Congress May Bite Hand That Feeds Members

THUMB through a Washington phone book and it's easy to see why Americans are suspicious of "special interests." Thousands of such groups, ranging from the Alliance for Justice to the Cement Kiln Recycling Association, maintain offices here. There's even an association for people who run associations.

But if critics get their way, many of these offices will soon be vacant. Years of lax rules, GOP leaders say, have allowed some of these organizations to unfairly take advantage of their position: accepting government grants and tax breaks one day, lobbying Congress and pitching consumer products the next.

If Congress succeeds in cutting funding for these groups and placing new restrictions on how they operate, it could fundamentally change the way the federal government has done business, and hammered out policy, for the last 45 years.

"Interest groups have almost become another branch of government," says Frank Baumgartner, a political scientist at Texas A&M University in College Station. They have come to represent "just about every American in one way or another," he says, and they do much government work: from administering social programs to conducting research.

Last week, Wyoming Sen. Alan Simpson (R) launched an attack on one of the most interest influential groups of all, the American Association of Retired Persons (AARP).

In a hearing, Senator Simpson noted that AARP earned $382 million last year, much of it by selling things like insurance policies and credit cards to some of its 30-million members. He said that while AARP won $86 million in government grants for providing social programs for the elderly last year, it also spent $35 million on lobbying.

Under legislation proposed by Simpson and Reps. David McIntosh (R) of Indiana and Ernest Istook (R) of Oklahoma, groups like AARP would be restricted from lobbying if they receive any federal grant money. Simpson also suggests that for any group to qualify for tax-exempt status, they should earn a large percentage of their income from member dues and contributions.

If such measures become law, they will bear tumultuous consequences for thousands of tax-exempt groups like AARP that fall under section 501-C4 of the tax code. These include household names such as the Sierra Club, the American Civil Liberties Union, the National Rifle Association, and the Christian Coalition.

Current tax laws stipulate that 501-C4s must be dedicated "exclusively to the promotion of social welfare." Yet unlike churches, universities, and charities - whose tax classification limits their lobbying to 20 percent of their budget or $1 million per year - 501-C4s can lobby as much as they please.

According to a February report by the General Accounting Office (GAO), 501-C4s earned about $21 billion in 1993, only 20 percent of which came from dues and contributions. Although a 1950 law requires nonprofits to report all revenue that does not relate directly to its tax-exempt activities, these groups managed to protect 70 percent of their income.

"It is legitimate to question whether every single activity of a nonprofit ought to be treated as sacrosanct simply because of its nonprofit status," says Tim Penny, a former Democratic congressman from Minnesota. "A lot of groups are involved in major moneymaking ventures. Most other organizations involved in those activities are not treated with the same deference. It's a matter of equity."

But supporters argue that the GOP attack on interest groups is purely political. Simpson has made no secret of his displeasure with AARP for opposing Medicare cuts.

Republicans have long argued that 40 years of Democratic dominance has bloated the nonprofit sector, and given it a distinctively liberal taste. Ever since the Reagan years, GOP strategists have looked to trimming the nonprofit sector as a means of "defunding the left."

But Dr. Baumgartner argues that interest groups are not leeches. Rather, they have been forced to rely on government contracts, moneymaking schemes, and lobbyists because it has become difficult to raise money for the public good. Because most contributors to 501-C4s cannot deduct their donations from income taxes, he argues there is no financially compelling reason to support these groups.

According to the GAO, the percentage of revenue such groups collect from dues has fallen from 58 percent in 1975 to just 11 percent in 1990. While they have shrunk in number, other types of nonprofits, particularly those that represent businesses have grown dramatically.

Eliminating breaks for 501-C4s, Baumgartner says, gives a huge lobbying advantage to groups with narrower interests: "It's easy to organize people who have a certain kind of job, but it's difficult to mobilize plain old people."

Still, reform will be difficult. The first hurdle is defining what constitutes lobbying. Some ads, such as that "Harry and Louise" spot that ran during the health-care debate, could be deemed educational rather than political.