October 24th, 2011

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Bloomberg: Secret Cash Baiting Officials Leaves No Trace in U.S. Attack Ads

Monday, October 24th, 2011

We have oceans of cash entering the campaigns with no accountability.  All in the name of free speech.  And tax free to boot!

Bloomberg

Spending Climbs

The outside groups operate independently of individual candidates’ campaigns and of the Democratic and Republican parties. At the same time, they are often set up and run by people with close ties to the political organizations.

Spending reported to the FEC by independent committees rose four-fold to $305 million during the 2009-2010 election cycle from the 2005-2006 period, about half of it from secret donors. That was almost a 10th of the total of $3.7 billion spent on the election, according to the Center for Responsive Politics, a Washington nonprofit that tracks data reported to the campaign monitoring agency.

That amount may understate the organizations’ impact on the last election by 50 percent or more. Media purchases by independent groups exceeded $450 million, estimated Kenneth Goldstein, president of Arlington, Virginia-based Campaign Media Analysis Group, a unit the advertising company WPP Plc. (WPP) The total may have been as high as $560 million, according to the Campaign Finance Institute, a Washington nonprofit.

Disclosure Gaps

The figures differ because a significant portion of these groups’ ad purchases didn’t count as political under the rules of the FEC. The agency requires that independent committees report as campaign spending those ads that explicitly urge a vote for or against a particular candidate. They also have to disclose buying commercials that identify a candidate and run within 60 days of a general election or within 30 days of a primary. This means many ads about policy issues that are critical of candidates don’t have to be reported.

The flood of secret cash buying politically oriented advertising will only increase and will lead to scandal, said the Committee for Economic Development, a group of business leaders and university professors, in a report last month. Spending normally jumps in a presidential election year.

‘Most Expensive Campaign’

“This will be the most expensive campaign in American history,” said Dan Schnur, director of the Jesse M. Unruh Institute of Politics at the University of Southern California in Los Angeles. The independent groups “are going to be funded at greater levels than the candidates’ own campaign committees. That means the candidates’ voices, particularly in campaigns for Congress, are going to be drowned out.”

The fundraising goals of two of the biggest committees backing Republicans have surged. Crossroads GPS and its sister group, American Crossroads, doubled their initial target to $240 million, after raising $71 million last year. The organizations were founded by Karl Rove, the White House political adviser to President George W. Bush, and Ed Gillespie, a former chairman of the Republican National Committee.

While it’s too soon to project the impact on voting in 2012, research shows negative commercials have staying power, said John Petrocik, a political science professor at the University of Missouri in Columbia. Attack ads now, he said, are “creating a backdrop, a drumbeat that is simply going to get louder.”

‘Long-Range Artillery’

“That’s your long-range artillery, the preparatory barrage that’s raising the salience of something you are going to come back to,” Petrocik said. “People are going to remember it because it’s been around so long.”

The independent groups say the broadcast messages are part of their mission to inform voters about public issues or hold elected officials accountable. For example, Crossroads GPS, organized as a tax-free “social welfare” group under the U.S. tax code, said its mission is educating Americans on “critical economic and legislative issues,” according to its website.

Many of the ads this year have been by nonprofits that back Republicans, including the Crossroads groups, the Iowa-based American Future Fund and 60 Plus Association, an advocate for the elderly that favors privatizing Social Security, ending traditional Medicare and repealing the estate tax.

Some tax-exempt groups that favor Democrats have broadcast ads attacking Republican House members this year. Washington- based Americans United for Change aired a television spot in April criticizing Republican Representative Chip Cravaack of Minnesota for voting “to end Medicare.”

‘Way Ahead’

In July during the debt ceiling debate, Moveon.org Civic Action ran radio ads in three Republican districts. With a siren in the background, the spot depicted the members “holed up” inside, “holding the economy hostage.”

“By expenditures, we can see conservative groups are ahead,” said Sheila Krumholz, executive director of the Center for Responsive Politics. “By news reports, we hear that conservative groups are in fact way ahead.

“But in the end we don’t really know,” Krumholz said. “We just know that there’s spending happening now, aimed at elections, and a lot of it will never be reported.”

Crossroads GPS, American Future Fund, Americans United and Moveon.org Civic Action are all set up as tax-exempt “social welfare organizations” under Section 501(c)(4) of the Internal Revenue Code. The U.S. Chamber of Commerce, which also supports conservative candidates, is a tax-free nonprofit trade association under Section 501(c)(6). Groups in both categories can raise unlimited amounts from companies, unions and individuals without identifying donors.

Super PACs

American Crossroads is covered by a different provision of the tax code, Section 527, applying to tax-exempt political organizations. It is now known as a super PAC, for political action committee, and can accept unlimited donations from any source. Super PACs have to disclose the names of donors to the FEC. Supporters of Obama and several Republican presidential candidates also started super PACs.

While Crossroads GPS founder Rove declined to be interviewed for this story, he appeared on Fox television in June to discuss the start of a $20 million ad campaign on Obama’s economic record. The messages blamed the president for increases in unemployment, national debt and gasoline prices.

Interviewer Juan Williams asked Rove whether the group’s supporters could ‘live with” a Republican nominee like Representative Michelle Bachmann of Minnesota.

‘Primary Activity’ Rule

“Look, we’re focused on doing what we can to hold the Republican House, to create a Republican Senate and to replace President Obama,” Rove said. Primary voters will pick the nominee, he said. “It’s our job to lay the foundation for a Republican victory in the fall of 2012.”

Jonathan Collegio, a spokesman for Crossroads GPS, said Rove’s comment doesn’t conflict with the group’s tax-exempt status. Rove “informally advises” American Crossroads and Crossroads GPS and was responding to a political question, Collegio said.

Nonprofits under Sections 501(c)(4) and 501(c)(6) can’t have political campaigning as their “primary activity,” according to the tax code.

To keep its tax-exempt status and avoid penalties, Crossroads GPS needs to spend more than half its resources on “issue and policy advocacy” that isn’t “political intervention” under IRS rules, according to an Oct. 10, 2010, legal memo prepared for the organization by Tom Josefiak, a former FEC chairman. Crossroads GPS intends to allocate “much more” than that to “a sustained advocacy effort in furtherance of its ‘social welfare’ purpose,” according to the memo, which Crossroads GPS provided to Bloomberg.

IRS Enforcement

The IRS declines to say what it does to enforce the rule. In September, the campaign watchdog groups Democracy 21 and Campaign Legal Center asked the IRS to investigate the tax- exempt status of four groups that can accept unlimited donations without naming the givers. They include Crossroads GPS and Priorities USA, run by former Obama aides to back his re- election.

“These groups have little if anything to do with promoting social welfare and everything to do with electing and defeating candidates,” said Fred Wertheimer, president of Democracy 21. Spokesmen for the groups dismissed the complaint as frivolous.