Originally published on Forbes.com.
Sometimes I think that if the Koch brothers didn’t exist, progressives would have to invent them. My varied interests and love of the fringe give me a facebook feed that would cause a well balanced person’s brain to explode. Although there are other possible targets (Michael Moore at the moment for example), those on the right are able to focus their enmity on the President to a significant extent.
Other targets will periodically pop up in the left’s fun house shooting gallery (Sarah Palin for example), but the Koch brothers are a reliable target week in and week out. When my Gen-X cousin, a chip off the old block from her mother who belonged to SDS, is angry about something, there is at least a 50% chance that it will be something that can be plausibly attributed to the Koch brothers. Same thing with one of the friends I made during the Occupy period.
So the latest news is that the political network overseen by Charles and David plans to spend $889 million on the 2016 campaign. In the last Presidential election the Republican National Committee spent $657 million according to this New York Times story. Nothing there for a tax blogger to get excited about. But then I heard from Lisa Gilbert , Director of Public Citizen’s Congress Watch
In the wake of the Koch brother’s announcement of their outrageous intent to pour nearly 900 million on the 2016 campaign—on par with the political parties– it is more important than ever that we deal with the flow of dark money in our elections.
The network of Koch spending is constructed primarily of nonprofit groups without required disclosure, and so will soon be a shadow party in more ways than one. In this partisan Congress, there is little chance of action to deal with this transparency problem and so we look to the White House to act boldly to improve the system. The administration has clear avenues to proceed. They should support strong IRS and SEC rules to improve disclosure, and should release an executive order to require transparency of political spending for those that receive taxpayer money via government contracts. The time to act is now.
Leave It To The SEC?
It turns out that there is a lot of pressure on the SEC to force public companies to disclose political spending. You can read the comments on making such a rule here. Apparently over 350,000 of the comments have the form
I am deeply concerned about the influence of corporate money on our electoral process.
In particular, I am appalled that, because of the Supreme Court’s ruling in Citizens United v. Federal Election Commission, publicly traded corporations can spend investor’s money on political activity in secret.
I am writing to urge the Securities and Exchange Commission to issue a rule requiring publicly traded corporations to publicly disclose all their political spending.
Both shareholders and the public must be fully informed as to how much the corporation spends on politics and which candidates are being promoted or attacked. Disclosures should be posted promptly on the SEC’s web site.
Thank you for considering my comment.
Scrolling through the comments, I could not find anybody that did not think that requiring public companies to disclose political expenditures was a good idea, but some hunting around yielded this letter. The letter opposing the proposal is a lot longer and is signed by a group of organizations including the United States Chamber of Commerce and the Ohio Society of CPAs. Of course Koch Industries is private, so the rule wold not affect them.
Public Citizen has a petition drive going for the executive order requiring disclosure of campaign spending by companies bidding on government contracts. It does not seem to have that much traction currently. There was a rumor that the executive order would come up in the State of the Union, but if it was there I missed it. At least according to that story, a rule on government contractors might affect Koch Industries.
What The IRS Could Look At
Freedom Partners Chamber of Commerce Inc reputed to be the Koch brothers flagship organization is really slick. It is exempt under 501(c)(6) as a trade organization.
Freedom Partners Chamber of Commerce advances its members’ common business interests by promoting economic freedom and improving business conditions in the United States, thereby increasing opportunity, innovation and prosperity for all Americans.
In the year ended October 31, 2012 FPCC had over a quarter billion in “program service revenue”. The bulk of that went out in grants. The largest grant recipient was Center To Protect Patient Rights, a 501(c)(4) organization, which also mostly makes grants, the largest amount, just shy of $50 million, going to the American Future Fund, also a 501(c)(4). The organizations change names and have different year ends, which make it a little challenging to figure it all out. Not that I’m going to try to.
What is slick about the arrangement is the 501(c)(6). Generally a business will deduct, as an ordinary and necessary business expense, amounts paid to belong to a trade association. There is no way to tell to what extent the members are deducting their payments to FPCC with any precision. If you scroll to Part III-A of Schedule C of Form 990 , (the 15th page of the guidestar copy) you will see that at least 10% of the dues received were not non-deductible by the members.
So somewhere between $23 million and $235 million of the dollars flowing into what critics call the Kochtupus were tax deductible. According to the 990 the grants by FPCC are for general support and have restrictions on being used for lobbying and electioneering. Center To Protect Patient Rights indicates that it has similar restrictions on its grants. That makes it just a little mysterious how any of the money ends up being spent on politics.
Why The IRS Probably Should Not Get Involved
Pressuring the IRS to be aggressive in going after the dark money issue has been a disaster for tax administration. The role of the IRS in it is entirely tangential. There are 29 different types of exempt organizations under 501(c). How they are allowed to participate in politics varies. The Tea Party groups that triggered the interminable IRS scandal (Now on Day 629 by the Tax Prof’s count) were applying for 501(c)(4) status, which allows for substantial political spending. FPCC does not really look like my idea of a chamber of commerce, but I couldn’t find anybody who has tried anything like this before, so it looks like a low percentage play for the IRS to take this on. The last time concern about dark money started in it did not end well. Maybe it still hasn’t ended.
I asked Ms. Gilbert about whether there was any thinking about the IRS having other more pressing things on its plate besides political spending by 501(c)(4)s. She was unmoved indicating that an agency tasked with enforcing rules should enforce all of them. I asked her if she thought the dark money issue should take priority over identity theft just as an example. She acknowledged the IRS budget problems, but still thinks it needs to be on the dark money issue.
I have to tell you if I was John Koskinen, I would really resist putting this on the front burner. It might be something the Democrats want, but they don’t have the agency’s back.
Maybe It Is Not That Big A Problem
I also heard from Anne Galland of MoveOn.org (Well it was a general e-mail, like the ones I get from Jenny Beth Martin). MoveOn.org Civic Action is also a 501(c)(4) and hardly apolitical as the video on the front page of its website shows
MoveOn is not looking for the IRS to go after the Koch brothers. It is going after them with something of a jujutsu technique.
Here’s the blueprint: In 2014, Representative Gary Peters, the MoveOn-backed Michigan Senate candidate, was hit with a barrage of false Koch attack ads.
But the Peters campaign responded by going on offense—calling out the Koch brothers for shutting down a Michigan factory and laying off hundreds of workers after buying out the local owners.
And it worked. Voters began to associate Rep. Peters’ opponent with the destructive corporate practices of KochIndustries, and he was one of the few Democrats to win in 2014. …….
We’ll never outspend them—they’re getting ready to spend nearly a billion dollars. But with smart, strategic campaigning, we don’t have to outspend them. We can turn the Koch brothers’ biggest strength against them.
In the end the concern about dark money is an ad hominem argument. I’d like to think that we are smart enough to look at the merits of ideas without knowing who is pushing them. Of course from here on in, progressives will be able to use the lack of transparency to attribute any support received by their opponents to the Koch brothers. Play it that way and let the IRS stick to collecting taxes.