Where all the money went

What is a 527?

It’s a political advocacy group. Under Section 527 of the Internal Revenue Service code, these nonprofit groups do not have to pay taxes on the contributions they receive from public-minded citizens. In theory at least, 527 organizations operate independently of political parties and campaigns. They are therefore also exempt from the fundraising and spending restrictions that govern the political parties and candidates. In this presidential campaign, more than 100 new 527s have sprung to life; altogether, they have generated more than $300 million in contributions—more than either John Kerry or George W. Bush have raised on their own.

Who’s donating all this cash?

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When the liberal 527 Moveon.org began raising funds on the Internet several years ago, small donors provided the bulk of the donations. But in the past year, a host of multimillionaires and billionaires have jumped at the chance to donate unlimited amounts of money to influence the election. Financier George Soros and insurance executive Peter Lewis, who have pledged to rid the country of Bush, have each given about $15 million to various left-leaning 527s. Real estate developer Alex Spanos has given $5 million and Texas oilman T. Boone Pickens $3 million to keep the president in office.

How has the money been spent?

Most of it has gone to a barrage of highly negative TV commercials, such as the ones questioning Kerry’s Vietnam heroism and Bush’s National Guard service. The new 527 groups have also funded print ads, Internet campaigns, and even documentaries. The advent of 527s, political scientists say, has helped make the current campaign the most expensive in history—and one of the most negative, too. One recent study found that 93 percent of 527-funded commercials consisted essentially of attacks on opposition candidates.

Are 527s new?

Technically speaking, they go back 30 years. Congress created Section 527 in the IRS code back in 1973, as part of the first wave of campaign reform. But no one paid much attention—or gave much money—to advocacy groups until reformers pushed through the McCain–Feingold campaign finance law in 2002. Suddenly, 527s were transformed from an obscure footnote in national politics to a front-page headline.

How did reform manage to do that?

Call it the law of unintended consequences. The intent of McCain–Feingold was to close the last big loophole in federal campaign law. That loophole permitted corporations, unions, and wealthy individuals to give unlimited amounts of money to the Democratic and Republican parties, as long as it was not used directly for individual campaigns. In practice, the parties found myriad back doors through which to funnel this so-called “soft” money into campaigns, such as buying “issue” ads attacking opposition candidates. (“Call Sen. Foghorn if you think he’s wrong to support criminal assaults on women.”) McCain–Feingold banned “soft” contributions, assuming it would cut off funding for attack ads. Instead, the unregulated money flowed to 527s, which picked right up where the Democratic and Republican parties had left off.

Don’t 527s have any restrictions?

Yes—but the Federal Election Commission has virtually ignored them. To remain exempt from the McCain–Feingold law, 527s cannot “expressly advocate” the election or defeat of any candidate. The FEC has chosen to interpret that prohibition very loosely. These advocacy groups are also barred from coordinating their “plans, projects, activities, or needs” with campaigns or party committees. The wall dividing 527s from the parties, though, has been at best permeable, and very likely illusory: The biggest 527s on the left, for example, have been run or advised by longtime Democratic Party insiders—people like Harold Ickes, a member of the DNC’s executive committee, and pollster Stanley Greenberg, now an advisor to the Kerry campaign. The Republicans were late to the game, but now former GOP chairman Bill Brock and other party stalwarts are busy hitting up party donors for millions that are being spent through 527s. In fact, it was a Republican-backed 527 group that might have turned the campaign in Bush’s favor.

Which group was that?

Swift Boat Veterans for Truth. Spearheaded by several Vietnam vets who have long despised Kerry, the group got its seed money from Pickens and other Texas Republicans with close ties to Bush. The Swift Boaters claimed in scathing television ads that Kerry’s Vietnam medals were undeserved. Many of their charges have been contradicted by eyewitnesses and official records. But after these commercials aired and got widespread news coverage, Kerry’s lead in the polls vanished, and Bush surged ahead. Asked to condemn the ads, Bush shrugged and said he was opposed to all negative ads by independent groups. “I don’t think we ought to have 527s,” Bush said.

Could 527s be banned?

After the election, Congress, the courts, or the FEC may attempt to close the 527 loophole. But so far, all attempts to limit the influence of money on American politics have met with limited success. As the U.S. Supreme Court said in a decision on campaign reform last year, “Money, like water, will always find an outlet.”

Going negative