527 Reform Bill Sponsors Circulate Amended Version

A draft substitute amendment to S. 271, the 527 Reform Act of 2005, is being circulated by sponsors Sens. John McCain (R-AZ) and Russell Feingold (D-WI). It removes some problems with the original bill, but still would subject independent political organizations to the same regulations as parties and federal candidates. The substitute bill removes the possibility of the Federal Election Commission (FEC) determining that a group is "described in Section 527" by removing that phrase and limiting regulation to groups registered with the Internal Revenue Service (IRS) as political organizations under Section 527. It also extends an exemption for state and local 527 groups if they do not refer to federal candidates in their activities and public communications, only operate in one state, and do not refer to political parties unless it is to identify a non-federal candidate. While these and other changes limit the damage S. 271 would cause, the fundamental problems remain. It would drive partisan activity to 501(c) groups in order to avoid FEC regulation, losing the public disclosure required of all 527s. It would also limit the ability of state and local groups to refer to anyone who is a federal candidate, even if she or he is a state or local official and the reference is in relation to state or local issues. The bill would also tilt the political playing field in favor of business corporations because they can spend for political purposes without tax consequences, while 501(c) organization expenditures on political activities are taxed at the highest corporate rate.
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