U.S. Sen. Sheldon Whitehouse (D-RI) and U.S. Rep. Judy Chu (D-CA) introduced legislation that would close a tax loophole that allows individuals to avoid capital gains taxes on assets donated to dark money organizations.
Typically, 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 prohibited this tax break from extending to political organizations like PACs. However, 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 (S. 3743/H.R. 7244) would ensure these donors cannot avoid taxes when making 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 loophole has been used increasingly since the Citizens United ruling, the lawmakers said. 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. Political expenditures by 501(c)(4)s have gone over $1 billion in the past decade, compared with $103 million in the previous decade. These dark money groups have spread misinformation on issues like COVID-19 and climate change without ever telling the public who funds them.
“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,” Whitehouse said. “Billionaires attempting to influence politics from the shadows should not be rewarded with taxpayer subsidies.”
In August 2022, ProPublica and the New York Times reported that billionaire conservative donor Barre Seid transferred ownership of his $1.6 billion company to the newly-formed Marble Freedom Trust, a rightwing, nonprofit political organization formed under Section 501(c)(4) run by Leonard Leo. Due to a loophole in the law, Seid got a tax break potentially reaching $400 million for his donation, ther lawmakers said.
“Thanks to the far-right Supreme Court, billionaires already have out-sized 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,” Chu said. “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.”
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.
In addition to Whitehouse and Chu, the bill is cosponsored by Sens. 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.