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Political Parties Financing
Round table
December 2, 2002
Center for the Study of Democracy

Campaign Finance in the United States

Compiled by the National Democratic Institute

Campaign finance in the U.S. recently gained public attention with passage of the McCain-Feingold and Shays-Maheen bills in the House and Senate. The President signed legislation on March 27, 2002 prohibiting soft money contributions in national elections and raising the limits that individuals can spend for federal elections. Although this recent legislation represents a restructuring of the campaign finance system, many believe that it will not reform the amount of money that goes toward campaigns, even those at the federal level. This brief memo outlines current campaign finance laws and the changes that will occur in the next election cycle.

Congress created the Federal Election Commission (FEC) in 1975 to monitor and administer federal election financing under the Federal Election Campaign Act (FECA), passed in 1971. The duties of the FEC, which is an independent regulatory agency, are to disclose campaign finance information, to enforce the provisions of the law such as the limits and prohibitions on contributions, and to oversee the public funding of Presidential elections.

As a result of the new federal election law passed by the House and Senate in March 2002, restrictions have been placed on national party contributions and contributions to individual party candidates in federal elections. These restrictions limit the amount of money an individual can give to a candidate running for federal office.

Soft money is money that is given to political parties to be used for the parties' general purposes, rather than for a single candidate. Prior to the passage of Shays-Maheen, there was no limit on the amount of money that an individual or organization could give to a political party for such purposes. As a result, national parties could raise money from special interest groups and wealthy individuals and use that money in campaigns.

This has been referred to as the "soft money loophole" because, while federal law regulated the amount an individual or group could give to a candidate, it did not limit the amount of soft money a party could receive. Thus, parties supporting candidates could fund get-out-the-vote efforts and "issue ads" that benefited particular candidates without the candidate having been funded directly- thus averting restrictions on the amount of money a special interest or individual could spend on campaigns.

Under the new law, known as the Bipartisan Campaign Reform Act (BCRA), soft money has been banned at the federal level. This means that the law now regulates the amount of money that can be given to national party committees in a given year. While the bill limits soft money, it also raised the amounts that individuals can give to candidates and state and local political parties. The total amount an individual can give per two-year election cycle to influence federal elections is limited to ,000 and subject to the following restrictions: an individual may not give more than ,500 to federal candidates and may only give ,000 per election (primaries and general elections count as separate elections) to a single candidate; an individual can give up to ,000 per party committee per year; up to ,000 can be given to each state or local party committee per year; and an individual can give ,000 to each Political Action Committee (PAC) per year. An individual can give no more than ,500 per two-year cycle to national party committees and PACs.

PACs may still contribute an unlimited amount of money to party committees at the state level, but the law limits the amount of money they may receive from various sources. For example, PACs may only receive ,000 from multicandidate committees and ,000 per year from other political committees, and are limited to receiving ,000 per year from individuals.

The most controversial element of the new legislation is that it requires that issue ads not be allowed to run 60 days prior to elections. In the past, there was no limit to the amount that a corporation or union, for example, could spend on ads that featured candidates. Now, they will not be able to use their money toward such ads.

Critics of the BCRA argue that placing restrictions on soft money impedes free speech, since special interests are not allowed to run such issue ads. In fact, the campaign finance package is currently being challenged in the courts in two lawsuits alleging violation of free speech rights. In addition, a coalition of public interest groups is challenging the law for raising hard-dollar contribution limits.

Many question how much the new law will affect special interest funding of political campaigns. While soft money for federal campaigns is regulated under the law, state laws allow soft money to be raised. As a result many feel that instead of reducing the amount of money raised for campaigns, the money will be filtered through state parties instead of national parties. In addition, there is no legislation regulating the amount of money that one state party can transfer to another, which may serve to undermine the effectiveness of campaign finance reform touted by the new law.
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