Washington, D.C. – U.S. Senator Sheldon Whitehouse (D-RI) and Representative Judy Chu (D-CA) today introduced the End Tax Breaks for Dark Money Act, legislation to close a loophole in the tax code that allows billionaires to avoid capital gains taxes on appreciated assets donated to dark money organizations, a tactic that has been increasingly used to funnel billionaire dark money into the American political system.
“It’s a clear sign of a broken tax code when a single donor can transfer assets worth $1.6 billion to a dark money political group without paying a penny in taxes,” said Sen. Whitehouse. “Billionaires attempting to influence politics from the shadows should not be rewarded with taxpayer subsidies.”
“Thanks to the far-right Supreme Court, billionaires already have outsized influence to decide our nation’s politics; through a loophole in the tax code, they can even secure massive public subsidies for lobbying and campaigning when they secretly donate their wealth to certain nonprofits instead of traditional political organizations,” said Rep. Chu. “We can decrease the impact the wealthy have on our politics by applying capital gains taxes to donations of appreciated property to nonprofits that engage in lobbying and political activity—the same way they are already treated when made to traditional political organizations like PACs. I’ve partnered with Senator Whitehouse today to introduce the End Tax Breaks for Dark Money Act, which would impose capital gains taxes on these donations by the rich to political organizations and close a loophole subsidizing the wealthy’s ability to influence our politics.”
Since Citizens United, special interests have exploited American tax laws to funnel billions of dollars of dark money into elections through 501(c)(4) nonprofits. In the decade following the ruling, political expenditures by 501(c)(4)s rapidly accelerated to over $1 billion, compared with $103 million in the previous decade. These dark money groups have spread misinformation on issues like COVID-19 and climate change, all without ever telling the public who funds them.
In August 2022, reporting from ProPublica and the New York Times revealed that billionaire conservative donor Barre Seid transferred ownership of his $1.6 billion company to the newly-formed Marble Freedom Trust, a rightwing, Leonard Leo-run nonprofit political organization formed under Section 501(c)(4) of the Internal Revenue Code. Due to a loophole in the law, Seid got a tax break potentially reaching $400 million for his donation.
Normally, when millionaires or billionaires sell appreciated assets, they have to pay capital gains taxes on the increase in the assets’ value. While the tax code allows a write-off if appreciated assets are donated to a charity, Congress explicitly prohibited this tax break from extending to political organizations like PACs. But by donating appreciated assets to a 501(c)(4) organization, wealthy donors can avoid taxes entirely, receiving a public subsidy for funding dark money political organizations.
The End Tax Breaks for Dark Money Act would ensure the wealthy cannot avoid taxes while corrupting our political system by applying the same rules for donations of appreciated property to 501(c)(4)s, (5)s, and (6)s as already exist for such donations to 527 political organizations such campaign committees, political action committees, and political parties.
The End Tax Breaks for Dark Money Act is endorsed by Common Cause, the Excessive Wealth Disorder Institute (EWDi), Demand Progress, End Citizens United / Let America Vote, the Economic Policy Institute, the Institute for Policy Studies’ Program on Inequality, NETWORK Lobby for Catholic Social Justice, Oxfam America, Patriotic Millionaires, Public Citizen, Americans for Tax Fairness, United Steelworkers (USW), and AFL-CIO.
“For too long, certain billionaires and wealthy tax cheats have tried to exploit our tax system to tip the scales in their favor, and now they’re using a loophole to funnel secret money into shadowy political groups,” said Aaron Scherb, senior director of legislative affairs at Common Cause. “We appreciate Senator Whitehouse and Congresswoman Chu’s leadership in introducing the End Tax Breaks for Dark Money Act to get billionaires, special interests, and big corporations to play by the same rules as everyday Americans do. This bill, along with the DISCLOSE Act, will help ensure that all Americans can understand who is trying to influence their voices and their votes.”
“We are not a free nation as long as an exclusive class of wealthy elite hold our democracy captive. The excessively wealthy don’t just game the system, they rig it to their advantage. They hoard their wealth through tax loopholes and preferential policies enforced by their armies of lawyers, accountants, lobbyists and wealth advisors,” said EWDi Executive Director Gabriela Sandoval. “Once their wealth is extracted from the economy, it’s warehoused and used to influence policy without the public’s knowledge. Ending the public subsidy for billionaire’s donations to dark money organizations through the End Tax Breaks for Dark Money Act is a major step toward ending the corrupting influence of money on our democracy and holding the ultra-wealthy accountable.”
“For too long, right-wing mega donors have exploited loopholes in our laws to influence our elections without disclosing their identities––and get a tax break for doing so. It’s a flagrant abuse of what the IRS’ tax-exempt status is intended for,” said End Citizens United // Let America Vote Action Fund President Tiffany Muller. “The End Tax Breaks for Dark Money Act would eliminate this tax loophole, forcing wealthy political donors to pay their fair share if they want to donate to dark money entities. We applaud Senator Whitehouse and Congresswoman Chu for their continued leadership to ensure our elections are fair and transparent.”
“This Act is a vital measure that will help address extreme inequality in our society by closing a tax loophole for the ultrawealthy and tackling shadowy billionaire influence over politics,” said Nabil Ahmed, Director of Economic and Racial Justice at Oxfam America.
“There is no justifiable reason why wealthy people like me should be allowed to dominate our political system by donating an entire $1.6 billion company to a dark money political group. But perhaps more egregious is the $400 million tax break that comes from doing so. It’s a perfect example of how this provision in the tax code is used by the ultra-wealthy to manipulate the levers of government while simultaneously dodging their obligation to pay taxes. We cannot allow millionaires and billionaires to run roughshod over our democracy and then reward them for it with a tax break,” said Morris Pearl, Chairman of the Patriotic Millionaires and former Managing Director at BlackRock.
In addition to Whitehouse and Chu, the End Tax Breaks for Dark Money Act is cosponsored by Senators Brian Schatz (D-HI), Tina Smith (D-MN), Catherine Cortez Masto (D-NV), Chris Van Hollen (D-MD), Elizabeth Warren (D-MA), Jeff Merkley (D-OR), Tammy Baldwin (D-WI), Laphonza Butler (D-CA), Peter Welch (D-VT) and 13 members of the House of Representatives.
Whitehouse has long led the charge to end the scourge of dark money in American politics. The Senator’s DISCLOSE Act would require organizations spending money in elections – including super PACs and 501(c)(4) dark money groups – to promptly disclose donors who give $10,000 or more during an election cycle. In addition to election disclosure requirements, the bill would require groups that spend money on ads supporting or opposing judicial nominees to disclose their donors. When the DISCLOSE Act last came to a vote in September 2022, all Senate Republicans in attendance voted against the bill, while all members of the Democratic Caucus in attendance voted for it.
Full text of the legislation is available here.
Meaghan McCabe (Whitehouse),(202) 224-2921
Graeme Crews (Chu),(202) 597-2923