Tax rules for campaigns — Soltani

For many of us tax policy people who have seen tax laws made, campaign finance reform is a sore spot, since special interests donate to politicians and get favorable tax rules.

My friend Abdi Soltani, executive director of the American Civil Liberties Union of Northern California, whom I met when we were on the California Blue Ribbon Commission on marijuana legalization, has been thinking about campaign finance reform. He has an article, worth reading in its entirety, containing six ways to use tax rules to address the campaign finance problem.  Here are excerpts:

  • Establish standards to limit the amount of independent expenditures by nonprofit corporations such as 501c4s, instead of an outright ban, similar to our limit on lobbying for 501c3s. For example, 501c corporations that wish to engage in electioneering advocacy for or against candidates would have a limit of, say, 10 percent of their budget, up to a total of $1 million. Perhaps the cap would be firm at $1 million, or policies could be designed to provide flexibility to exceed that cap with additional requirements, such as the following.
  • Make the income of these tax-exempt organizations that exceed the $1 million candidate advocacy limits subject to an excise tax of 25 percent. As citizens and voters, we can determine that after a certain threshold, it no longer serves the public interest to make a nonprofit exempt from income taxes. Other activities protected by the First Amendment, such as income from book sales or movie tickets, are taxable.
  • Require disclosure of donors (giving above a certain amount) to nonprofit corporations that engage in this type of advocacy beyond the $1 million limit. We should protect free association rights of people to join organizations in a manner that protects their privacy and anonymity—a right we enjoy when we join or contribute to most 501c corporations. But we need to balance that with the right of voters to know who is paying for candidate campaigns, with disclosure requirements for contributors to candidate-controlled committees, PACs and 527s. If a 501c corporation chooses to engage in candidate advocacy beyond the $1 million threshold, then donors giving above a certain amount (say $1,000) should know up front that their name is subject to disclosure.
  • 501c organizations that attract a broad base of support should be allowed a greater degree of candidate advocacy without triggering these taxation thresholds and disclosure rules. For example, the first $10 of the average gift to a corporation could be available for this type of advocacy without aggregate limits or disclosure requirements. The broader the base, the closer the organization is to representing the electorate itself, rather than concentrated wealth and economic power. This idea is somewhat akin to the public support test that 501c3s use to provide better tax advantages for a broad base of donors, as compared to a private foundation.
  • Make the contributions to 501c entities that exceed the candidate advocacy limit of $1 million subject to the gift tax. The gift tax is surprisingly expansive: Donors may express love for their children by giving them a gift, but they still have to pay a gift tax if they exceed a certain amount. It is a public policy choice that we exempt political contributions of all kinds and in all amounts from the gift tax. Because 501c3s are prohibited from this type of advocacy, this gift tax would not apply to any 501c3 gifts.
  • Use both the excise tax paid by these organizations and the gift tax paid by the donors to fund public finance through small, donor-matching programs. These programs, such as one operating successfully in New York City, provide a match of public funds for small donations made to candidate-controlled committees. For example, a donor may give $50, and a public finance gift may match that five fold with $250 to the same candidate.

– See more at:




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