Loophole Reportedly Provides Secrecy to Some Political Donors

U.S. corporations and trade groups are using an obscure tax loophole to keep political contributions secret, Newsweek magazine reported Saturday.

The magazine notes that by registering with the Internal Revenue Service under Section 527 of the tax code, an organization can set up a political committee that need not report its activities to the Federal Election Commission.

The article, to appear in the issue of Newsweek on sale Monday, says “lawyers for the liberal Sierra Club stumbled on . . . the gimmick” in 1996.

The conservation group immediately used it to pay for $3.5 million in pro-environment advertising targeting Republicans and has revived it for an $8-million ad campaign partly bashing Texas Gov. George W. Bush’s record in the field, Newsweek says.

“But this campaign season, Republican operatives have taken the idea to a new level,” Newsweek continues. Among about two dozen “stealth” political action committees active around the country, it lists:

* Americans for Job Security. Newsweek says Senate Majority Leader Trent Lott (R-Miss.) encouraged lobbyists last month to help Sen. Spencer Abraham (R-Mich.) by sending money to the blandly named organization, which has “a small unmarked office in northern Virginia.”

The group plans to spend $8 million to $10 million on fall campaign ads, received $2 million in seed money from the American Insurance Assn. and the American Forest and Paper Assn., and has also gotten money from Microsoft and other high-tech companies, Newsweek says.

* The Republican Majority Issues Committee. Created by a former aide to House Majority Whip Tom DeLay (R-Texas), it plans to spend $25 million backing Republicans in tight races, according to the magazine, which quotes sources as saying it was initially funded by “a network of conservative, publicity-shy businessmen including Graco founder Robert Cone,” who declined to comment.

* The Republican Leadership Committee. Its organizer, “veteran GOP operative Scott Reed . . . confirmed that the group has been largely bankrolled by former Golden Rule Insurance Co. chief Patrick Rooney,” who, like the party, favors the idea of health-care savings accounts.