As the election drew closer, outside groups run by some of the party’s canniest political operatives pumped millions of dollars into key races. Newly formed and with innocuous-sounding names, they ran slashing attack ads. Party leaders on the other side cried foul, complaining of a “total meltdown of federal campaign finance regulation.”

Sound familiar?

This was 2004. The outside groups were organized by such Democratic strategists as Harold Ickes and Ellen Malcolm; they were funded by labor unions and wealthy donors writing seven-figure checks. In the end, nearly three years later, the groups agreed to pay fines totaling $1.3 million — to settle charges that they had illegally spent more than $150 million to influence the election.

So forgive me if I take the current Democratic howls of outrage with a hefty helping of cynicism.

Not that the Republican-linked spending isn’t outrageous. In fact, it’s way worse than the Democrats’ 2004 avalanche of outside money because so much is being conducted under a cloak of secrecy.

Let’s not be naive, though. Unlike most Republicans, Democrats have long supported campaign finance reform; for that they deserve enormous credit. But campaign cash is where the hardball hits the mitt. For decades, both parties and their allies have demonstrated a hardheaded willingness to exploit and stretch existing campaign finance laws. To expect otherwise is to expect lions not to eat zebras when the opportunity arises. The ethics — and the expressions of ethical outrage — are purely situational.

Democrats are not playing the outside group game this election — but it would be awkward to do so while blasting Republicans. As a presidential candidate in 2008, Barack Obama discouraged the formation of outside groups — but his fundraising juggernaut meant he didn’t need them.

The real villains of the current mess are a tax code that gives way too much leeway for secret and unlimited political cash and a regulatory regime that has proved itself incapable of stemming the flow.

In 2004, Democratic groups disclosed their donors — not because they are purer of heart but because the law required it. The Democrats chose to set up the groups as what are known as 527s — political committees required to report receipts and expenditures to the Internal Revenue Service.

The Republican-linked groups are operating under different sections of the tax code that don’t mandate such disclosure. The U.S. Chamber of Commerce, for example, is a trade association, known as a 501(c)(6). Crossroads GPS, the group backed by Karl Rove and Ed Gillespie, is a nonprofit advocacy organization, known as a 501(c)(4).

Are they stretching the limit of what the law allows? Especially in the case of the nonprofits, I’d argue yes. We’ll find out — eventually. The Campaign Legal Center and Democracy 21, the reform groups that brought the 2004 complaints against the Democrats’ outside groups, have asked the IRS to investigate Crossroads GPS.

Under federal tax law, 501(c)(4)s and 501(c)(6)s cannot “primarily engage” in activities that constitute “participation or intervention in political campaigns.” Under federal election law, political committees — groups whose “major purpose” is to influence elections, and that run ads that cannot be understood as anything but advocating the election or defeat of federal candidates — must comply with reporting requirements.

The IRS has failed to effectively police the porous boundaries. Marcus Owens, who headed the IRS branch that oversaw nonprofit organizations, points out that the newly sprouted nonprofits won’t even have to file reports with the IRS until January 2012. “It’s a farce,” he told The New York Times.

Meanwhile, the Federal Election Commission has proved itself institutionally incapable of responding. In case after case involving the political activities of nonprofits, the agency has deadlocked, with its three Republican commissioners blocking investigations.

The obvious solution isn’t to rely on the kindness of political operatives. It’s to strengthen the law to require groups clearly engaged in the election-influencing business to say where their money is coming from — as the Disclose Act that Republicans now oppose would do.

As one senior lawmaker said in 2000, when Congress was tightening the rules for 527s, “what we ought to do is broaden the disclosure to include at least labor unions and tax-exempt business associations and trial lawyers so that you include the major political players in America. Why would a little disclosure be better than a lot of disclosure?”

That was Mitch McConnell, now Senate minority leader. He was right then, even if he disagrees with himself now. As I said, it’s all situational.

Ruth Marcus’ e-mail address is marcusr(at symbol)

© 2010, Washington Post Writers Group

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