Campaign finance flap sinks tax reform bill

WASHINGTON (CNN) -- The House of Representatives rejected a popular tax reform bill Wednesday because it contained a provision critics said would have created a loophole in the new campaign finance law.

House Republican leaders had hoped the popularity of the "taxpayer protection" bill -- which contained several IRS reforms and provisions to make tax filing easier -- would prompt lawmakers to accept language that would have eased reporting requirements for so-called "527s" or "stealth PACs."

In the end, most Democrats and more than two dozen Republicans joined to defeat the bill 219-205, far short of the two-thirds majority needed for passage under procedures used by the House Republicans that prevented amendments.

John Feehrey, a spokesman for House Speaker Dennis Hastert, R-Illinois, said afterward that the "taxpayer protection" bill would not be brought up again -- something he said House Democrats may have trouble explaining to voters.

RESOURCES Campaign finance fact sheet    CAMPAIGN BILL Key provisions of the campaign finance bill President Bush signed into law in March:  • SOFT MONEY: Prohibits national parties from receiving unlimited "soft money" contributions; limits such donations to state and local parties to $10,000, and restricts use of this money to get-out-the-vote efforts and voter registration.   • HARD MONEY: Doubles to $2,000 the amount of regulated "hard money" an individual can contribute to a federal campaign, and indexes future increases to inflation.   • ADVERTISING: Prohibits special interest groups from broadcasting ads that refer to a specific candidate within 60 days of a general election, and 30 days of a primary.   • WEALTHY CANDIDATES: Provides additional funding sources for congressional candidates running against wealthy and largely self-financed opponents.   • EFFECTIVE DATE: Nov. 6, 2002, a day after this year's congressional elections.   Source: Reuters

In the past, "527s," which get their name from Section 527 of the tax code that classifies political groups, often operated outside the scope of federal disclosure requirements and contribution limits. Before Congress changed the law in 2000, "527s" were not required to disclose the sources of their funding.

Campaign finance reform advocates said the bill's language could allow such secret funding to return. They accused Republican leaders of trying to create a loophole to get around limits on "soft money" contributions in the reform law recently passed by Congress and signed by President Bush.

"The ink is barely dry, and the Republican leadership is already moving to create new loopholes in the system," said Rep. Marty Meehan, D-Massachusetts, one of the architects of campaign finance reform in the House.

"Make no mistake about it, these cleverly disguised provisions will torpedo key disclosure requirements for so-called 'stealth PACS.'"

"They realize they can't hold the majority unless they spend millions in soft money," said House Minority Leader Dick Gephardt, D-Missouri.

Republicans denied their bill created loopholes in the new campaign finance law because state and local campaign organizations are not involved in federal elections.

Supporters of the change insisted it was needed to because many state and local campaign organizations are overwhelmed by complicated, costly and duplicative reporting requirements.

House GOP leaders originally scheduled the bill to come up for debate Wednesday, but with momentum shifting they accelerated the timetable and began the debate late Tuesday.

Even if the language on "527s" had passed the House, it faced tough going in the Senate, where several key senators had vowed to block it.