The Much Maligned 527 and Institutional Choice

Abstract:     
The continuing controversy over 527 organizations has led Congress to impose extensive disclosure requirements on these political organizations and to consider imposing extensive restrictions on their funding as well. The debate about what laws should govern these entities has, however, so far almost completely ignored the fact that such laws raise a complicated institutional choice question.

This Article seeks to resolve that question by developing a new institutional choice framework to guide this and similar choices. The Article first explores the context for making this determination by describing the current laws governing 527s, including both federal election laws administered by the Federal Election Commission and federal tax laws administered by the Internal Revenue Service. The Article then proposes and applies an institutional choice framework to guide the decision of into which body of substantive law the current and proposed rules for 527s should be incorporated. The Article concludes that while regulation of political activity through both election law and tax law can work reasonably well, the different tasks for which these bodies of law and their implementing agencies are best suited require a different allocation of responsibilities than both current and proposed laws governing 527s provides. Finally, the Article identifies other areas that may benefit from application of this framework.

Keywords: 527, Institutional Choice, Institutional Design, Campaign Finance, Tax-Exempt Organization, Political Organization, FEC, IRS

JEL Classifications: K34, K39

Accepted Paper Series