Campaign finance in the United States

Federal Contribution Limits

Federal law does not allow Corporations and labor unions to donate money directly to candidates ("hard money") or national party committees. It also limits how much money (a) individuals and (b) organizations involved in political action may contribute to political campaigns, political parties, and other FEC-regulated organizations.^[8]

Table footnotes

^[9]

Bundling

One consequence of the limitation upon personal contributions from any one individual is that campaigns seek out "bundlers"—people who can gather contributions from many individuals in an organization or community and present the sum to the campaign. Campaigns often recognize these bundlers with honorary titles and, in some cases, exclusive events featuring the candidate.

Although bundling existed in various forms since the enactment of the FECA, bundling became organized in a more structured way in the 2000s, spearheaded by the "Bush Pioneers" for George W. Bush's 2000 and 2004 presidential campaigns. During the 2008 campaign the six leading primary candidates (three Democratic, three Republican) had listed a total of nearly two thousand bundlers.^[10]

Advocacy Groups/Interest Groups

Lobbyists often assist congressional campaign finance by arranging fundraisers, assembling PACs, and seeking donations from other clients. Many lobbyists become campaign treasurers and fundraisers for congresspersons.^[11][12][13]

'Hard' and 'Soft' Money

Contributions made directly to a specific candidate are called hard money and those made to parties and committees are called soft money. Soft money constitutes an alternative form of financing campaigns that emerged in the last years. It "derives from a major loophole in federal campaign financing and spending law that exempts from regulation those contributions made for party building in general rather than for specific candidates".^[14] There are no limits on soft money and some examples are donations for stickers, posters, and television and radio spots supporting a particular party platform or idea but not a concrete candidate.^[14] For the amounts of soft money contributed in recent years and the legislation that enabled this, see the section on the Bipartisan Campaign Reform Act.

Political action committees

Federal law allows for multiple types of political action committees (PACs).

• Connected PACs: The Bipartisan Campaign Reform Act prohibits corporations and labor unions from making direct contributions or expenditures in connection with federal elections. These organizations may, however, sponsor a "separate segregated fund" (SSF),^[15] known as a "connected PAC". These PACs may receive and raise money only from a "restricted class", generally consisting of managers and shareholders in the case of a corporation and members in the case of a union or other interest group. In exchange, the sponsor of the PAC may absorb all the administrative costs of operating the PAC and soliciting contributions. As of January 2009, there were 1,598 registered corporate PACs, 272 related to labor unions and 995 to trade organizations.^[16]
• Nonconnected PACs: A nonconnected PAC is financially independent, meaning that it must pay for its own administrative expenses using the contributions it raises. Although an organization may financially support a nonconnected PAC, these expenditures are considered contributions to the PAC and are subject to the dollar limits and other requirements of the Act.
• Leadership PACs: Elected officials and political parties cannot give more than the federal limit directly to candidates. However, they can set up a leadership PAC that makes independent expenditures. Provided the expenditure is not coordinated with the other candidate, this type of spending is not limited.^[17] Under the FEC rules, leadership PACs are non-connected PACs, and can accept donations from individuals and other PACs. Since current officeholders have an easier time attracting contributions, leadership PACs are a way dominant parties can capture seats from other parties. A leadership PAC sponsored by an elected official cannot use funds to support that official's own campaign. However, it may fund travel, administrative expenses, consultants, polling, and other non-campaign expenses.^[18][19][20] Between 2008 and 2009, leadership PACs raised and spent more than $47 million.^[21]
• "Super PACs": The 2010 election marked the rise of a new political committee, dubbed the "super PAC". They are officially known as "independent-expenditure only committees", because they may not make contributions to candidate campaigns or parties, but rather must do any political spending independently of the campaigns. Unlike other PACs, there is no legal limit to the funds they can raise from individuals, corporations, unions and other groups, provided they are operated correctly.^[22] As of August 23, 2012, 797 super PACS had raised upwards of $349 million, with 60% of that money coming from just 100 donors, according to the Center for Responsive Politics.^[23] Super PACs were made possible by two judicial decisions. First, in January 2010 the U.S. Supreme Court held in Citizens United v. Federal Election Commission that government may not prohibit unions and corporations from making independent expenditure for political purposes. Two months later, in Speechnow.org v. FEC, the Federal Court of Appeals for the D.C. Circuit held that contributions to groups that only make independent expenditures could not be limited in the size and source of contributions to the group.^[24] Independent expenditures continue to grow with $17 million spent in 2002 on congressional elections, $52 million in 2006, and $290 million in 2010. In 10 states independent spending amounted to 19% of the total amount of money contributed to candidates between 2005 and 2010. In three of those states independent spending was greater than 25% of the contributions given to candidates.^[25]

501(c)(4) organizations

501(c)(4) organizations are defined by the IRS as "social welfare" organizations. Unlike 501(c)(3) charitable organizations, they may also participate in political campaigns and elections, as long as the organization's "primary purpose" is the promotion of social welfare and not political advocacy.^[26] 501(c)(4) organizations are not required to disclose their donors publicly.^[27] This aspect of the law has led to extensive use of 501(c)(4) organizations in raising and donating money for political activity.^[28] The NAACP, Planned Parenthood, Sierra Club, and National Rifle Association are well known examples of organizations that operate 501(c)(4) social welfare organizations that engage in political advocacy.

PACs and Super PACs are required by law to disclose all of their donors of over $200. However, 501(c)(4) organizations are only required to disclose their spending on political activity, and not information on their donors unless those donors give for the express purpose of political advocacy. The use of 501(c)(4) organizations for political advocacy has contributed to the sharp rise in outside spending that occurs without disclosure of donors. In 2006 just a bit more than 1% of political spending other than that done by political parties and campaign committees did not disclose donors, but by 2010 it had risen to 44%.^[29] As of August 2012, two of the biggest 501(c)(4) groups (Crossroads GPS and Americans for Prosperity) had put more money into the presidential campaign than all the super PACs combined, according to ProPublica.^[30]

Traditionally 501(c)(4) organizations have been civic leagues and other corporations operated exclusively for the promotion of social welfare, or local associations of employees with membership limited to a designated company or people in a particular municipality or neighborhood, and with net earnings devoted exclusively to charitable, educational, or recreational purposes.^[31]

527 organizations

A 527 organization or 527 group is a type of American tax-exempt organization named after "Section 527" of the U.S. Internal Revenue Code. Technically, almost all political committees, including state, local, and federal candidate committees, traditional political action committees, "Super PACs", and political parties are "527s." However, in common practice the term is usually applied only to such organizations that are not regulated under state or federal campaign finance laws because they do not "expressly advocate" for the election or defeat of a candidate or party. When operated within the law, there are no upper limits on contributions to 527s and no restrictions on who may contribute. There are no spending limits imposed on these organizations. However, they must register with the IRS, publicly disclose their donors and file periodic reports of contributions and expenditures.^[32]

Political parties

Political party committees may contribute funds directly to candidates, subject to the contribution limits listed above. National and state party committees may make additional "coordinated expenditures," subject to limits, to help their nominees in general elections. National party committees may also make unlimited "independent expenditures" to support or oppose federal candidates. However, since 2002, national parties have been prohibited from accepting any funds outside the limits established for elections in the FECA.

Early Attempts at Regulating Money in Campaigns

Tillman Act of 1907

Named for its sponsor, South Carolina Senator Ben Tillman, the Tillman Act of 1907 prohibited corporations and nationally chartered (interstate) banks from making direct financial contributions to federal candidates. However, weak enforcement mechanisms made the Act ineffective. Disclosure requirements and spending limits for House and Senate candidates followed in 1910 and 1911. General contribution limits were enacted in the Federal Corrupt Practices Act (1925). An amendment to the Hatch Act of 1939 set an annual ceiling of $3 million for political parties' campaign expenditures and $5,000 for individual campaign contributions. The Smith-Connally Act (1943) and Taft-Hartley Act (1947) extended the corporate ban to labor unions.

Federal Election Campaign Act (1971)

In 1971, Congress passed the Federal Election Campaign Act (FECA), instituting various campaign finance disclosure requirements for federal candidates (those running for the House, the Senate, the President and the Vice President), political parties, and political action committees. In 1974, Congress passed amendments to the FECA establishing a comprehensive system of regulation and enforcement, including public financing of presidential campaigns and the creation of a central enforcement agency, the Federal Election Commission. The new regulations included limits on campaign finance, including caps on (1) individual contributions to candidates, (2) contributions to candidates by “political committees” (commonly known as Political Action Committees, or PACs), (3) total campaign expenditures, and (4) independent expenditures by individuals and groups "relative to a clearly identified candidate."

Buckley v. Valeo (1976)

The constitutionality of the FECA was challenged in the U.S. Supreme Court case Buckley v. Valeo (1976). In Buckley, the Court upheld the Act's limits on individual contributions, as well as the disclosure and reporting provisions and the public financing scheme. The Court held that limitations on donations to candidates were constitutional because of the compelling state interest in preventing corruption or the appearance of corruption. However, the Court also held that caps on the amount campaigns could spend and caps on independent expenditures were an unconstitutional abridgment of free speech under the First Amendment. In addition, Buckley also held that the disclosure and reporting requirements of FECA could only apply to expenditures authorized or requested by a candidate or expenditures for communications that “expressly advocate the election or defeat of a clearly identified candidate.”

Bipartisan Campaign Reform Act (2002)

Under FECA, corporations, unions, and individuals could contribute unlimited "nonfederal money"—also known as "soft money"—to political parties for activities intended to influence state or local elections. In a series of advisory opinions between 1977 and 1995, the FEC ruled that political parties could fund "mixed-purpose" activities—including get-out-the-vote drives and generic party advertising—in part with soft money, and that parties could also use soft money to defray the costs of "legislative advocacy media advertisements," even if the ads mentioned the name of a federal candidate, so long as they did not expressly advocate the candidate's election or defeat.^[35] Furthermore, in 1996, the Supreme Court decided Colorado Republican Federal Campaign Committee v. FEC, in which the Court ruled that Congress could not restrict the total amount of "independent expenditures" made by a political party without coordination with a candidate, invalidating a FECA provision that restricted how much a political party could spend in connection with a particular candidate.^[36] As a result of these rulings, soft money effectively enabled parties and candidates to circumvent FECA's limitations on federal election campaign contributions.^[37]

Soft money raised from 1993 to 2002

In 2002, Congress further attempted to reform federal campaign financing with the Bipartisan Campaign Reform Act. The BCRA, sometimes called the "McCain-Feingold" Act, amended the FECA in several respects. First, it prohibited national political party committees from soliciting or spending any soft money and prohibited state and local party committees from using soft money for activities that affect federal elections. Second, it prohibited the use of corporate and union treasury funds to pay for "electioneering communications"—broadcast or cable advertisements clearly identifying a federal candidate—within 30 days of a primary or 60 days of a general election. The law also included a "stand by your ad" provision requiring candidates to appear in campaign advertisements and claim responsibility for the ad (most commonly with a phrase similar to "I'm John Smith and I approve this message.")

This law was also challenged in the Supreme Court, but its core provisions were upheld by the Supreme Court in McConnell v. Federal Election Commission. However, in McConnell, the Court also interpreted the “electioneering communications” provisions of BCRA to exempt “nonprofit corporations that [1] were formed for the sole purpose of promoting political ideas, [2] did not engage in business activities, and [3] did not accept contributions from for-profit corporations or labor unions.” Thus, non-business, non-profit political organizations could run electioneering advertisements provided that they did not accept corporate or union donations.

Furthermore, the BCRA did not regulate "527 organizations" (named for the section of the tax code under which they operate). These nonprofit organizations are not regulated by the FEC, provided that they do not coordinate with candidates or expressly advocate for the election or defeat of a specific candidate. After the passage of the BCRA, many of the soft money-funded activities previously undertaken by political parties were taken over by various 527 groups, which funded many issue ads in the 2004 presidential election. The heavy spending of key 527 groups to attack presidential candidates brought complaints to the Federal Elections Commission of illegal coordination between the groups and rival political campaigns. (In 2006 and 2007 the FEC fined a number of organizations, including MoveOn.org and Swift Boat Veterans for Truth, for violations arising from the 2004 campaign. The FEC's rationale was that these groups had specifically advocated the election or defeat of candidates, thus making them subject to federal regulation and its limits on contributions to the organizations.)

The reach of the “electioneering communications” provisions of the BCRA was also limited in the 2007 Supreme Court ruling Federal Election Commission v. Wisconsin Right to Life, Inc. In Wisconsin Right to Life, the Supreme Court stated that the restrictions on “electioneering communications” applied only to advertisements that “can only reasonably be viewed as advocating or opposing a candidate.” Thus, if there was any reasonable way to view an advertisement as an “issue ad,” it would be exempt from the BCRA’s restrictions.

Citizens United v. FEC (2010) and SpeechNOW.org v. FEC (2010)

Campaign finance law in the United States changed drastically in the wake of two 2010 judicial opinions: the Supreme Court’s decision in Citizens United v. FEC and the D.C. Circuit Court of Appeals decision in SpeechNow.org v. FEC.^[39] According to a 2011 Congressional Research Service report, these two decisions constitute “the most fundamental changes to campaign finance law in decades.” ^[40]

Citizens United struck down, on free speech grounds, the limits on the ability of organizations that accepted corporate or union money from running electioneering communications. The Court reasoned that the restrictions permitted by Buckley were justified based on avoiding corruption or the appearance of corruption, and that this rationale did not apply to corporate donations to independent organizations. Citizens United overruled the 1990 case Austin v. Michigan Chamber of Commerce, in which the Supreme Court upheld the Michigan Campaign Finance Act, which prohibited corporations from using treasury money to support or oppose candidates in elections.

Two months later, a unanimous nine-judge panel of the U.S. Court of Appeals for the D.C. Circuit decided SpeechNow, which relied on Citizens United to hold that Congress could not limit donations to organizations that only made independent expenditures, that is, expenditures that were “uncoordinated” with a candidate’s campaign. These decisions led to the rise of “independent-expenditure only” PACs, commonly known as “Super PACs.” Super PACs, under Citizens United and SpeechNow, can raise unlimited funds from individual and corporate donors and use those funds for electioneering advertisements, provided that the Super PAC does not coordinate with a candidate.

McCutcheon v. Federal Election Commission (2014)

On February 19, 2013, the Supreme Court announced it would hear McCutcheon v. Federal Election Commission, a case challenging the limit on how much individuals can donate directly to political parties and federal candidates.^[41] On April 2, 2014, the Court announced its opinion and maintained aggregate limits on campaign contributions were unconstitutional under the First Amendment.^[42]

Developments after Buckley v. Valeo

In 1986, several bills were killed in the U.S. Senate by bipartisan maneuvering which did not allow the bills to come up for a vote. The bills would impose strict controls for campaign fund raising. Later in 1988, legislative and legal setbacks on proposals designed to limiting overall campaign spending by candidates were shelved after a Republican filibuster. In addition, a constitutional amendment to override ‘’Buckley’’ failed to get off the ground.

In 1994, Senate Democrats had more bills blocked by Republicans including a bill setting spending limits and authorizing partial public financing of congressional elections. In 1996, bipartisan legislation for voluntary spending limits which rewarded those who comply, and which banned soft money, was killed by a Republican filibuster.^[43]

The Reform Party, founded by Ross Perot, made campaign finance reform a central issue in its platform, and when Perot ran for president in 1992 and 1996 he strongly argued for it. Oddly enough, most political scientists believe that campaign finance laws hindered Perot's efforts to establish the Reform Party on a permanent basis.

In 1997, the McCain-Feingold bipartisan bill sought to close soft money and TV advertising expenditures but the legislation was defeated by a Republican filibuster. Several different proposals were made in 1999 by both parties. The Campaign Integrity Act (H.R. 1867) proposed by Asa Hutchinson (R-Arkansas) put a ban on soft money and raised hard money limits. The Citizen Legislature & Political ACT (H.R. 1922) sponsored by Rep. John Doolittle (R-CA) would repeal all federal freedom ACT election contribution limits and expedite and expand disclosure. H.R. 417 Campaign Reform Act Shays-Meehan Bill, sponsored by Christopher Shays (R-CT) and Martin Meehan (D-MA), banned soft money and limited types of campaign advertising.

Campaign finance again became a major issue in the 2000 presidential election, especially with candidates for president, John McCain and Ralph Nader. Organizations in favor of campaign finance reform included many public interest groups, such as Common Cause, Democracy 21, the Campaign Legal Center, and Democracy Matters. Opposition came from a coalition of organizations such as the American Civil Liberties Union and the Center for Competitive Politics (both of which argue that campaign finance reform would harm free speech) and the National Rifle Association, National Right to Life Committee, and other organizations.

Developments after Citizens United

The DISCLOSE Act (S. 3628) was proposed in July 2010. The bill would have amended the Federal Election Campaign Act of 1971 to prohibit foreign influence in Federal elections, prohibit government contractors from making expenditures with respect to such elections, and establish additional disclosure requirements with respect to spending in such elections. The bill would also have imposed new donor and contribution disclosure requirements on nearly all organizations that air political ads independently of candidates or the political parties. The legislation would require the sponsor of the ad to appear in it. Because the law already prohibits foreign contributions (2 U.S.C. 441e) and contributions by federal contractors (2 U.S.C. 441c), and requires identifying information on all ads (2 U.S.C. 441d), Republicans were suspicious of the bill – particularly after the primary Senate sponsor, Senate Chuck Schumer (D. N.Y.) stated that the legislation was intended to have a "deterrence effect" on speech.^[44] Democrats needed at least one Republican to support the measure in order to get the 60 votes to overcome a Republican filibuster, but were unsuccessful.^[45][46]

Several groups were formed in response to Citizens United, including Move to Amend, American Promise, and Wolf PAC. Move to Amend was founded in 2009, and have become one of the larger organizations working to reform Campaign Finance.^[47] In 2016, American lawyer Jeff Clements, founded American Promise, a newer organization seeking to coordinate some of the effort.^[48][49] These non-profit organizations are all calling for a 28th Amendment to the United States Constitution to overturn the decision, as well as Buckley, and the underlying doctrine equating political spending with free speech. So far, 19 states have called for the amendment, either by legislative resolution or ballot initiative.

In 2011, a political action committee called Wolf PAC was formed in response to the Citizens United decision.^[50] Its goal is to pass an amendment to overturn the decision, along with substantially similar Supreme Court decisions such as Buckley v. Valeo, and to institute a system of public financing for all elections in the United States.^[51] Wolf PAC's strategy is to call for an Article V convention to propose this amendment, rather than passing it through Congress, which it views as too corrupt. As of February 2015, four states, California, Vermont, Illinois and New Jersey have passed resolutions calling for such a convention.^[52][53][54]

In September 2014, Senate Democrats attempted to campaign for a constitutional amendment that would allow Congress and the states to limit the money raised and spent in election campaigns by outside groups, candidates and others, with a special aim at corporations and similar entities spending money on elections. Such action would, according to Republicans, violate the First Amendment right to free speech.^[55]

Public financing of presidential campaigns

At the federal level, public funding is limited to subsidies for presidential campaigns. This includes (1) a "matching" program for the first $250 of each individual contribution during the primary campaign, (2) financing the major parties' national nominating conventions, and (3) funding the major party nominees' general election campaigns.^[56]

To receive subsidies in the primary, candidates must qualify by privately raising $5000 each in at least 20 states. During the primaries, in exchange for agreeing to limit his or her spending according to a statutory formula, eligible candidates receive matching payments for the first $250 of each individual contribution (up to half of the spending limit). By refusing matching funds, candidates are free to spend as much money as they can raise privately.

From the inception of this program in 1976 through 1992, almost all candidates who could qualify accepted matching funds in the primary. In 1996 Republican Steve Forbes opted out of the program. In 2000, Forbes and George W. Bush opted out. In 2004 Bush and Democrats John Kerry and Howard Dean chose not to take matching funds in the primary. In 2008, Democrats Hillary Clinton and Barack Obama, and Republicans John McCain, Rudy Giuliani, Mitt Romney and Ron Paul decided not to take primary matching funds. Republican Tom Tancredo^[57] and Democrats Chris Dodd,^[58] Joe Biden^[59] and John Edwards elected to take public financing.

In addition to primary matching funds, the public funding program also assists with financing the major parties' (and eligible minor parties') presidential nominating conventions and funding the major party (and eligible minor party) nominees' general election campaigns. The grants for the major parties' conventions and general election nominees are adjusted each Presidential election year to account for increases in the cost of living. In 2012, each major party is entitled to $18.2 million in public funds for their conventions, and the parties' general election nominees are eligible to receive $91.2 million in public funds. If candidates accept public funds, they agree not to raise or spend private funds or to spend more than $50,000 of their personal resources.

No major party nominee turned down government funds for the general election from 1976, when the program was launched, until Barack Obama did so in 2008.^[60] Obama again declined government funds for the 2012 campaign, as did Republican nominee Mitt Romney, setting up the only election since the program's launch in which neither major party nominee accepted federal funding.^[61]

Eligibility of minor parties for public funds is based on showing in previous elections. The only party other than the Republicans and Democrats to receive government funding in a general election was the Reform Party, which qualified for public funding in 1996 and 2000 on the basis of Ross Perot's strong showing in the 1992 and 1996 elections.

The presidential public financing system is funded by a $3 tax check-off on individual tax returns (the check off does not increase the filer's taxes, but merely directs $3 of the government's general fund to the presidential fund). The number of taxpayers who use the check off has fallen steadily since the early 1980s, until by 2006 fewer than 8 percent of taxpayers were directing money to the fund, leaving the fund chronically short of cash.^[62]

Public financing at the state and local level

A small number of states and cities have started to use broader programs for public financing of campaigns. One method, which its supporters call Clean Money, Clean Elections, gives each candidate who chooses to participate a fixed amount of money. To qualify for this subsidy, the candidates must collect a specified number of signatures and small (usually $5) contributions. The candidates are not allowed to accept outside donations or to use their own personal money if they receive this public funding. Candidates who choose to raise money privately rather than accept the government subsidy are subject to significant administrative burdens and legal restrictions, with the result that most candidates accept the subsidy. This procedure has been in place in races for all statewide and legislative offices in Arizona and Maine since 2000, where a majority of officials were elected without spending any private contributions on their campaigns. Connecticut passed a Clean Elections law in 2005, along with the cities of Portland, Oregon and Albuquerque, New Mexico.

A 2003 study by GAO found, "It is too soon to determine the extent to which the goals of Maine’s and Arizona’s public financing programs are being met."^[63]

The "Clean Elections" movement had several defeats in the 2000s and 2010s. Proposition 89, a California ballot proposition in November 2006, sponsored by the California Nurses Union, that would have provided for public financing of political campaigns and strict contribution limits on corporations, was defeated. In 2008, the non-partisan California Fair Elections Act passed the legislature and Governor Schwarzenegger signed it, but the law did not take effect unless approved by voters in a referendum in 2010. In June 2010, voters soundly rejected the measure, 57% to 43%.^[64] A proposal to implement Clean Elections in Alaska was voted down by a two-to-one margin in 2008,^[65] and a pilot program in New Jersey was terminated in 2008 amid concern about its constitutionality and that the law was ineffective in accomplishing its goals. In 2010, Portland voters used a referendum to repeal the clean elections law, originally enacted by the city council.^[66] In 2006, in Randall v. Sorrell, the Supreme Court held that large parts of Vermont's Clean Elections law were unconstitutional. In 2008, the Supreme Court's decision in Davis v. Federal Election Commission suggested that a key part of most Clean Election laws—a provision granting extra money (or "rescue funds") to participating candidates who are being outspent by non-participating candidates—is unconstitutional. In 2011, in Arizona Free Enterprise Club's Freedom Club PAC v. Bennett, the Supreme Court struck down the matching funds provision of Arizona's law on First Amendment grounds.^[67]

Massachusetts has had a hybrid public funding system for statewide offices since 1978. Taxpayers are allowed to contribute $1 to the statewide election fund by checking a box on their annual income taxes. Candidates who agree to spending limits are eligible for money from this fund. Non-participating candidates are required to estimate spending, and this will raise the limit for participating opponents if higher than the agreed-to limit.^[68]