The Changing Outside-Money Game

Sen. John McCain, R-Ariz., left, chats with Sen. Russ Feingold, D-Wis., right, as Democracy 21 President Fred Wertheimer listens as the Senators testified on lobbying reform at the Senate Homeland Security and Governmental Affairs hearing, Wednesday, Jan. 25, 2006 on Capitol Hill. (AP Photo/Lauren Victoria Burke) (AP)

In theory, campaign finance reform should sit atop most lawmakers' To Do lists. After all, the current era of money in politics, launched when the Supreme Court issued its landmark Citizens United ruling in 2010, threatens something that usually motivates even the least-cooperative legislators: their self-interest. The rise of powerful outside groups puts candidates in both parties at the mercy of well-funded forces they can't control. No politician is eager to battle an angry billionaire willing to drop millions of dollars on TV ads when candidates themselves can collect checks worth only thousands. Even Republicans, once sure the new rules would help them, saw last year that Democrats can be equally, if not more, adept at using outside groups.

But reform efforts in Congress face long odds. Public debate has been nonexistent. And President Obama, who is using his second term to voice support for nearly every other item on the liberal wish list, has dealt with campaign finance only in the context of his controversial support for Organizing for Action, his outside group. Republicans still consider new rules and regulations an infringement on the First Amendment; Democrats oppose loosening them any further. As one GOP campaign finance lawyer put it, the issue "doesn't even register anymore."

Instead, any reforms to the campaign finance system are likely to come from outside Congress. Several federal agencies are considering changes that, however small, would alter the landscape in meaningful ways. And court cases could further affect the rules. Gridlock in Washington will likely prevent an overhaul of the system, but campaign finance could still look different by the 2014 election. "I wouldn't call it a thousand flowers bloom, but it is a multifront battle being waged," says Meredith McGehee, policy director at the Campaign Legal Center. "If you just focus on one thing, that's not the way you're going to move this forward."

In that regard, a looming decision from the Securities and Exchange Commission has attracted the most attention. It's not an agency that normally plays a role in campaign finance, but in December, the SEC said it was considering forcing all publicly held companies to disclose to shareholders when they make political contributions. Doing so would be a major change: Although it's unclear how much money they spent in the 2012 campaign, corporations could keep secret their contributions to tax-exempt outside groups. Most major independent organizations — such as the Karl Rove-backed American Crossroads or the Obama-aligned Priorities USA — raised some of their money this way. "Everyone in town involved in money and politics is watching the SEC's potential decision closely," says Michael Toner, a former chairman of the Federal Election Commission.

Another traditionally apolitical body, the Internal Revenue Service, might also play a role. It is tasked with reviewing whether groups are eligible for tax-exempt status. Rules stipulate that political activity cannot be such a group's primary purpose — in other words, at least 51 percent of the budget has to be dedicated to something other than TV ads and other types of mass-media persuasion. The IRS has yet to approve Crossroads GPS's nonprofit application, filed when the group formed in 2010, and the application's leak to the press last year increased speculation that it might be denied. Still, some doubt the agency will risk being seen as a tool of the Obama administration. "The last thing I would want to do if I were them is inject myself right into the middle of politics," says the Republican attorney, who requested anonymity to talk candidly about his clients' business.

Federal courts are also considering several cases that affect the campaign finance world. One, Van Hollen v. FEC, contends that the commission was wrong to decide that nonprofits don't have to disclose their donors when airing campaign ads. A second case, this one at the Supreme Court, would have a much different impact. McCutcheon v. FEC challenges the limit on how much a single donor can give during a cycle — currently $123,200. Doing away with that ceiling is a big deal: Hypothetically, a rich donor could give millions directly to all of his or her preferred candidates and groups.

The Court could even lift all restrictions on candidates, who currently can't receive individual contributions larger than $5,000. Citizens United left these rules in place, and they are the most significant regulations still on the books. "McCutcheon might be the first chipping away at those restrictions," Toner says. "It might lay the groundwork for a much larger challenge against the per-recipient contribution limits."

It's a scenario that liberal reformers fear, especially under the Court's current conservative majority. For these advocates, even though the rules are looser than they've been in a generation, the status quo might amount to a victory. At least until Congress is ready to act.