Election Campaign Financing

Election Campaign Financing

Election campaigns for public office are expensive. Candidates need funding for support staff, advertising, traveling, and public appearances. Unless they are independently wealthy, most must finance their campaigns with contributions from individuals and from businesses and other organizations. Today, state and federal laws set limits on campaign contributions; create contribution disclosure requirements; and impose record-keeping requirements for candidates seeking elective office.

Before 1974, most election campaigns were financed by corporations and small groups of wealthy donors. In 1972, for example, insurance executive W. Clement Stone contributed approximately $2.8 million directly to the re-election campaign committee of President richard m. nixon. Such contributions raised concerns of Undue Influence on the selection of available candidates and on subsequent legislation. Many in Congress felt the need to limit the influence of money in political campaigns in order to regain the confidence of the public in the wake of the Watergate scandal, a series of events that ultimately led to charges of abuse of power and Obstruction of Justice involving Nixon's campaign activities.

In 1974, Congress made radical changes to the Federal Election Campaign Act of 1971 (FECA) (2 U.S.C.A. §§ 431–456 [1996]). In its amended form, FECA limited contributions to individual candidates and political parties; personal spending by candidates; overall campaign spending for federal office; and independent spending by groups not directly associated with a candidate's campaign. The act also created a check-off box on federal tax forms, allowing taxpayers to contribute a dollar to a presidential campaign fund, and it devised a formula for payments from the fund.

James L. Buckley, who was running for the U.S. Senate from New York, and other candidates for federal office challenged FECA in federal court. In 1976, the Supreme Court struck down the act's spending limits in Buckley v. Valeo, 424 U.S. 1, 96 S. Ct. 612, 46 L. Ed. 2d 659 (1976). According to the high court, setting mandatory limits on the amount of money a candidate may spend in a campaign violated the First Amendment. However, the Court upheld the act's disclosure requirements, private contribution limits, and provision for the public funding of qualified presidential candidates.

FECA has been the subject of additional litigation. The U.S. Supreme Court, in Colorado Republican Federal Campaign Committee v. Federal Election Commission, 518 U.S. 604, 116 S. Ct. 2309, 135 L. Ed. 2d 795 (1996), struck down spending limits under the FECA imposed on political parties that were deemed independent expenditures—in other words, spending that was not coordinated with a candidate's congressional campaign. The 1996 case did not resolve the issue of whether the federal provision that limited expenditures by political parties for spending done in coordination with a candidate's campaign violated the First Amendment.

Should Campaign Financing Be Reformed?

The 1996 presidential and congressional elections revealed the growing amount of private money that businesses, unions, and individuals contribute to political campaigns. Congressional hearings in 1997 revealed that the Democratic National Committee had solicited and received contributions from questionable sources. Despite these revelations, many members of Congress did not see any reason to reform federal campaign finance laws. Nevertheless, Congress considered a series of bills proposed by john mccain (R-AZ), a presidential candidate himself in 2000, and Russ Feingold (D-WI) from 1998 through 2002 that finally led to the enactment of the Bipartisan Campaign Reform Act of 2002, Pub. L. No. 107-155, 116 Stat. 81 (2 U.S.C.A. § 431 et seq.), commonly known as the McCain-Feingold bill.

The debate over campaign financing was initially framed by the Supreme Court's decision in Buckley v. Valeo, 424 U.S. 1, 96 S. Ct. 912, 46 L. Ed. 2d 659 (1976). The Court ruled that provisions of the Federal Election Campaign Act of 1971 (FECA), 2 U.S.C.A. §§ 431–456, which sets mandatory limits on the amount of money a candidate may spend in a campaign, violated the First Amendment. Though the Court upheld the provisions of FECA that set disclosure requirements, private contribution limits, and public funding of qualified presidential candidates, the elimination of mandatory spending limits meant that campaign costs and the funds to pay for them steadily escalated thereafter.

Soft Money The most troubling issue for reformers has been the growing importance of soft money (money given to a party to further the party rather than a particular candidate). U.S. corporations and unions provided unprecedented amounts of soft-money contributions during the 1996 and 2000 election cycles. At the same time, the Federal Election Commission had its budget cut, making the commission virtually helpless to prevent the parties from skirting existing campaign finance laws. In light of the impact soft money made on elections, reformers believed soft money must either be eliminated or severely limited.

The McCain-Feingold legislation imposed a soft money ban on all federal elections. It also limited the amount of soft money contributors may give to state, district, and local committees. The ban on soft money was one of the highlights in the legislation, but it was expected to come under attack in light of Buckley v. Valeo. Critics of the soft-money ban argue that the contribution of money to political parties is a form of free speech protected by the First Amendment. In December 2003, the U.S. Supreme Court upheld the constitutionality of these limits by a vote of 5–4.

The McCain-Feingold legislation actually increased the amount of "hard" money that individuals and other supporters could contribute. The amount of money individuals might contribute to state parties in federal elections increased from $5000 to $10,000. The total amount these individuals might contribute to federal candidates, parties, and other organizations increased from $25,000 to $30,000.

Campaign Spending Limits Expenditures for advertisements on television and radio have steadily increased. Some reformers believe that government-licensed forms of communications should provide significant amounts of free airtime to candidates. Free airtime, reformers argue, would reduce the cost of campaigns and dramatically ease the need to raise millions of dollars. Televisions and radio stations are adamantly opposed to such a proposal, contending that it would be unfair to place the burden of reform on their industry.

Some reformers believe limiting private campaign contributions or spending is not the best way to improve the political system. These reformers advocate full disclosure of all funding sources. Politicians would have to document on a daily basis the source and size of every contribution, including donated labor and equipment.

Critics of the full disclosure requirements have stated their beliefs that this approach is unrealistic, because it could create a serious record-keeping problem. Documenting all contributions costs time and money and could be particularly hard on smaller groups that cannot afford to hire legal advisors and support staffs to track donations on a daily basis.

PAC Reform Many advocates of reform, including liberal public interest groups and politicians, argue that a ban or strict limitations be placed on money that comes from political action committees (PACs). One of the reasons for limiting or banning PAC money is that PAC campaign contributions are biased toward incumbents, which has serious implications for competitiveness in elections. PAC contributors are more likely to give to incumbents because they want to preserve an existing relationship or create a new one. Because of the high cost of campaigns, PACs give incumbents a head start over challengers.

Critics of placing more restrictions on PACs, or banning them completely, contend that such "reform" would further concentrate power in the hands of government, particularly those already in office. Campaign contributions can be viewed as "protection" money, according to these observers. Without PAC dollars, politicians would have less incentive to look at issues put forward by individuals and interest groups.

One form of contribution on media outlets began to appear in the form of advertisements paid for by unions and corporations. Many of these advertisements were not covered by the FECA because they did not explicitly endorse a candidate for office. These entities spent large amounts of money on these advertisements without disclosure. The McCain-Feingold legislation placed disclosure requirements on all contributors who spend more than $10,000 on commercials showing the name or likeness of a candidate within a prescribed period of time prior to an election.

Foreign Contributions Reformers also seek better ways to prevent the possible influence of foreign business interests on the federal government. The disclosures about the way foreign contributions were obtained during the 1996 election cycle have led reformers to seek a complete ban on foreign gifts.

Critics of an outright ban on foreign contributions point out that this complex issue was considered and rejected by the Federal Election Commission (FEC) in 1991. The FEC rejected a proposal to prohibit companies that were more than 50 percent foreign owned from establishing corporate PACs. The commission reasoned that with businesses becoming more global, it is difficult to judge whether a company is foreign or domestic. U.S. companies may have ownership in a foreign business, which then has a U.S. subsidiary, making it unclear whether the subsidiary is a foreign or a domestics company. Enforcement would be difficult and a ban would raise a constitutional issue. U.S. citizens working for a foreign subsidiary in the United States are entitled to participate as fully in the U.S. political process as their colleagues working for a company that is completely U.S.-owned. Workers at a U.S. Ford plant should not have more rights than workers at a U.S. Honda plant the FEC concluded.

Further readings

Baran, Jan Witold. 2002. The Election Law Primer for Corporations. Chicago: American Bar Association.

Donlan, Thomas G. 2003. "Silence McCain-Feingold: Free Speech Requires Letting Money Talk." Barron's (May 12).

Lowenstein, Daniel Hays, and Richard L. Hasen. 2001. Election Law: Cases and Materials. Durham, NC: Carolina Academic Press.

Overton, Spencer. 2003. "Preventing Undue Financial Influence: Rehnquist Should Continue Support of Restrictions on Corporate Funds for Election Campaigns." The Los Angeles Daily Journal 116 (September 29).

Rotunda, Ronald D. 2003. "Appearances Can Be Deceiving: Should the Law Worry about Campaign Money Looking Dirty When the Facts Show That the System's Clean?" Legal Times 26 (September 15).

Cross-references

Elections; McCain, John Sidney.

After more litigation in the lower courts, the Court again considered the case in Federal Election Commission v. Colorado Republican Federal Campaign Committee, 533 U.S. 431, 121 S. Ct. 2351, 150 L. Ed. 2d 461 (2001). The second case concerned whether the FECA's restrictions on coordinated expenditures by political parties violated the First Amendment. The Court characterized coordinated expenditures by political parties as the functional equivalent of campaign contributions by individuals and non-party groups, ruling against arguments by the Colorado Republican Federal Campaign Committee that such expenditures were essential to its support of a candidate. The Court, in an opinion written by Justice david h. souter, found that the limitations on coordinated expenditures comported with First Amendment free speech and associational guarantees.Congress has not given up on its efforts to reform campaign finance law. From 1998 through 2002, john mccain (R.-Az.) and Russ Feingold (D.-Wisc.) introduced a series of bills, each referred to McCain-Feingold bills. These efforts were finally successful when, in 2002, Congress approved the Bipartisan Campaign Reform Act of 2002, Pub. L. No. 107-155, 116 Stat. 81 (2 U.S.C.A. §§ 431 et seq.). The new statute amends the FECA by adding new restrictions and regulations on soft money donated to a political party; independent and coordinated expenditures; hard-money contributions; and communications that take place during elections.

Litigation attacking the constitutionality of the new statute commenced shortly after its enactment. In May 2003, the U.S. District Court for the District of Columbia found that some of the new restrictions under the statute were unconstitutional under the First Amendment to the U.S. Constitution. McConnell v. FEC, 251 F. Supp. 2d 176 (D.D.C. 2003). In September 2003, the U.S. Supreme Court heard oral arguments in the case of McConnell v. FEC (02-1674).

Private Funding of Federal Election Campaigns

FECA illustrates the way that election-campaign-finance laws work. FECA requires that candidates for federal office form a campaign committee and a campaign fund, and that they disclose campaign contributions to the Federal Election Commission. A candidate is subject to these requirements if the candidate or his or her authorized agent has received campaign contributions totaling more than $5,000 or has made campaign expenditures totaling more than $5,000. Most campaigns for federal office cost considerably more than $5,000, so most candidates are subject to the financial-reporting requirements set by the act.

FECA places dollar limits on campaign contributions. No person may contribute more than $1,000 a year to a candidate's campaign committee. No person may contribute more than $20,000 in one calendar year to a candidate through the candidate's national political committee, and no more than $5,000 may be contributed to other political committees (§ 441a(2)(3)). The act also places special limits on contributions by national banks, corporations, labor organizations, and government contractors (§§ 441b, 441c).

A person may contribute unlimited sums of money to the state and national committees of a political party, but only if those sums are for the benefit of the party in general. If a contribution is intended to fund a candidate's campaign directly, the contribution will be subject to the limits set by the act.

FECA makes several exceptions to the limits on contributions made directly to a candidate's campaign committee. It excludes from the definition of contribution assistance such as the donation of real property, of services, and of funds to buy promotional materials like bumper stickers, handbills, and posters (§ 431(8)(B)).

The act also creates a limited exception to limits for contributions to state and national committees of a political party. Under § 441a (d)(1)(2), the national committee of a political party may contribute to its presidential candidate an amount equal to two cents multiplied by the number of people of voting age in the United States. The national and state committees of a political party may contribute to a Senate candidate an amount equal to two cents multiplied by the number of people of voting age in the candidate's home state, or at least $20,000. A House of Representatives candidate may receive $10,000 from the national and state committees of his or her political party.

Critics argue that FECA strengthens the domination of the two major political parties. By limiting an individual's direct contributions to a candidate, the act prevents minor parties from amassing enough funds to gain ground on the two major parties. The Democratic and Republican parties can survive such limitations because they have large numbers of contributors. According to some critics, they have large numbers of contributors because they have the power to give political favors. Minor parties, by definition, begin their missions with fewer supporters and have no political favors to bestow. With contribution limits on their few supporters, minor parties have few opportunities to mount serious challenges to the major-party candidates.

Other critics of FECA focus on the reporting and bookkeeping responsibilities required by the act and the sheer complexity of the law. Minor parties, with their meager funds, have difficulty in managing the detailed records and reporting requirements, and in paying for the legal assistance that they need in order to comply with the law. By comparison, major parties possess enough experience and support staff to surmount the demands of the act.

"Soft" money is another concern for critics of FECA. In the context of political campaigns, soft money is cash that is given to a political party, not directly to a candidate. There is no limit to the amount that a person or organization may give to a political party. Political parties may use the contributions that they receive to benefit themselves generally; they may not use those contributions to benefit one particular candidate. There are, however, effective detours around this roadblock. For example, a party may run a television advertisement that criticizes the opponent of a particular candidate. The money spent by the party on such a commercial will not be listed as a direct contribution to the party's candidate if the advertisement does not mention the party's own candidate. Major-party candidates, with this kind of help from the national and state committees of their party, benefit from this practice more frequently than do minor-party candidates.Defenders of FECA note that the major parties are subjected to the same requirements as are the minor parties. They also point out that nothing in the act prevents the large numbers of people who contribute to the major parties from switching and contributing to minor parties.

Public Funding of Presidential Campaigns

Some presidential candidates may receive federal tax dollars to fund their campaigns. Federal funding for presidential campaigns comes in three forms: general-election grants, given to individual candidates; matching funds, given to nominated candidates for primary campaigns; and funding provided to parties for their nominating conventions.

Under the Presidential Election Campaign Fund Act (Fund Act) (26 U.S.C.A. §§ 9001–9013), presidential candidates must meet certain standards in order to obtain federal tax money for their campaigns. The Fund Act distinguishes between major-party candidates and minor-party candidates. For purposes of the act, a major party is defined as any political party that received at least 25 percent of the popular vote in the previous presidential election. A minor party is defined as a political party that received less than 25 percent but more than five percent of the popular vote in the previous presidential election.

Under the Fund Act, a presidential candidate from a major party is entitled to a general-election grant of $20 million plus cost-of-living expenses. In 1996, this amount totaled over $60 million each for President bill clinton and Republican Party nominee bob dole. This number increased to more than $67.5 million for the 2000 presidential election between george w. bush and al gore. The FEC estimate that each party will receive $74.4 million from this grant for the 2004 presidential elections.

Minor-party presidential candidates may receive a general-election grant only if their party had a candidate on the ballot in at least ten states in the previous presidential election, and if that candidate won at least five percent of the popular vote. If a minor-party candidate qualifies, the election grant is equal to the total amount of the general-election grants received by the major-party candidates in the previous presidential election, multiplied by the percentage of popular votes received by the minor-party candidate, divided by the percentage of popular votes received by the two major-party candidates. To illustrate, assume that each of the two major-party candidates received $50 million under the act in the previous election. The minor-party candidate received five percent of the popular vote, and the major-party candidates together received 95 percent of the popular vote. The minor-party candidate will receive $1 for every $19 received by the major-party candidates, or about $5.3 million.

Presidential candidates do not receive general-election grants until after the election.

Some presidential candidates may qualify for additional taxpayer funding for their campaigns. Under 26 U.S.C.A. §§ 9031–9042, the Federal Election Commission may authorize funds to presidential candidates who participated in their party primaries. Under the act, the presidential-campaign fund matches every contribution of $250 or less that was given to the candidate during the primaries. To qualify for these matching funds, a presidential candidate must receive at least $5,000 in contributions from contributors in at least 20 different states. Only contributions of $250 or less may be counted in reaching the $5,000 threshold.

Under the matching-funds provision, no candidate may spend more than a specified amount in each state's primary election campaign. If a presidential candidate is eligible for matching funds and decides to claim them, the candidate may spend no more than $50,000 of his or her own money on the campaign. Candidates must keep specific records and must submit them to the commission for audit. No distinction is made between major and minor parties in determining whether a candidate qualifies for federal matching funds.

Finally, under Section 9008, a political party may receive taxpayer funds to pay for its political convention. Major parties are entitled to $4 million of public funds for their conventions. A minor party is entitled to the same amount that its candidate received under the Fund Act. For the vast majority of minor political parties, this amount is zero, because most minor-party presidential candidates receive less than five percent of the popular vote.

Like private funding, public funding for presidential campaigns is criticized as being biased toward the two major parties. Under the Fund Act, major-party candidates and their parties receive more money than do minor-party candidates and their parties. With more money, major-party candidates can spend more on support staff, advertising, traveling, and personal appearances. By creating these advantages, the federal funding scheme, according to critics, ensures the continued success of the two major parties in presidential campaigns and the continued failure of minor-party candidates.

Generally, advocates of the funding scheme for presidential candidates concede that it favors the two major parties. However, they insist that it should not be expensive for popular candidates to run for president, and that public funding is necessary to ensure that it is not. Defenders note further that the funding scheme does not restrict access to ballots and that it does not prevent people from voting for the candidate of their choice.

Finally, according to defenders of the funding scheme, any claim that the scheme is responsible for the inability of minor parties to win presidential elections is speculative. As the Supreme Court stated in Buckley, "[T]he inability, if any, of minor-party candidates to wage effective campaigns will derive not from lack of public funding but from their inability to raise private contributions."

Further readings

Eisner, Keith D. 1993. "Non-Major Party Candidates and Televised Presidential Debates: The Merits of Legislative Inclusion." University of Pennsylvania Law Review 141.

Federal Election Commission, Washington, D.C. 1996. Telephone interview, August 23.

Haughee, Chris, 1986. "The Florida Election Campaign Financing Act: A Bold Approach to Public Financing of Elections." Florida State University Law Review 14 (fall): 585–605.

Smith, Bradley A. 1996. "Faulty Assumptions and Undemocratic Consequences of Campaign Finance Reform." Yale Law Journal 105.

Cross-references

Democratic Party; Elections; Independent Parties; Republican Party.

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