Campaign Finance

Elizabeth Purdy. Encyclopedia of White-Collar and Corporate Crime. Editor: Lawrence M Salinger. Volume 1, Sage Reference, 2005.

The motto of the animals in George Orwell’s Animal Farm is “All animals are equal, but some animals are more equal than others.” The irony, of course, stems from the fact that the animals started out trying to establish a completely equal system, but they failed miserably. The same can be said of campaign finance.

Reforms are generally aimed at the equality of voters, but the reality of campaign finance is that huge corporations and high-spending individual contributors have always been “more equal” than other voters. In addition to voter equality, campaign finance laws have been directed at stemming the rise of corruption. As a rule, efforts at campaign finance, like the efforts of George Orwell’s animals, have failed miserably. After each attempt at reform, a new loophole seems to open up, and the result is almost always further inequality of voters and new methods of political corruption.

Elected officials are almost always campaigning. Terms of office at the national level were staggered by the framers who wrote the U.S. Constitution in an effort to guarantee stability. Even though the president does not have to face re-election for four years, campaign strategy and finance for the next election start almost immediately after an election, since both the president’s party and the opposition party must plan for the off-year elections that are only two years away. Every two years, the entire House of Representatives must face re-election, as well as one-third of the Senate, and many states hold elections at the same time. As soon as the off-year elections are over, the focus returns to the next presidential election two years later when, in addition to the president and vice president, all members of the House and another one-third of the Senate will be elected, and the cycle of campaign financing begins again. As a result, politicians are always conscious of the next election and must be constantly aware of how much money might be needed to finance the campaign. It has become a fact of life in contemporary American politics that the candidate who spends the most money generally wins an election.

One Person, One Vote

The concept of one-person-one-vote was guaranteed by the Supreme Court in three separate cases in the 1960s: Baker v. Carr, 369 U.S. 186 (1962), which applied the concept of one-person-one-vote to state house seats; Reynolds v. Sims, 377 U.S. 533 (1964), which applied the concept to state senate seats; and Wesberry v. Sanders, 376 U.S. 1 (1964), which applied the concept to seats in the U.S. House of Representatives. The whole concept of one-person-one-vote has serious implications for campaign finance because there is little doubt that individuals and groups that contribute large amounts to political candidates have historically sought some sort of return on their investment.

Abraham Lincoln defined democracy as “government by the people, for the people, and of the people.” If Lincoln’s interpretation is correct, then a basic concept of democracy is the right of the American voter to select candidates based on free access to information. Unfortunately, there is no requirement that the information be truthful. Throughout history, the American voter has been deluged with campaign rhetoric that paints the other candidate as incompetent, irresponsible, or corrupt. Since television entered the scene in the early 1950s, political campaigns have become increasingly sophisticated and more manipulative.

Political candidates are “packaged” in the same way that products are, and with the same intention: to convince the consumer (voter) how much better off she is with the product (candidate) in the ad. Ronald Reagan, for instance, hired Madison Avenue advertisers to package his 1980 campaign against the Democratic incumbent, Jimmy Carter. Candidates are usually presented to the public either through spot ads of up to 60 seconds or through short issue messages, which may last as long as five minutes. Television advertising is expensive, making up the largest part of budgets for political candidates. Since these costs rise with every election, candidates’ teams are always on the lookout for ways to make more money. This is particularly true when elections are hotly contested. For example, the 1996 Georgia election in which Speaker of the House Newt Gingrich was fighting for his political life cost a total of $56,852,466.

History of Campaign Finance

The first American campaign finance law was passed even before the American Revolution when the Virginia House of Burgesses prohibited politicians from winning votes through bribery. It was common practice in the early days of American history for politicians to pay voters or to grant them favors in exchange for votes. The party machines were notorious for such practices.

In 1867, Congress passed a naval appropriations bill that banned politicians from pressuring workers in navy shipyards to contribute to political campaigns. Thirteen years later, the Civil Service Reform Act of 1883 brought employees of the Civil Service into the protected class, exempting them from political pressure. By the beginning of the 20th century, reformers had recognized the fact that allowing wealthy donors to give unlimited contributions paved the way for political corruption and inequality of votes. President Teddy Roosevelt was one of the first to call for a ban on this activity.

Congress passed the first campaign finance laws of the 20th century in 1907, 1911, and 1915. Although a weak campaign finance bill was later passed, which placed a ceiling of $5,000 on individual campaign contributions, restrictions were rarely enforced. The status quo generally prevailed for the next three decades. By the 1960s, campaign finance was rife with political corruption and pressure politics, and campaign contributions were being received from a variety of questionable sources. Political scientists and various reformers insisted that major campaign finance reform was needed to protect the democratic system, and the next decade widened the demand to such a point that Congress and state legislatures were forced to act.

In 1970, a limited campaign finance law passed Congress, but President Richard Nixon vetoed the bill. He blamed Congress for not going far enough in reforming current laws and promised support if the bill were expanded to more accurately meet the goals of campaign finance reform. The following year, Common Cause, an active citizens’ lobby, brought suit against both the Democratic and Republican parties, arguing that the Federal Campaign Practices Act of 1925 was being ignored. In response, Congress recognized the need for immediate action, and the result of that was the 1971 passage of the first Federal Election Campaign Act (FECA).

Repercussions of FECA

Nixon was seeking re-election in April 1972 when FECA was set to take effect. As part of his re-election efforts, Nixon had established the Committee to Re-elect the President (CREEP) under the leadership of Maurice Stans and Herbert Kalmbach. At one point, CREEP was reportedly raking in amounts as large as $100,000 per day. Some of this money was coming from questionable sources such as donors with less than sterling reputations and foreign donors who would not, or should not be identified. CREEP also used the grace period before FECA took effect to pressure large corporations into substantial donations.

No one at CREEP paid any attention to existing campaign law that required disclosure of large donations. Common Cause, however, had not forgotten, and in September the group sued CREEP under the Corrupt Practices Act for failure to report campaign contributions before FECA took effect on April 7. Unfortunately for Nixon and CREEP, they were forced to make their secret list of donors public. Matters were further complicated for Nixon and his re-election team by the growing scandal concerning the break-in of the Democratic National Committee office at the Watergate Hotel on June 17. In the two years that followed, the Watergate investigation revealed the ugly secrets of CREEP, including money-laundering schemes and a host of other illegal practices.

On August 9, 1974, Nixon became the first president in the history of the United States to resign form office. In the meantime, some members of his re-election team and a number of his closest political advisors had been sent to prison for various abuses of power or on other charges. Congress reacted to the abuses of the Watergate scandal by regaining control of the legislative process and went through a period of refusing to follow presidential proposals for Congressional action. Subsequent versions of FECA strengthened and amended the law to further encourage open political competition, which involved the public more directly in financing political campaigns, and restricted the ability of large campaign donors to demand favors.

Federal Election Campaign Act

The main provisions of FECA established requirements for reporting the names of contributors and the amounts of donations and campaign expenses, restricted the amounts of donations, created a method of public funding, and established an oversight board. Before FECA was set to take effect on April 7, 1972, federal politicians scurried to build huge campaign chests before they were required to meet FECA restrictions on donations and to release campaign finance information to the public.

Disclosure. FECA stipulates that political parties and Political Action Committees (PACs) must provide periodic reports of campaign contributions and expenditures. All individual contributions of more than $200 in a calendar year must be reported, as well as all expenditures of more than $200 a year.

Contribution restrictions. FECA places a $1,000 limit per candidate per election for each adult. Primaries and general elections are considered separate elections. Individuals may give up to $5,000 per election to a PAC or to state party committees. FECA restricts contributions to national party committees to $20,000 per election. Corporations, labor unions, federal government contractors, and foreign nationals are prohibited from contributing to federal campaigns.

No individual can contribute more than $100 in cash to any federal candidate for political office, and no one can contribute campaign money in someone else’s name. “Soft money” contributions by individuals, groups, unions, Political Action Committees (PACs), and corporations to the party committees, which bypass the restrictions of FECA, are unlimited. Individual donors and PACs may spend as much as their own money as they choose on “issue advocacy” to promote political candidates. The national party committees also have no limits on expenditures of “soft money.”

“Soft money.” This has proved to be one of the most profitable and effective ways for political parties and PACs to bypass FECA restrictions. “Soft money,” as opposed to “hard money,” is raised from sources not restricted by the provisions of FECA. For example, “soft money” may be generated to finance issue advertising for a candidate or to promote voter registration drives by a political party.

Before 1992, “soft money” bypassed both the disclosure and restriction requirements of FECA. In the first year of reporting, Democrats documented $36.2 million in “soft money,” and Republicans documented $49.7 million in similar funds. By the 2000 election, amounts collected from “soft money” had grown to $243.1 million for the Democrats and $224.1 million for the Republicans.

Public funding. FECA was created to provide presidential candidates with public funds for campaigning that would curtail the need for contributions from those seeking political favors. Public funding is generated through the tax check-off on individual income tax returns.

Initially, the check-off amount was $1, but it was subsequently raised to $3. Presidential candidates may receive public funds only if they choose not to spend their own money for campaigning, and they are restricted to FECA guidelines if they do accept funding. Public funds are used to match individual contributions of up to $250, but they cannot be used to match donations from either PACs or political parties.

To qualify for matching funds, a presidential candidate must prove viability by raising over $5,000 in each of 20 different states. The total amount of matching funds is adjusted for inflation rates for each election. For example, in 1996, $30.91 million was allotted for matching funds in primary elections. General Election Grants were designed to cover all campaign expenses and no additional campaign funds were allowed.

The adjusted rate for 1996 was $61.82 million. In order to qualify for General Election Grants, a candidate must have received at least 5 percent of the total primary vote. In addition to campaign and general election funds, each major political party is given funding for political conventions. In 1996, the Democratic and Republican parties each received $12.36 million to finance their political conventions.

The Federal Election Commission (FEC). The FEC was created by Congress to police campaign finance, but legislators gave FEC members little authority or ammunition to carry out their role. To begin with, Congress failed to grant sufficient appropriations for FEC’s oversight activities. Additionally, the six-member group, made up of three Democratic and three Republicans, is composed of party supporters who may have little expertise in campaign finance matters. Because decisions may break down on party lines, there is not way to end a stalemate. And because the six members rotate the position of chair in one-year terms, there is a lack of consistency in what the FEC does.

Oversight is further limited because Congress chose not to give the FEC the right to make random audits. Instead, the FEC depends on reports from the candidates to determine compliance. Non-compliance is usually punished by levying fines. In cases of inadvertent violations, the FEC is limited to levying civil penalties of no more than $5,500 or the amount involved in the violation. If the violation occurred “knowingly” and “willfully,” the amount may be doubled to $11,000 or twice the amount of the contribution. When violations are deemed criminal, the violator may be fined no more than $25,000 or 300 percent of the contribution and may be imprisoned for up to one year or both. Political candidates and their election teams have proven adept at finding ways to circumvent the restrictions of FECA. The wealthy, interest groups, big corporations, and labor unions have become particularly skillful at obeying the letter of the FECA law without restricting their contributions.

Supreme Court Decisions

The 1st Amendment of the Constitution guarantees the right for Americans to freely express opinions, and supporting a particular candidate for political office is an inherent right of democracy. In 1976, the Supreme Court heard a challenge to the 1974 version of FECA; and while the Supreme Court has been reluctant to uphold restrictions on campaign contributions, it did acknowledge in Buckley v. Valeo, 424 U.S. 1 (1976), that corruption, or even the appearance of corruption, may call for some oversight and restrictions on campaign contributions.

The Buckley decision determined that FECA restricted free speech and removed Congressional elections from FECA restrictions. It also overturned the limits on total campaign spending and on the amount that individual candidates can spend of their own money on their own political campaigns. California Medical Association v. FEC, 453 U.S. 182 (1981), upheld limiting the contributions of PACs to $5,000. In FEC v. Massachusetts Citizens for Life, 479 U.S. 238 (1986), the Court decided that Massachusetts could not ban corporate contributions to independent groups who were involved in supporting specific political candidates because of their stands on issues such as abortion or gun control.

On the other hand, in Austin v. Michigan State Chamber of Commerce, 494 U.S. 652 (1990), the court upheld Michigan’s ban on corporate expenditures that prevented general treasury funds of the chamber of commerce from being used to fund political candidates. The chamber of commerce placed no restrictions on separate funds being used for these purposes. In 1991, the court overturned the conviction of a state politician who had repaid a political contribution by introducing a bill in the West Virginia legislature, in McCormick v. United States, 500 U.S. 257 (1991). In 1995, in McIntyre v. Ohio Elections Commission, 514 U.S. 334 (1995), the Supreme Court upheld the distribution of anonymous political advertising, deciding that to demand disclosure was to engage in overbreadth, which simply means that legislators go so far in making something illegal that they trespass on legal rights. A 2000 decision by the court indicated that they would continue to uphold the provisions of Buckley and to frown on strict restrictions on campaign contributions. Nixon, et al., v. Shrink Missouri Government PAC, 528 U.S. 377 (2000), overturned a Missouri law that limited political contributions to no more than $1,075. The Supreme Court contended that the $1,000 limit, acceptable under Buckley in 1976, may not have been acceptable in 2000 and agreed with the candidate that the low contribution limit placed by Missouri interfered with his ability to effective campaign for political office.

Political Action Committees (PACs)

Early attempts at campaign finance reform neglected to limit campaign contributions to PACs. The number of PACs has grown astronomically in the last three decades. In 1974, there were 608 registered PACs in the United States. Ten years later that number had grown to 4,009. A Political Action Committee is generally created by a corporation, like Coca Cola Bottling Company, or by an industry, such as the beer industry, but it may also be created by individuals who band together. A PAC cannot be created to support a single candidate for office. In 1996, 64 percent of PACs were business oriented, 8 percent were labor-connected, and 28 percent were independent.

Since historically business tends to be more supportive of the Republican Party and labor more supportive of the Democratic Party, it is easy to see that Republicans have been more likely to receive the lion’s share of PAC contributions. Subsequent laws on PACS allowed parent organizations to take control of administration and fundraising expenses and to determine decisions on distribution of PAC funds. A PAC can contribute up to five times as much as an individual can give to an individual candidate or a party, and there is no limit on the total amount that can be given to all candidates or to political parties. A number of PACs contribute to both Democratic and Republican candidates. Under current FECA restrictions, PACs may contribute up to $5,000 per candidate per election.

Incumbents generally have several advantages over their challengers. In campaign finance, this means that incumbents do not have to work as hard to build campaign funds. That is not to say, of course, that incumbents always need more money. When incumbents occupy what is known as “safe seats,” little financial outlay is necessary to win reelection. An incumbent may, however, outspend the challenger by a large margin in tight races.

A challenger often has to expend extra effort to convince donors that her campaign is viable and that campaign contributions will not be wasted. On the average, in the Congressional elections of 1996, 1998, and 2000, winners outspent losers by 2.5 to 3 times. In 95 percent of all House races, the biggest spender won. For example, in 1996, the average winner spent $650,000 while the average outlay for losers was only $211,000. The Missouri race between Democrat Richard Gephart and Republican Deborah Wheelehan in that same year further illustrates the vast differences between incumbent and challenger spending.

The campaign outlay for Gephart was $2,609,500, while his opponent spent only $48,873. One reason that winners raise more money is that PACs are more likely to contribute to their campaigns. For example, in the 1997-99 election cycle, 78 percent of PAC funds were directed toward winners, and only 10 percent toward challengers. The other 12 percent of PAC funds was given to candidates in open seats where neither candidate was an incumbent.

Lobbyists and Interest Groups

Lobbying is integral to the pluralistic American system. In theory, pluralism dictates that opposing interests check each other by preventing any one individual or group from gaining too much power. In practice, lobbying Congress is a big business because members of Congress are more likely to be influenced by interest groups than by individual voters.

Special interest groups that lobby legislators spend millions of dollars in campaign contributions in each election. Interest groups tend to give to political candidates who are likely to support their views or to the candidate who is most likely to win. After all, only a successful candidate will be in a position to repay contributors with political favors. For example, the National Rifle Association contributes millions to the Republican Party to persuade the president, Congress, and state legislators not to enact gun control legislation. Sometimes contributors give to both Democratic and Republican candidates to cover their bases and to have some influence with whichever party wins.

As long as campaign finance reform is not a major priority with the voters, Congress has little incentive to enact effective reform. A CBS/New York Times poll in April 1997, for instance, revealed that 75 percent of those questioned were convinced that Congress was more responsive to major campaign contributors than to their constituents. Yet, only 22 percent of the respondents even knew that federal law places limits on individual contributions to political candidates. Nor were respondents willing to finance political campaigns with taxes. An overwhelming 78 percent vetoed the idea of totally financing political campaigns with tax-generated funds.

The American media has named itself the watchdog of campaign finance excesses and abuses. Journalists are quick to notice when candidates spend money unnecessarily or when contributions are unusually large or when they come from questionable sources. For example, in the midst of its high-profile scandal, the Enron Corporation contributed millions of dollars to George W. Bush’s presidential campaign. Even the most open-minded observer recognized that funds that should have been directed toward retirement funds for Enron employees were being used in an effort to gain political favors.

The move toward major campaign finance reform accelerated in the states in the early 1970s. Once Colorado and Washington had begun the trend with innovative reforms, the other 48 states followed suit. The money spent on state elections, as well as on national elections, has escalated astronomically, and states have passed their own campaign finance laws. Election costs in gubernatorial elections increased 44 percent from the 1977 to 1992. As a result of spiraling costs and a number of campaign finance scandals, most states have mandated increased reporting of contributors and amounts given and have become more restrictive in maximum contribution limits.

In 1980, only nine states placed a ceiling of $1,000 on campaign limits. By 1996, six more states had followed suit. Out of the 28 states that had no contribution limits in 1980, only 15 states continued this practice into 1996. Californians traditionally spend the most on both state and national elections, and the state often serves as an innovative model for other states in legislative efforts. If California set the standard for effective campaign finance reform, other states would surely follow. Various states continue to tighten restrictions on campaign financing.

Pros and Cons of Reform

Those who oppose any kind of campaign finance reform often argue that restrictions on voters is undemocratic. Many FECA opponents suggest that financial restrictions interfere with free enterprise. Opponents generally accept the pluralist argument that the government has no need to place artificial limits on political actions because opposing groups provide inherit checks. There is also a tendency among those who oppose campaign finance reform to blame the Supreme Court for not clarifying its definition of corruption so that restrictions would not apply to those who do not fall under the specified definition.

Unlike opponents of campaign finance reform, most scholars of campaign finance reform agree that excesses and abuses of campaign finance would be reduced if the need for enormous television expenses were removed. One way to do this would be to allot candidates free airtime on an equal basis. As early as 1969, the Twentieth Century Fund was calling for “voters’ time” that would give all major candidates six 30-minute slots in the time immediately preceding an election to “sell” themselves to the voters in simultaneous broadcasts that would be paid for by the federal government at a reduced rate of 50 percent.

A major study by the Association of the Bar of the City of New York’s Commission on Campaign Finance Reform suggested that campaign finance reform would be more effective if public funding were extended to include Congressional candidates, if campaign contribution restrictions were more realistic, if controls on “soft money” were enacted, and if the FEC were restructured and given more authority. Critics of the FEC have suggested that even distribution of votes between the Democratic and Republican promotes gridlock, and they call for the addition of an independent member.

They argue that enforcement procedures should be simplified by giving the FEC more authority and expediting court procedures. Reformers contend that the FEC should also be able to conduct random audits rather than depending entirely on reporting by the candidates. They also believe that whenever a violation is uncovered, it should be dealt with immediately. For example, the public interest was not served when former President George H.W. Bush reportedly received notification of a campaign finance violation months after he had lost the election to Bill Clinton in 1992. Major reform of the FEC seems unlikely, however, because in 2003, the Democrats removed Scott Thomas, the active Democratic chair of the FEC, because he was attempting to stifle campaign finance abuses.

Most suggested campaign finance reform is designed to limit the loopholes that led to the proliferation of “soft money” over the past three decades. There is also a move toward government regulation of “issue advertising” that promotes a particular candidate while attacking his opponent in less than truthful terms. Placing legislative restrictions on “soft money” has been complicated by the Supreme Court’s position on campaign contributions as free speech because it is difficult to identify the exact point where free speech ends and legitimate restrictions begin.

In 1997, in a joint resolution (S.J. Res 18), members of the Senate attempted to amend the Constitution to mandate Congressional and state authority to establish contribution limits. The resolution failed 38 to 61. Democrats split 34 for and 14 against the constitutional amendment, while only four Republicans voted for it. A number of bills aimed at tightening earlier versions of FECA were remanded to the House Committee on House Administration in 2003. Bills in the House of Representatives included H.R. 156, which would require those who conduct telephone surveys on federal campaigns to identify the individual or group who sponsored the poll to the respondent and to disclose the total cost of the poll and the funding sources for the poll to the FEC.

It would also mandate that the conductors of the poll furnish a copy of the survey to FEC, along with a report on the total number of households surveyed. H.R. 681 would extend the Bipartisan Campaign Finance Reform Act of 2002 (also known as the McCain-Feingold Act) to prevent committees that received personal loans from a federal candidate from repaying the loan while the candidate is in office. H.R. 797 would amend the 1971 version of FECA to ensure that no campaign funds could be used to pay salaries of candidates or their family members. H.R. 1878 would amend FECA to provide public funding for elections for members of the House of Representatives. H.R. 2529 would amend FECA to limit out-of-state political contributions to no more than 25 percent of total contributions. This proposed action is in response to practices that allow national political parties or groups to channel funds into a state to support a candidate who is in danger of losing a close race, or to defeat a candidate who is considered damaging to their views on certain issues. H.R. 2529 would also institute expanded disclosure requirements. H.R. 2709 would replace the Federal Election Commission with the Federal Election Administration and make major revisions in the operation of the new group. A similar Senate bill, S. 1388, was referred to the Senate Committee on Rules and Administration.