What if 501(c)4 Organizations Had to Disclose Their Donors?

The IRS kerfuffle has increased interest in the tax code by about 5700%, and one outcome is that people are starting to take a closer look who is being granted exemptions. Dylan Matthews has thoughtful piece on 501(c)4 organizations, the groups at the center of the scandal, but instead of focusing on taxes, Matthews thinks the real issue is disclosure:

501(c)4s can accept unlimited donations and don’t have to tell a soul from whence they came. 527s, including super-PACs, have to file quarterly reports disclosing donors. That’s why so many super-PACs have attached 501(c)4s, which can collect unlimited donations and then donate them in turn to the super-PAC, as Fred Wertheimer explained to me last week.

The key question, then, in considering what should come next for 501(c)4s, is not “should groups like this have to pay taxes.” They’re never going to have to pay taxes. It’s whether they should have to disclose their donors.

Mathews goes on to lay out the different arguments. One on hand, it doesn’t seem like the 501(c)4 designation serves a particular purpose, and the ability of 527s to use them to effectively launder donations should be stopped. On the other hand, you to also need to be really really careful about the potential to stifle free speech in a detrimental way.

As Neil Irwin explained last week, there’s a long history of IRS persecution of LGBT-oriented charity groups, including denying one group tax-exempt status and making another demonstrate that it would not “encourage or facilitate homosexual practices or encourage the development of homosexual attitudes and propensities by minor individuals.” Making all charitable groups 501(c)3s could open them to that kind of scrutiny, particularly for any that deal with controversial topics, which could be far worse than anything that’s happened in the current scandal.

Matthews chooses to focus on the broader philosophical conflict and thus he takes a long-run view of the issue. He essentially wants to know which policy will leave the country in the best shape 30 years from now. But there’s also the question of the immediate practical impact of increased disclosure. Does giving people information about donors actually impact voting behavior?

A new study from Conor Dowling of the University of Mississippi provides one data point. Dowling’s study was based on a 2010 ad by American Crossroads, an organization founded by Karl Rove, that aired in the Missouri senate race. The ad attacked Democratic candidate Robin Carnahan by attempting to link her to President Obama, Nancy Pelosi, and “failed” Democratic policies.

After participants viewed the ad, Dowling and his co-author, Amber Wichowsky, placed them in one of five experimental conditions. The first group was shown the names, occupations, and donation amounts for American Crossroads’ five biggest donors. Groups 2-4 were shown an article about the large independent expenditures being made in the race, but Group 3 read additional information about the financial interests of American Crossroads donors (e.g. $25 million from “corporate executives” in the oil industry), and Group 4 read additional information about how American Crossroads didn’t have to disclose donors because of their 501(c)4 status. The 5th group only watched the ad, and there was also a control group that never watched the ad in the first place. At the end of the experiment, all participants rated how likely they were to vote for Carnahan.

The researchers found that the disclosure with the largest impact was the article describing why there was no disclosure. Participants in this condition gave Carnahan support that was significantly stronger than the support given by participants who only watched the attack ad, and their overall level of support was about the same as participants who never saw the ad. In other words, being told about how 501(c)4s didn’t have to disclose their donors completely negated the effect of the ad. The disclosure involving the top 5 donors also had a relatively strong impact, although the difference in support between participants who saw the 5 donors and participants who only saw the ad was not statistically significant (p =.64). A follow up experiment using an ad in which a Republican candidate was attacked largely replicated the findings, although in the thins experiment learing that disclosure is not required led Democrats to increase support for the Democratic candidate even when the Democrat was the one on the attack.

The straightforward explanation for the findings is that disclosure decreases support because people have negative associations with the specific people or groups who tend to fund these organizations. But the fact that the legality of non-disclosure may play a key role suggests that people are generally disgusted with the system, and when something reminds them of it — for example, an ad — they will develop a negative attitude toward that thing. People just don’t want to think about the fact that much of what we do on a daily basis is for money.

To get back to Matthews’ original discussion, I think “free speech vs. money-in-politics” is one of the more sane debates in our political system. Neither side takes positions that are completely indefensible. There’s no Michelle Bachman arguing she should be able to slip $2 million in cash in the trunk of a somebody’s car. It’s clear that money in politics is an issue worth watching, but if you value freedom very highly, it’s also valid to be concerned that a solution could open the door for costly free speech suppression.

It seems like the future compromise over campaign finance — whether it’s 2, 5, or 25 years from now — will essentially involve an exchange of more freedom for less anonymity. Feel free to donate whatever you want with no strings attached, but everybody’s going to know. If you want to influence public policy, you’ll have to be a public figure. That’s probably our best chance of curtailing the influence of money while also satisfying those who worry we’re becoming a fascist tyranny.
Dowling, C., & Wichowsky, A. (2013). Does It Matter Who’s Behind the Curtain? Anonymity in Political Advertising and the Effects of Campaign Finance Disclosure American Politics Research DOI: 10.1177/1532673X13480828

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