Welcoming George W. Bush to New York City for the Republican National Convention turned out to be extremely lucrative for the GOP and for the RNC’s corporate sponsors, while making a mockery of the federal tax code. The Republicans got to anoint their candidate on a specially built stage that cost them nothing, and the sponsors can write off their lavish spending as a “charitable” deduction when they pay their taxes. When the convention began in a newly revamped, redecorated Madison Square Garden, the sprucing-up was paid for mostly by donations to the city’s “host committee.” The contributors got more for their money than streamers and balloons when they wrote a check to New York City Host Committee 2004, set up as a public charity. Every cent of the projected $63 million in donations is tax-deductible.
Add to that the $15 million the government gave each party for its convention, and the Republicans spent more money for four days than Bush can for the remaining two months of the election, when he is allowed to spend only up to $75 million. Verizon, Pfizer, and Goldman Sachs are among the companies that shelled out tens of thousands of dollars to pay for “convention-related services,” such as “lighting, electrical, air-conditioning, loudspeaker systems, offices, office equipment, and decorations,” according to the host committee’s IRS filing. To keep its charitable status, the committee couldn’t help specific candidates. But it could decorate the hallways for a candidate.
So-called host committees for political conventions go through gyrations to adhere to the letter of the tax code. But critics say they violate the spirit of the law.
“The prohibition is on supporting a candidate in any way,” said Barbara Schatz, a Columbia Law School professor. “The IRS obviously is taking the position that this is an element of economic development. That doesn’t seem to be a sensible approach.” The New York City committee, for example, could have paid for balloons on the walls of the convention center, but not for those dropped from the ceiling.
Public charities may not be allowed to support specific candidates or to drop balloons on the adoring crowds at the nomination convention. But they can apparently pay for the stage where Bush spoke from.
In another twist, the host committee for the RNC couldn’t pay for creating a video of the president, but it could pay for the screen it’s projected onto.
Big donors can receive perks like special access to the convention hall they helped refurbish, in addition to deducting their contributions from their income taxes as charitable gifts.
The host committee’s application for tax-exempt status as a public charity—called 501(c)3 in the IRS code—was approved on an expedited basis. The Democratic National Convention in Boston was conducted under a slightly different setup. Cheryl Cronin, clerk for the Boston 2004 Host Committee, says two organizations were established to pay for preparing the FleetCenter. The reason? For greater spending flexibility, she said.
But however they differed, both cities’ host committees violate the spirit of the tax code, says Steven Weissman, associate director for policy at the watchdog Campaign Finance Institute.
“They used a fiction: The convention benefits the host city. That’s why it’s charitable. That’s why it promotes the city,” he said. “We don’t think [the host committees] should be tax-exempt, because they are political.”
The convention committees, he said, should have had to operate as so-called 527 organizations. That category includes MoveOn and Swift Boat Veterans for Truth, whose very public purposes are to influence the presidential election.
Specific information on expenditures and donor totals hasn’t been released by the New York Host Committee. The “site city agreement” among New York City, the host committee, and the RNC estimated that the total amount of spending would be more than $63.5 million.
But Weissman said it will probably be closer to $70 million. The agreement includes estimates of $33.8 million for convention facilities, including $5 million rent for Madison Square Garden, and $9.9 million for computer systems and telecommunications.
“All the convention facilities and computers go to the party and to get the message out,” Weissman said. “It doesn’t help New York.” The agreement also listed an estimated $4.5 million for “miscellaneous” costs, which Weissman said was nothing more than just a “contingency fund for the Republican Party.”