On March 8, the Senate Rules Committee held a hearing to consider the 527 Reform Act of 2005 (S. 271). The hearing revealed the complexity of issues raised by the proposed extension of federal election regulations to independent political committees (527s). The testimony and questions from senators highlighted the likely consequences of passing the bill in its current form, including migration of soft money to 501(c) groups, who, unlike 527s, do not disclose donors. Rules Committee Chairman Trent Lott (R-MS), a co-sponsor of the bill, said he wants to move the bill quickly, in order to prevent a �train wreck� in the 2006 federal election. Meanwhile, an alternative 527 bill was introduced in the House of Representatives. Witnesses include the bill�s sponsors, Sens. John McCain (R-AZ) and Russell Feingold (D-WI), the chairman of the Federal Election Commission (FEC), Scott Thomas, and FEC Commissioner David Mason. Expert testimony was provided by attorney Bob Bauer, Fran Hill, a consultant to the Campaign Legal Center, and Michael Malbin, executive director of the Campaign Finance Institute. McCain testified he believes federal campaign finance contribution limits should apply to any group that engages in partisan activities for the purpose of influencing a federal election. FEC Chairman Thomas echoed this view, saying, �I have philosophically always taken the approach that these kinds of groups, given their tax status [527], should be reporting to us and regulated as federal political committees ....� Michael Malbin of the Campaign Finance Institute said there is no rationale for not having contribution limits. Other witnesses discussed constitutional concerns. The potential for corruption by independent groups, which do not have direct ties to candidates or parties, was questioned. Commissioner Mason said, �And so, when you are regulating organizations that only make independent efforts, that are not controlled by parties, not controlled by candidates, not coordinating, there is a live and open constitutional question as to whether or not that can be limited.� Malbin told the committee he thinks 527 contributions will grow rapidly in the future if not regulated, since only one out of eight soft money donors from past elections gave to 527s in 2004, noting �there is a lot of room for growth in this sector.� The result would be that donors to large 527s would be able to get attention from officeholders and parties after the fact, creating a potential �nexus of reciprocity� resulting from officeholders being aware of major donors to 527 groups that support them. The bill�s sponsors responded to criticism that the bill will have negative impacts on 501(c) organizations, saying their intention is to limit the impact to 527s. Feingold indicated a willingness to make changes to clarify the bill�s language if necessary. Most of the discussion during the hearing focused on where money that now goes to 527s will go if federal contribution limits are imposed. The primary focus was on groups exempt under 501(c) of the tax code, including charities, social welfare organizations, unions and trade associations. One witness predicted contribution limits on 527s would steer donations toward the political parties because of negative gift tax consequences of large donations to 501(c)(4) groups. Sen. Mark Dayton (D-MN) warned about the �law of unintended consequences,� saying, �to take this action as it applies to 527s and leave the door open for these activities to go elsewhere where we can identify in advance where that is likely to be, the 501(c)(4) or 501(c)(6), if that is the case it seems to me to be missing half the boat ... So I would urge, Mr. Chairman, that we look at this comprehensively and look at the functions being performed that this bill addresses and rather than limit it to one particular category of the IRS or whatever that we apply it to any organization that is engaged in those purposes and apply that standard to them.� Although Lott wants to move quickly, it is likely the committee will be considering a series of amendments addressing issues raised at the hearing. Given Feingold�s repeated statements that the sponsors are open to changes, and the complexity of the issues, it may be impossible to move the bill by June. Two days after the hearing, on March 10, Reps. Mike Pence (R-IN) and Albert Wynn (D-MD) introduced the 527 Fairness Act, which takes the opposite approach of S. 271 by expanding the ability of both 527s and political parties to operate. A news release from Pence�s office said the bill would:

• Repeal part of the �electioneering communications� provision in the Bipartisan Campaign Reform Act of 2002 so that all types of nonprofits, not just 527s, can use individual contributions to pay for broadcasts that refer to federal candidates within 60 days of a federal election or 30 days of a primary;
• Remove the aggregate contribution limits that BCRA imposed on individuals giving to influence federal elections, thus allowing them to avoid having to choose among donations to parties, candidates and federally regulated independent groups;
• Remove limits on how much the parties can spend in coordination with candidates;
• Allow state and local parties to spend soft money on voter registration drives for elections, including those involving federal candidates; and
• Eliminate the taxes nonprofit 501(c) organizations pay on communications that do not include �express advocacy� for the election or defeat of federal candidates.