Show Me the (Dark) Money
A Missourian’s policy framework
Dark money refers to political spending by groups that are not required to disclose their donors. It has a significant, negative impact on democracy: heightening polarization, reducing judicial independence, and eroding confidence in U.S. elections.
Creating a strict, clear, and enforceable framework for disclosure requirements is necessary to prevent dark money from compromising our government. I think that laws governing nonprofit (501(c)(3)) organizations provide an anti-dark money framework that can win over voters.
Section 501(h) of the Internal Revenue Code, known as the “expenditure test,” determines when 501(c)(3) organizations are engaging in a “substantial amount” of political activity. For example, a non-profit with $500,000 in expenditures for the organization’s tax-exempt purpose can spend up to $100,000 on political activities, tax-free. Violating the expenditure test puts a non-profit’s tax-exempt status in jeopardy.
I propose using the expenditure test to determine when politically active organizations are required to disclose their donors.
Organizations that fail to disclose their donors after violating the expenditure test will have their political expenditures capped at $100,000 for a three-year, probationary period. The expenditure cap will be lifted prior to three years if the organization discloses their donors for the entire period they were delinquent in reporting. Organizations will also be subject to a fine equal to three times the undisclosed contributions for the entire period they were delinquent.
To prevent new dark money organizations from popping up every election cycle, I propose requiring new politically active organizations to disclose donors for two presidential election cycles and one midterm election cycle, or one presidential election cycle and two midterm election cycles. The goal of this period is for politically active organizations to establish good faith with voters.
Failure to disclose their donors for three consecutive years, exceeding the $100,000 cap while under probation, or failing to disclose donors during the “good faith” period will result in prosecution for fraud (i.e. “silence when good faith requires expression”) under Part 25 of the Internal Revenue Manual. Part 25 also lists criteria for determining the level of offence, sanctions, and the burden of proof necessary to convict.
The goal of this essay is not to have a completed policy. Rather, it is to propose using the expenditure test as the core of an anti-dark money framework for policymakers and ballot initiatives. To that end, I think the expenditure test offers multiple advantages in the highly polarized world of politics today.
The expenditure test passed with bi-partisan support as part of the Tax Reform Act of 1976. Despite this, partisan hacks will still likely frame disclosure requirements as an erosion of the right to privacy. However, the Supreme Court upheld the constitutionality of disclosure requirements in McConnell v. FEC, Citizens United v. FEC, and SpeechNow.org v. FEC.
Most importantly, the expenditure test only applies to organizations that spend a substantial amount of money on political activities. Because of this, we can ask partisan hacks: “Do the American people have a right to know who is spending a substantial amount of money influencing our politics?”
I believe that question can win over enough voters to pass campaign finance reform. I think we should structure anti-dark money policies around it.
