Campaign Finance Regulation

Yet despite a century of modifying and expanding campaign finance regulation, unhappiness with the current system is legion. Both liberal and conservative politicians assert that the current system needs “reform,” with most favoring still further regulation. Reformers typically advocate either a ban on soft-money or full public funding of campaigns.

How can it be that after a century of regulation, there is still so much unhappiness with the financing of elections? If support for reform cuts across party lines, why does nothing happen? The answer lies in the details of campaign finance regulation, which changes both the incentives and the opportunities faced by donors and candidates. These details explain why campaign finance regulation is ineffective, just as they show why politicians oppose further regulation. The details also show why neither a soft-money ban nor public financing can resolve the controversy surrounding campaign finance, and they explain why overturning Buckley v. Valeo—the Supreme Court ruling that bars most limits on campaign expenditure—would not change matters. The analysis of details presented here does not suggest what campaign finance regulation, if any, is the best policy. But it provides a cautionary tale for reformers and clarifies the key tradeoffs that confront this debate.

Campaign Finance Regulation in Theory: Setting the Rules

The regulations governing campaign financing in the United States have three important features. Together, these determine the constraints facing candidates and donors.

The first important feature of current regulation is limits on contributions. Individuals can contribute at most $2,000 to a candidate in any election cycle, at most $20,000 to a national political committee in a calendar year, at most $5,000 to any other political committee in a calendar year, and at most $25,000 overall in a calendar year. Multi-candidate committees and other political committees, such as Political Action Committees (PACs), face similar limits, although these groups face no maximum limit per calendar year.

The second major feature of campaign finance regulation is bans on contributions by corporations, national banks, unions, Federal government contractors, and foreign nationals. None of these can contribute directly to Federal political campaigns.

The third major feature of current regulation is partial public funding of presidential campaigns. In the primaries, candidates receive public funds to match private contributions if they obey spending limits for the pre-nomination period. In the general election, nominees receive public funds if they refuse private contributions and limit their expenditures to the public funds. Political parties also receive public funding for their conventions. All three sources of funds are available to the major parties and to minor parties that show sufficient national support.

Beyond these regulations and funding programs, candidate committees, party committees, and PACs must file regular reports with the Federal Election Commission (FEC) and disclose the amounts they raise and spend.

One feature that is absent from current regulation is any general restriction on campaign expenditure. This is because in 1976, in Buckley v. Valeo, the Supreme Court held that restrictions on expenditures other than for presidential candidates accepting public funds are unconstitutional infringements on free speech. Many observers consider this ruling the critical obstacle that prevents campaign finance regulation from being “effective.” I suggest below that issue advocacy makes Buckley effectively moot.

Campaign Finance Regulations in Practice: Finding the Loopholes

At first glance, current law appears to place substantial constraints on the financing of Federal elections. Further examination, however, reveals a different reality; most potential donors are not seriously affected by these constraints.

Candidates who do not accept public funds may contribute unlimited amounts to their own campaigns. Ross Perot adopted this strategy in 1992, as did Steve Forbes in 1996 and 2000. Candidates using their own funds may still accept private contributions, subject to the contribution limits discussed above. In presidential campaigns, the decision to spend one’s own money involves a tradeoff, since it requires foregoing Federal funding. In House and Senate campaigns, however, there is no such dilemma since there is no public funding of these campaigns.

Although party committees face limits on the amounts they can contribute to candidates, they may also make expenditures on behalf of candidates, and these expenditures may be “coordinated” with a candidate’s campaign. In contrast to an outright contribution, the party organization making the expenditure retains control; and in contrast to an independent expenditure (discussed below) there are limits on the amounts. This provision materially weakens the limits discussed above given that the permissible amounts of coordinated expenditure are substantial. In the 2000 election cycle, the limits were $13,680,292 for Presidential nominees, $33,780 for House nominees, and $67,560 − $1,636,438 for Senate nominees depending on state population.

Although corporations and labor organizations cannot contribute to Federal campaigns or make expenditures to influence campaigns, they may establish PACs and use their business revenues or dues to cover the costs of running the PAC. There are no limits on the amounts and no disclosure requirements. Corporation and union PACs may also solicit restricted classes of persons for contributions. For corporations, the class consists of executive and administrative personnel, stockholders, and their families. For unions, the restricted class consists of members, executive and administrative personnel, and their families.

The three features of current law described so far weaken the impact of campaign finance regulation, but they do not by themselves permit unlimited contribution and spending. Three additional provisions, however, allow exactly this.

Individuals, party committees, and PACs can all make “independent” expenditures, meaning those not coordinated with a candidate’s campaign. Such expenditures may explicitly advocate the election or defeat of particular candidates so long as the expenditures satisfy the independence test. There is no limit on the amounts, although these expenditures must be disclosed and reported to the FEC.

This mechanism virtually nullifies the limits on individual, PAC, and party contributions. Independent expenditures cannot be explicitly coordinated with a candidate’s campaign, and some candidates might be nervous about expenditures made on their behalf. Yet tacit coordination is easy. Those making independent expenditures can hire the pollsters and political consultants who work for a candidate’s campaign, or mutual friends can guide “independent” expenditures in the direction desired by a candidate.

Individuals, PACs, corporations, and unions can also avoid the limits described above by contributing to so-called “soft money accounts.” The distinction between soft and hard money arises from the fact that political parties make expenditures not directly related to the election of particular candidates. For example, political parties incur the costs of administration and overhead and of party-building activities such as voter registration drives. Under existing law parties may keep separate accounts corresponding to their different activities—some regulated, some not—and accept contributions to the soft money accounts to cover the expenses of the non-regulated, “soft” activities.

Thus, corporations and unions, which are barred from making any contributions to candidates or party committees for influencing Federal elections, can make unlimited contributions to party committees for activities that do not directly influence Federal elections. Similarly, individuals who have contributed the maximum amounts under Federal law can make unlimited contributions to party committees for purposes other than influencing Federal elections.

This provision does not entirely eliminate the bite of campaign finance restrictions, since some contributors wish to help specific candidates and might not view contributions to soft money accounts as an adequate substitute. Plus, there may be limits on how much party organizations can productively spend on the typical uses of soft money. But the availability of soft money helps reserve hard money for “hard” purposes, and the soft-money distinction permits corporations and unions to contribute to party committees. In addition, as discussed next, soft money can be used for issue advocacy.

Candidates and donors can further circumvent campaign finance regulation by means of issue advocacy. Under current interpretation, any individual or group—including corporations, unions, PACs, and party committees—can accept unlimited contributions and make unlimited expenditures to support a particular issue, so long as this support does not expressly advocate the election or defeat of a specific candidate. Moreover, the courts have defined issue advocacy broadly: only words such as “vote for,” “elect,” or “defeat,” cross the line between issue advocacy and express advocacy. This means, for example, that TV ads supporting a particular position can include the name, picture and position of candidates that support or oppose the ad’s position without endangering the ad’s status as issue advocacy.

Thus, in campaign finance law, as elsewhere, appearances are deceiving. It appears that the law prevents individuals and groups from making more than a modest contribution to any campaign. The reality is that, under existing law, each of the following is entirely legal:

1. 1. Individuals, party committees, and PACs can make unlimited independent expenditures for activities that expressly advocate the defeat or election of particular candidates;
2. 2. Individuals, corporations, and unions can make unlimited soft-money contributions to party committees; and
3. 3. Any individual or group can make unlimited expenditure for issue advocacy, including that which is virtually indistinguishable from express support of particular candidates.

Implications for the Reform Debate

The most obvious implication of the discussion above is that existing campaign finance regulation places no meaningful restraint on the financing of Federal elections. It simply forces those who wish to spend or contribute substantial amounts to exercise care in structuring their contributions or expenditures. Otherwise, the constraining effects are minor. This fact has several further implications for the debate over campaign finance.

Most obviously, the discussion above explains why, after so much legislation, those who worry about the influence of money in politics are dismayed by the status quo. If the goal is to limit the ability of those with money to spend it “in connection with” Federal elections, then current campaign finance regulation is a complete failure.

The analysis also demonstrates the fundamental tension between effective regulation and free speech that constrains any attempt to regulate campaign finance. To close the loopholes created by independent expenditures and issue advocacy, regulation would have to distinguish between what is independent and what is not, or between what is issue advocacy and what is not. Such distinctions are difficult to legislate and thus inevitably complicated and arbitrary. Further, limiting money’s influence in a content-neutral way is impossible: any regulation with real bite gives government the power to restrict some ideas relative to others, raising obvious First Amendment issues.

The description of campaign finance regulation offered here also suggests why, despite their rhetoric, most major party politicians are not eager to change the current system. Under the status quo, politicians can pretend to obey significant restrictions, all the while accepting money hand over fist. Even more, the complex rules and regulations of the current system harm challengers and minor parties far more than incumbents and major parties, and provisions such as the “national support” test for public funding explicitly benefit major parties. None of this is surprising since incumbent members of the major parties are the ones who write the laws.

The presentation above also shows why current proposals for reform will not materially reduce the flows of money in election campaigns. Even if soft-money were banned or complete public funding introduced, independent expenditures and issue advocacy would still permit unlimited contributions and spending by individuals, corporations, and unions. And given the First Amendment status of issue advocacy, banning the use of soft-money for issue advocacy is problematic.

A different implication of the analysis here is that reversal of Buckley v. Valeo would have limited impact on the financing of elections. The reason again is issue advocacy. The Court ruled in Buckley that the First Amendment protects independent expenditures by individuals and parties made for the explicit furtherance of political campaigns. Even if such expenditures were no longer protected, it is difficult to imagine a constitutionally valid law that prevents individuals or groups from advocating ideas as opposed to candidates. But since the line between candidates and ideas is murky at best, a reversal of Buckley would have little import. Issue advocacy is the Achilles heel of any attempt to limit money’s influence in politics.

The immutable fact facing campaign finance reform is that “the money will out.” Those with money who wish to spend it can find ways to do so under any system, absent restrictions that are totally inconsistent with the First Amendment. Whether this conclusion suggests that campaign finance regulation should be eliminated is a question I do not address here. But the inescapable conflict between substantive restrictions on campaign financing and the free expression of ideas must certainly parameterize the debate.

An excellent reference for further information is

Campaign Finance Reform, A Sourcebook, Anthony Corrado, Thomas E. Mann, Daniel R. Ortiz, Trevor Potter, and Frank J. Sorauf, eds., Brookings Institution Press, Washington, D.C., 1997.

Several useful web sites are

• http://www.fec.gov/
• http://www.democracyoverdollars.org/
• http://www.commoncause.org/
• http://www.campaignfinancesite.org/