Understanding Campaign Finance Reform: Regulating Money in Politics

Money is a necessary component of any election, as candidates need funds to advertise and make themselves, including the issues they stand for, known to the electorate. However, money can also have a corrupting influence on candidates once elected to public office. Campaign finance regulations are seen by many as serving the important public interest of preventing elected officials from becoming beholden to wealthy individuals and special interest groups through huge campaign contributions. The idea is that through disclosure and limitations on contributions, candidates for public office are prevented from catering only to special interests and become accountable only to their constituents.

What is Campaign Finance Reform?
Campaign finance reform refers to the efforts, chiefly through legislation, to regulate the use of money in funding the election or defeat of a candidate for public office. Although legislations on campaign finance date as far back as the 1800s, the Tillman Act of 1907 is considered the earliest landmark legislation on the matter. This law placed limits on campaign contributions and spending.

The Federal Election Campaign Act
In 1971, the Federal Election Campaign Act (FECA) was enacted into law which required campaigns to disclose contributions and the manner they are spent. This law was amended in 1974 by imposing (a) $1,000 contribution limit on individuals; (b) $1,000 spending limit on individuals; and (c) disclosure requirements on such contributions and expenditures. It also established a voluntary public financing system and created the Federal Election Commission (FEC).

Buckley v. Valeo
The 1976 case of Buckley v. Valeo, which challenged the legality of FECA, has set the parameters on campaign finance regulations. The US Supreme Court upheld the validity of contribution limits, disclosure requirements on contributions, and the voluntary public financing system. The most important aspect of this ruling is the striking down of the FECA's limitations on campaign spending. According to the US Supreme Court, money, when translated to campaign spending, falls within the ambit of free speech. Campaign spending represents core political speech that is protected by the First Amendment.

In contrast with campaign spending, Buckley upheld limitations on contributions on the ground that as long as the limit is reasonable, it serves the important goal of preventing a corrupting influence on candidates represented by huge donations. Such donations, more often than not, are given with strings attached and create a quid pro quo situation. Furthermore, it was observed that unlike campaign spending, its relationship to free, protected speech is less direct, since the donor's right is not infringed by not being the one spending the donated money for political speech.

Hard Money and Soft Money
One interesting aspect of campaign finance reform is the distinction between so-called "hard money" and "soft money." In simple terms, hard money is donation made directly to candidates, while soft money is one made to political parties.

Campaign contributions made to candidates (hard money) have always been subject to strict requirements, among which are: (a) the prohibition on corporations and labor unions from making donations to federal candidates (they may only do so through the creation of political action committees [PACs]); (b) disclosure requirements; (c) annual individual contribution limit of $1,000 to every candidate and $20,000 to a national party committee; and (d) annual PAC contribution limit of $5,000 to every candidate and $15,000 to a national party committee. Under the Bicameral Campaign Act of 2002 (more on this later), these limits remain but were set to increase in the future.

Soft money contributions, on the other hand, used to be unlimited for as long as the same were not spent for the specific purpose of advocating for the election or defeat of a candidate. Prior to the BCRA, soft money is not subject to FEC restrictions. Soft money was born in a 1979 amendment to FECA when it exempted funds used for so-called "party building activities," such as voter registration drives, from the rules governing hard money donations (political party soft money). The amendments also exempted from FECA donation restrictions funds used for issue advocacy, which is the advocacy of certain political issues rather than the election or defeat of a particular candidate (issue advocacy soft money).

Consequently, the two major parties exploited this loophole by raising funds, purportedly for party building activities or issue advocacy, way beyond the donation limits set by FECA. In practice, however, these activities campaigned for the election or defeat of a candidate, thereby circumventing the law. According to Dan Froomkin in a September 4, 1998 Washington Post report entitled "Money Troubles," the Democratic National Committee and Republican National Committee raised $122.3 million and $ 141.2 million, respectively, in soft money during the 1996 campaign.

McCain-Feingold Act
On March 27, 2002, the McCain-Feingold Act, more accurately known as BCRA, was enacted into law and plugged the hole on soft money. According to a January 9, 2004 Congressional Research Service report entitled "Bicameral Campaign Reform Act of 2002: Summary and Comparison with Previous Law," the law aims to regulate political party soft money and issue advocacy soft money. National political parties, as well as candidates and public officials, are now prohibited from raising soft money. Corporations and labor unions are banned from spending for political advertisements that advocate for the election or defeat of candidates, defined under the law as "electioneering communications," that are broadcast within 30 days of a primary election or 90 days of a general election.

In McConnell v. FEC, 540 US 93 (2003), a suit brought by current Senate minority leader Mitch McConnell of Kentucky, the US Supreme Court upheld the provisions of the law banning political party soft money and the ban on spending by corporations and unions of treasury funds for electioneering communications.

However, in the landmark case of Citizens United v. Federal Election Commission just recently promulgated, the Supreme Court overturned this long-standing ban by allowing corporations and labor unions to make independent expenditures out of their treasury funds to advocate for the election or defeat of federal candidates on the ground that these entities have free speech rights that should not be curtailed. As a result of this ruling, observers expect a deluge of campaign ads pouring from corporations and unions this coming midterm elections.