woman wakes up at 3:01 a.m. “Sometimes it’s hard to sleep. I worry, I guess,” she says. “Our jobs, our home, how everything costs more, even Mom’s health care costs. How will we ever retire? Lately I worry a lot about my kids, what’s their future going to be like. I supported President Obama because he spoke so beautifully. But since then things have gone from bad to much worse.” At the end, as the woman looks in on her sleeping kids, she says, “There has got to be a way to take away President Obama’s blank check.”
The emergence since 2008 of politically adroit, highly partisan so-called social welfare organizations has resulted in qualitative changes in the system of campaign finance.

In its 990 filing for 2012, which describes its total expenses and receipts, Crossroads reported to federal tax authorities that it spent a total of $188.9 million, of which $112 million was “on activities related to social welfare,” including $35 million in grants to tax-exempt organizations “that share Crossroad GPS’s goals.” Crossroads also reported that it “spent $74.2 million on direct political activities.”

Jonathan Collegio, who was then the spokesman for Crossroads GPS, noted that the “ratio of social welfare spending to political spending was 60.2 percent to 38.8 percent,” putting the political spending well below the 49 percent level.
The lion’s share of grants made by Crossroads to other 501(c)(4)s went to Americans for Tax Reform, which got $26.4 million. Americans for Tax Reform describes its mission as working to see that “taxes are simpler, flatter, more visible, and lower than they are today.” Indeed, it advertises its goal as opposing “all tax increases as a matter of principle,” adding that “ATR was founded in 1985 by Grover Norquist at the request of President Reagan.” The Crossroads grant provided 86 percent of A.T.R.'s total funds raised, which in 2012 were $30.98 million, according to A.T.R.'s 990 filing.

In a separate filing to the Federal Election Commission, A.T.R. reported political spending of $15.79 million (already over 50 percent of its resources – more on this later). Since 86 percent of A.T.R.'s money came from Crossroads, this suggests that Crossroads indirectly financed $13.6 million in political spending by A.T.R., despite the fact that Crossroads included this grant to A.T.R. on its 2012 990 form as part of its aggregate spending on “activities related to social welfare.”

If this $13.6 million of A.T.R.'s political spending had been counted against Crossroads’s political spending limit, it would have pushed Crossroads’s political spending to $87.8 million. Or 46 percent of its total spending – closer to the key 49 percentage point cutoff permitted under I.R.S. regulations.

I emailed Paul Lindsay, who has taken over the job from Collegio as Crossroads’s spokesman. My question was: “In order for Crossroads GPS to claim 501c4 status, it has to spend less than 50 percent of its expenditures on political activity. According to its own reports, it does stay within that limit. At the same time, much of the activity Crossroads engages in is the awarding of grants to politically active 501c4s, like Americans for Tax Reform, 60 Plus, National Right to Life, and others. These groups, in turn, go on to spend a substantial portion of their revenues on political activities. Does this, in effect, amount to a system allowing Crossroads to spend more than 50 percent of its money on political activity — first on its own, and then by the groups that it supports?”

Lindsay replied, “Like labor unions, we invest in a number of organizations that have complementary missions that help us advance our issue agenda. Our grants to other 501c4’s are predicated on a review of their financial records and a stipulation that the funds only be used for their exempt activity and not for political purposes.”

I wrote Lindsay back to ask, “If ATR agreed in a contract with you, as you described this earlier, not to use the money for politics, what has Crossroads done to correct the situation? Are you asking for repayment or some other form of remedy?”

Lindsay’s response: “We have implemented stricter due diligence (as outlined in my earlier email) this election cycle.”

Americans for Tax Reform, too, has problems on the political spending front. As noted above, in its reports to the F.E.C., A.T.R. stated that it had spent $15.79 million on political activity in 2012 out of the $30.9 million it spent altogether. This put A.T.R. in violation of the 49 percent rule, pushing its political spending to 51 percent.

A.T.R. did not, however, report to the I.R.S. that it had spent $15.69 million on politics. Instead, in its 990 filing with the I.R.S., A.T.R. claimed that it spent $9.79 million on politics, far less than it reported to the F.E.C. The figure reported to the I.R.S., if accurate, would put A.T.R. well within federal tax regulations, with just 31.6 percent of expenses going to political activity.

In an attempt to resolve the disparity between the numbers that A.T.R. submitted to the F.E.C. and to the I.R.S., I emailed the following questions to Norquist and to John Kartch, his spokesman: “Two questions on your finances in 2012. On your IRS 990 form you report $30.98 million in 2012 expenses, including $9.79 million on politics, well within the less-than-50 percent level for a 501c4. But in your reports to the FEC, you list political spending in 2012 of $15.79 million, just over the 50 percent level. Can you explain the discrepancy?”

In an email, Kartch defended the differences in figures with regard to the political spending A.T.R. reported to the F.E.C. and the I.R.S.: “Our reporting and operations strictly abide by the reporting obligations imposed by the FEC and IRS. They are not the same.” Asked to explain the difference, Kartch wrote, “The definitions differ and are complicated and not easily put into 25 words or less. That’s what the lawyers and accountants handle.”

I asked a number of experts in money and elections about the discrepancy and got conflicting answers – answers that mirror the degree of chaos currently reigning over the enforcement of campaign finance law.

Fred Wertheimer, president of Democracy 21, a leading advocate of campaign finance reform, and Robert Maguire of the Center for Responsive Politics both disputed A.T.R.'s use of the lower estimate in its I.R.S. report. “There is no justification for treating them differently," Wertheimer wrote in an email. “So my answer to your question is no, this is not a legitimate claim.” Maguire agreed: “The IRS is not ambiguous about this. Direct engagement in an election is political activity that has to be reported.”

Jan Baran, a lawyer who specializes in campaign finance, wrote crisply about the chaotic nature of 501(c)(4) regulation: “The statutes and agencies have different ‘definitions’ for different purposes. All definitions are subject to debate and arguably are imprecise and vague.”

“If that is unclear to you,” he added, “it should be.”

If the operations and financing of Crossroads GPS and Americans for Tax Reform are less than transparent, they fit well in the world of labyrinthine secrecy characteristic of the $400 million network of 17 interlocking advocacy groups that coexist under the aegis of the Koch brothers.

“The political network spearheaded by conservative billionaires Charles and David Koch has expanded into a far-reaching operation of unrivaled complexity, built around a maze of groups that cloaks its donors,” The Washington Post reported at the beginning of this year.

“It is a very sophisticated and complicated structure,” Lloyd Hitoshi Mayer, a professor at the University of Notre Dame Law School, told The Post. “It’s designed to make it opaque as to where the money is coming from and where the money is going. No layperson thought this up. It would only be worth it if you were spending the kind of dollars the Koch brothers are, because this was not cheap.”

Intrigued, I emailed Rob Tappan, a Koch Industries spokesman:

“Why is there such a complex structure of organizations? Some exist only to transfer money. Many of the organizations provide grants to the same recipients. What is the purpose of this? From a corporate point of view, this structure would seem to only create more inefficiencies and costs of operation. Is the system designed to make it difficult to follow the flow of money? Some of the organizations have changed names. Is there a reason for this? Also, some organizations have what I believe are called ‘disregarded entities’ that receive and transfer money? What is the purpose of the creation of these entities? Do these groups hold meetings to work out strategy? Is there an individual, committee or some other mechanism to oversee the activities of these groups? If you cannot answer some or all of these questions, could you point me to the person(s) who can?”

Tappan referred me to James Davis, a spokesman for Freedom Partners, a mainstay of the Koch network. In 2012, Freedom Partners spent $237.7 million, almost all in grants to other nonprofits, including at least $169.9 million to other Koch organizations.

Davis replied to me by email saying that he could only address questions about Freedom Partners and was not in a position to reply to queries about the larger structure of the Koch network: “Sorry, I speak for Freedom Partners. I can’t help.”

The steady deregulation of election financing has disenfranchised ordinary voters. Part of their disenfranchisement comes from the capacity of donors to remain unaccountable to the electorate at large. The combination of lax regulation by the F.E.C., weak oversight by the I.R.S. and a Supreme Court majority blind to the corrosive power of money in politics has created a system of campaign finance dominated by those with vast fortunes answerable to no one but themselves.

A two-class structure of election financing is emerging. The first is the traditional system of federally regulated individual contributions in which the small donor has become increasingly important. The second is the combination of “super PACs” and tax-exempt independent expenditure groups, including 501(c)(4)s, which together operate without limits and cater almost exclusively to those at the very top of the economic pyramid. Policing the hodgepodge of regulations, statutes and rulings governing elections has become virtually impossible. A kind of lawlessness prevails that is incompatible with the goals of democracy.

1 comment:

Geri said...

So Karl Rove and his buddies are running the world and they are just condescending enough to let us live in it?