Twenty House Democrats yesterday introduced proposed legislation that, if enacted in its current form, would amend the Federal Election Campaign Act of 1971 to:

  • Require corporations and labor unions which “submit[] regular, periodic reports” to their shareholders and members to include certain detailed information concerning their political spending.  That information must also be reported to the FEC.  In addition, if the corporation or labor union maintains a website, it must post on its homepage a link to the report on the FEC’s website.

Commentary:  Interestingly, it is not clear which, if any, corporations and labor unions would be subject to the proposed new reporting regime.  Corporations are not required by FECA to submit regular or periodic reports to shareholders.  Perhaps public corporations with reporting obligations under the Securities and Exchange Act of 1934 and other corporations that are in the practice of sending periodic reports to shareholders are intended to be covered, but that would exclude privately owned corporations that, for whatever reason (including a desire not to be covered by the proposed legislation), do not “submit regular, periodic reports” to their shareholders.

In addition, it is unclear which labor unions would be covered because unions tend not to “submit regular, periodic reports” to their members.

As a consequence, the desired increase in transparency sought by the new reporting regime may, in large part, be illusory, except possibly for public companies which increasingly voluntarily disclose some, but possibly not as much, political spending to shareholders and the public.

  • Reportable political spending would, not surprisingly, include independent expenditures and electioneering communications.  Perhaps significantly, however, reportable political spending would also include: (1) all dues and other amounts paid to a 501(c)(6) trade association or a 501(c)(4) social welfare organization; and (2) other communications that would be treated as electioneering communications if the communication had been a broadcast, cable or satellite communication.

In addition, the proposed legislation would amend the Internal Revenue Code of 1986, as amended, to:

  • Reduce the amount of permissible political spending by 501(c)(4) social welfare organizations to the lesser of 10% of the organizations’ total expenditures or $10 million.

Commentary:  This appears to be a nod to reformers who have campaigned for a sharp reduction in permissible political spending by social welfare organizations.

  • For this purpose, political spending would include amounts spent for independent expenditures and electioneering communications.  Political spending would also include amounts spent for other communications that would be treated as electioneering communications if the communication had been a broadcast, cable or satellite communication and any payment to a 501(c)(6) trade association or 501(c)(4) social welfare organization if the paying entity “knows, or has reason to know, [that the payment] will be used directly or indirectly by the payee entity” as political spending.

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As a stand-alone bill, the Openness in Political Expenditures Now Act (H.R. 2670, the “OPEN Act”) seems unlikely to be taken up more broadly.  That said, the bill may be an indication of the direction that at least some members of the House of Representatives would like to take if a broader tax reform package starts to take shape this autumn.