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Is It a Million-Dollar Loophole?

Sometime this month the full House is likely to take up legislation that all sides agree would alter the basic framework of Congressional campaigns. But a fundamental question remains a matter of dispute: Will the bill allow million-dollar donors to once again give directly to federal officeholders?

Opponents have decried what they see as a drastic undermining of three decades of campaign finance law. They say the measure would restore the ability of lawmakers to shake down wealthy individuals for six-figure contributions and once again give millionaires the access contributions of that magnitude can buy.

One of the bill’s chief sponsors, Rep. Albert Wynn (D-Md.), called such a scenario a “paranoid conspiracy fantasy.”

But is it?

Co-sponsored by Rep. Mike Pence (R-Ind.), the legislation would eliminate the so-called aggregate restrictions, originally imposed 30 years ago, that limit the total amount an individual can give to all federal party committees and candidates in a single election cycle. Currently, an individual can give a total of $101,400 to such entities each cycle (indexed for inflation, the amount is up from $95,000 last cycle), only $40,000 of which can be given directly to federal candidates.

Without the aggregate restrictions, the total amount an individual could give to federal candidates and campaign committees would be limited only by the total number of such entities. In theory, that could be 435 House candidates and 33 Senators, in addition to three national committees, for each party. A donor could then, in theory, give $2.1 million or more to candidates for federal office and the campaign committees that support them.

But that still doesn’t explain how a single donor could give $1 million or more to one federal candidate, as the “individual” limits would remain. Even under the proposed legislation, an individual could give only $4,200 per cycle directly to a candidate.

Enter joint fundraising accounts. An increasingly popular tool used by groups of candidates and party committees to raise money at a single event, the joint accounts could also facilitate something else, which Wynn himself has dubbed “money laundering.”

Utilizing such accounts and a series of simple accounting maneuvers, a $1 million contribution from a single donor could end up under the control of a single candidate. And the $1 million figure is merely a rhetorical starting point. If state parties are included in the joint fundraising agreement, a $2.1 million single-donor contribution under Pence-Wynn could be spread out over all federal campaigns and committees and swell to $3.1 million. (Individuals are allowed to give $20,000 to each state party per cycle.)

Under existing law, there is no prohibition on transfers between party committees. In theory, $1 million worth of contributions from a single donor spread out to dozens of state parties, federal candidates and national committees could ultimately end up under the control of just one candidate or party committee. And it would be perfectly legal.

Wynn has been steadfast in stressing that the bill would in no way create the ability of individuals to route million-dollar contributions to a single candidate or party committee. And Pence has said repeatedly that even if it did, the bill would not be so much creating million-dollar contributions as it would be directing them to where the sponsors say they belong, with the national parties, thereby removing the incentive for those individuals to give unrestricted amounts to shadowy groups operating outside the current system.

Even its critics acknowledge Pence-Wynn would not bring back soft money as it has traditionally been described and admit that even the big contributions would meet the widely accepted criteria for hard money — regulated, limited and excluding money from corporate or labor treasuries.

Pence, Wynn and others who support their bill say they are baffled by any criticism of allowing more hard money to flow through the parties, as the 2002 Bipartisan Campaign Reform Act was supposedly intended to elevate hard, regulated and disclosed money to the detriment of its “soft” counterpart.

And what’s wrong with allowing more hard dollars into the system, “[i]f we really believe and worship at the altar of hard dollars,” GOP campaign lawyer Cleta Mitchell has asked.

But the bill’s detractors have been vehement about one point: hard money in million dollar increments will corrupt just like soft money. If you allow $1 million or $2 million or more to be donated by a single individual to various state and federal party committees and candidates, “you’ve effectively created a hard money that is like soft money,” Rep. Chris Shays (R-Conn.) said at a hearing in April.

The Scenario

Wynn has challenged any media organization to justify the insinuation that his bill could return federal officeholders to the position of asking wealthy contributors for large sums of money, well beyond the limit of $4,200 an individual can give to one candidate.

Here is how it might work, under a scenario vetted with both proponents and opponents of the legislation.

A lawmaker solicits a $1 million contribution from an individual for a joint fundraising account. Such accounts — shells set up to divide large contributions among more than one campaign committee without the donor having to cut multiple checks — have become increasingly common in the past few election cycles. With a joint fundraising account, usually representing a number of candidates and/or party committees, a wealthy donor can “max out” to more than one federal candidate at a time, giving the maximum allowable contribution to multiple candidates and party committees with one check.

A single, $1 million check would comprise the maximum allowable contributions to be made by an individual to various entities included in the joint-fundraising agreement: $4,200 to each federal candidate, $53,400 to each national party committee, and $20,000 to each state party. For example, a donor could “max out” to 45 state party committees, two national party committees and one federal candidate in one check for $1 million.

Take the case of a fictional House Member, Rep. Bill N. Toolaw.

Once Rep. Toolaw’s joint fundraising committee received a $1 million check, the Democratic National Committee and 45 state party committees, for example, would authorize their respective portions of the contribution to be transferred to the DCCC.

Under existing law, party committees may engage in unlimited transfers among themselves. Pence-Wynn would not change this.

The DCCC, now holding the $1 million given to Toolaw’s joint fundraising account, could give Toolaw control over how the money was spent. Currently, there is a $76,000 limit on the amount a House candidate can “coordinate” with his or her party committee on his or her re-election expenditures. Pence-Wynn would repeal the so-called coordination limits, giving Toolaw the ability to control how every dollar of the $1 million contribution is spent.

“Could that happen? Yes,” GOP election lawyer Mitchell said. “It would be perfectly legal.”

The end result, according to Democracy21’s Fred Wertheimer, would be to “eviscerate” the existing $4,200 cap on how much Rep. Toolaw is allowed to receive from any one individual.

Mitchell and Wertheimer agree on virtually nothing as it relates to campaign finance, but both acknowledged that the outlined scenario is feasible if Pence-Wynn were to be enacted.

Mitchell, of Foley and Lardner LLP, serves as outside counsel to the National Republican Senatorial Committee and supports Pence-Wynn because she believes it would better empower the parties to counter soft-money 527 groups operating outside the federal restrictions on the use of such money to influence federal elections.

“Let’s look at the reality here,” she said, noting that million-dollar donors are still giving to influence federal elections, “[t]hey have just redirected them in a much bigger way to non-party, non-hard dollar entities.”

Although she pointed out that the joint-fundraising agreements would have to encompass dozens of candidates and state and federal party committees to be able to absorb the $1 million, Mitchell also conceded that it was “a pretty good idea. I actually think that would be a positive” because it would direct the million-dollar contributions where she believes they belong, to the political parties.

For his part, Wynn maintains that “all of the individual limits remain,” meaning that the $4,200 limit per individual per candidate and the $53,400 limit to each party committee would still exist as barriers. In order for such a scenario to take place, he says, the participants would have to engage in what amounts to a money laundering conspiracy.

Wynn also asserts that “The bill does not affect BCRA really in any way.”

The 2002 Bipartisan Campaign Reform Act (which Wynn voted for and Pence did not) outlawed federal candidates from raising or spending soft money. The aggregate contribution limits, however, were established in 1976 in a post-Watergate reform effort.

Wynn calls predictions about ways in which donors and candidates will conspire to get around individual limits “absurd.” Such scenarios, he said, don’t make sense “without having to come up with a conspiracy theory involving the coordination of 50 state parties.”

“The donor can’t compel the state party to do it,” Wynn said. “It’s not believable that you have a conspiracy of 50 cash-strapped state parties.”

Wertheimer agreed that if it would in fact take a conspiracy, but said it’s one the state parties are already engaged in. Under current law, the state parties and the national parties are each allowed to spend 2 cents per voter in coordination with candidates. As a matter of widespread practice, however, the states typically cede their 2 cents per voter coordination limit to the national parties, allowing the latter to spend 4 cents per voter on coordinated activities.

“There is every reason to assume that state parties will cooperate with their federal candidates and national party committees in carrying out this fundraising scheme,” Wertheimer said.

“Furthermore,” Wertheimer maintained, “the contributions raised in this process would be solicited by federal candidates for use in their own races and are contributions that the state parties would otherwise never receive.” The state parties would thus not be giving up anything, “they simply would be agreeing to serve as a pass-through for contributions raised by a federal candidate to be spent on the candidate’s campaign.”

The situation played out in reverse during the pre-BCRA soft-money days, when the national parties would funnel such contributions to the state parties to spend in coordination with federal candidates.

“The mechanics by which Members, under Pence-Wynn, could solicit and control the spending of $1 million contributions already exist and can be easily adapted to accomplish this,” Wertheimer said.

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