Modern campaign finance practices in the United States are best understood as the result of a lengthy interplay between candidates, parties, and interest groups that seek to both raise funds and regulate fundraising. Campaign finance includes paying for candidates to take their messages to the public, to register and turn out voters, and to cover the logistics of political campaigns aimed at thousands or millions of voters. Fundraising practices often make sense only against the regulatory background that has shaped them.
Through the nineteenth century, campaign finance was unregulated, and parties and candidates were primarily funded by wealthy donors and by the party's own officeholders, who were assessed a portion of their salaries to fund the party responsible for their appointment. As civil service laws ended those assessments as a source of funding, political parties and candidates turned to the burgeoning corporate community for revenue. Campaign finance historian George Thayer estimated that Theodore Roosevelt received more than 70 percent of his 1904 presidential campaign budget from corporations. Concerns over resultant corporate influence prompted the first campaign finance laws; prohibitions on corporate contributions passed in the late 1890s by several states and by the federal government in the Tillman Act of 1907.
The Smith-Connally Act of 1943 extended the ban on corporate contributions to include unions, which had become a major source of funding for the Democratic Party. The Congress of Industrial Organizations responded by creating the first political action committee (PAC), assessing members to create a separate fund for political spending that Smith-Connally did not cover. Since these funds consisted of contributions from individual members to the PAC, rather than the union directly, they were not covered by the law, even though the union controlled how the money was utilized. PACs proved especially beneficial to unions after 1947, when Congress extended the ban on corporate and union contributions to prohibit expenditures by unions and corporations to promote their political views.
Barry Goldwater's 1964 presidential campaign sparked a major development in fundraising tactics by demonstrating that direct mail could raise significant funds from small donors. Herbert Alexander estimates that by 1972 George McGovern's presidential campaign, though still reliant on large donors, raised $15 million in small donations through direct mail. Thus the trend to a candidatecentered system of fundraising with greater emphasis on small donors was already underway when Congress passed the Federal Election Campaign Act (FECA) Amendments of 1974.
The 1974 FECA Amendments for the first time placed limits on the size of individual contributions to candidates and parties. With similar laws that swept the states in the following decade, this dramatically altered political fundraising by shattering the historic reliance on large donors. The amendments limited both the size of contributions to parties and what parties could spend supporting their candidates. This increased the importance of fundraising by individual candidates, thus requiring officeholders to spend more time calling potential donors and attending myriad dinners, receptions, and events to raise funds that previously might have been raised by a handful of calls or meetings with large donors.
Though the 1974 amendments renewed the prohibition on corporate and union contributions and expenditures, they authorized corporations and unions to draw from their general treasury funds to pay the administrative, legal, and solicitation costs of operating PACs. This significant benefit sparked rapid growth in the creation of corporate PACs. The number of PACs registered with the Federal Election Commission (FEC) grew from 608 in 1974 to 4,009 by 1984. PACs helped to fill the monetary void created by limitations on large donations as PAC contributions to candidates rose from $8.5 million in 1972 to $150 million in 1990.
The 1974 FECA Amendments also limited election spending by candidates, political parties, individuals, and independent organizations. This part of the law, however, never took effect. In January 1976, in Buckley v. Valeo, 424 U.S. 1 ( 1976 ), the US Supreme Court upheld the constitutionality of restrictions on individual contributions to candidates and parties but struck down limits on candidate or campaign expenditures as an unconstitutional violation of the First Amendment. This result effectively restricted the supply of campaign money without lessening demand. Exacerbating the problem, the law did not automatically adjust contribution limits for inflation. By 1984 the maximum $1,000 individual contribution had lost half its purchasing power. A solution to the resulting cash crunch came to be known as “soft money.”
Complaints that soft money undermined the regulatory system established by the 1974 FECA Amendments stirred Congress in 2002 to pass the Bipartisan Campaign Reform Act (BCRA), also known as McCain-Feingold.
BCRA reined in soft money practices by prohibiting national political parties from raising or spending money outside of FECA limits. Due to doubts about the constitutionality of limiting soft money to independent groups, the law did not prohibit independent groups from raising and spending soft money for issue ads. It did, however, require that any broadcast ad run within thirty days of a primary election or sixty days of a general election that mentioned a candidate for office had to be paid for with funds raised from individuals, not corporations or unions.
Independent spenders reacted by moving spending on issue ads outside the thirty- and sixty-day windows, saving money raised under the FECA limits for ads in the final run-up to the election. The national parties, however, were harder hit by the complete ban on raising and spending “soft money.” Facing pressure to raise funds more efficiently, parties responded with increased use of tactics such as “bundling.” Bundlers ask supporters to not only contribute for themselves, but also to pledge to raise a predetermined amount from friends and contacts. The funds from several smaller donations within the limits of BCRA are bundled together to form one large donation, or tracked by the campaign back to specific bundlers who agree to raise funds for the campaign. For example, the film producer Jeffrey Katzenberg of Dream-works not only contributed the legal maximum to the 2008 Obama for President Campaign, but raised $500,000 in contributions to the campaign from friends, family, and associates.
Another fundraising innovation was the use of joint fundraising committees, which occur when several candidate and party committees combine for a single fundraising event, reducing overhead and enabling wealthy donors to write one large check equaling the legal maximum that could be given to all of the candidates and committees sponsoring the joint event.
Despite these innovations, the restrictions on soft-money funding soon forced partisan activists to look for new ways to raise and spend outside the legal limits. The Democratic Party shifted many traditional party functions, such as early polling, media, voter identification and registration, and issue ads, to nominally independent 527 organizations for the 2004 presidential campaign. But 527s (named for the section of the Internal Revenue Code under which they operate) were not to become the wave of the future, as a series of judicial rulings changed the campaign finance landscape once again.
In Federal Election Commission v. Wisconsin Right to Life, Inc., 551 U.S. 449 ( 2007 2010 ), then rendered the question of issue ads largely irrelevant by holding that unions and corporations have First Amendment rights to make direct expenditures in elections. Later that year the US Court of Appeals ruled in SpeechNow.org v. FEC, 599 F.3d 691 ( DC Circuit 2010 ), that fundraising restrictions on groups that made only independent expenditures were unconstitutional. SpeechNow.org led to the creation of “Independent Expenditure PACs,” more commonly called “Super PACs,” which do not make contributions to candidates, but can make unlimited independent campaign expenditures using contributions of any size and from any source, so long as their activity is not coordinated with candidates or parties.
Citizens United and SpeechNow.org did not usher in an era of wholesale corporate spending on elections. FEC data indicates that corporate spending was, at the highest estimates, approximately 15 percent of total federal political spending in 2012. Of this amount approximately 20 percent would have been lawful spending on issue ads even before Citizens United. Instead, these court decisions marked the return of large individual donors. And their funding now went to Super PACs, not political parties. According to the FEC, the substantial majority of Super PAC funds in both 2010 and 2012 came from wealthy individuals, such as the casino mogul Sheldon Adelson, who contributed $73 million to Super PACs in 2012. The weakened positions of national parties were exposed in 2012, as conservative Super PACs spent almost as much as the Republican National Committee. Faced with this loss of control over fundraising, by 2013 legislators were looking for ways to increase their own ability to raise funds rather than attempting to restrict independent funders. USA Today reported that nine states raised limits on contributions to candidates during 2013.
Even as Super PACs opened new avenues for large donors, technology was expanding small donor opportunities. In 2012 President Barack Obama's reelection campaign raised $525 million online, mostly in small amounts. Although Internet fundraising quickly became a fixture of campaigns, only additional experience will reveal if Internet fundraising can break the need for large donors, or merely supplement them.
Since the Tillman Act of 1907, regulators and spenders have engaged in repeated cycles of action and reaction. Policy makers adopt regulations restricting the flow of campaign finance money. Donors, independent spenders, parties, and candidates seek out new, legal ways to raise campaign funds. Another round of regulation is enacted, followed by another round of circumvention, leading to another round of regulation. The result is a complex system of law rewarding a small, Washington, DC–based coterie of campaign finance specialists. The scramble for campaign cash, and the tensions caused by efforts to regulate it, remain an important feature of American political life.
SEE ALSO Campaign Finance Laws ; Citizens United v. Federal Election Commission ; Election Campaigns .
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Bradley A. Smith
Capital University Law School