QUESTIONS AND ANSWERS ABOUT CAMPAIGN FINANCE REFORM

Q. Why should citizens be concerned about campaign finance reform?

A. Polls show that Americans are worried that government no longer represents or responds to their concerns. People are feeling alienated from their elected leaders, in large part because of a campaign finance system that puts an emphasis on special interests and wealthy donors. While many Americans are concerned that new restrictions on campaign finance might infringe on the free speech rights of candidates and their supporters, the fact remains that people who do not have the money or the inclination to contribute are seeing their own freedoms compromised. They may still have the right to speak freely, but it's likely that their elected leaders are listening to someone with the money to get his/her message across.

The 1996 elections focused national attention on the need for change. Advocates say campaign finance reform could go a long way to reducing the influence of special interests, leveling the playing field between well-heeled incumbents and challengers, and restoring public trust in government.

A. An overwhelming proportion of special interest contributions goes to candidates who already are in office, especially those whose seniority and influence can make them important individuals to have on your side. In 1996 general election contests, Republican incumbents in the House of Representatives outspent their challengers by nearly an eight-to-one margin. For Democrats, the margin was four to one. Critics of the current system believe that the huge war chests built up by sitting lawmakers stifle competition and scare away potential challengers who can't afford the TV time they need to become known among voters. The incumbent advantage can have a particularly harmful effect on the candidacies of minorities and women seeking to break through the "glass ceiling" that traditionally has stood in the way of their political involvement.

Q. What are the rules governing campaign contributions and spending today?

A. The Federal Election Campaign Act (FECA) places monetary limits on contributions to support candidates for federal office and prohibits contributions from certain sources. Contribution limits are presented in the accompanying table. The limits on campaign contributions to federal candidates are considered "hard money" limits; they establish ceilings on the amounts that can be given directly to candidates to support their campaigns.

Q. How can the current system be fixed?

A. Policy makers have a number of tools at their disposal for fixing real and perceived flaws in the current campaign finance system. They are: additional limits on contributions; voluntary limits on spending; measures to close loopholes in the current law; public financing of campaigns; and new disclosure and reporting requirements.

Q. How did the 1996 election differ from previous federal elections?

A. Congressional candidates raised a total of nearly $800 million to finance their 1996 campaigns, a record high. An even more glaring difference between 1996 and previous election years, however, was the widespread advantage taken of loopholes in current law to channel even more money into congressional and presidential races. Although there are many loopholes in federal campaign finance law, three types were most responsible for the failure of the campaign finance regulatory structure in the last election cycle. They are: "soft money," "independent expenditures" and "issue advocacy."

Q. What is "soft money"?

A. Soft money contributions are unlimited contributions made to the political parties by corporations, labor unions and wealthy individuals. Currently, there are no limits on the amount of soft money that an individual, corporation or union can give to the parties. Six-figure contributions are now commonplace. In theory, soft money is to be used for "party-building" activities such as voter registration and get-out-the-vote drives. In reality, soft money is used increasingly to pay for media advertising and other campaign activities. By using soft money contributions, parties and their candidates have learned that they can get around the hard money limits on campaign spending.

Q. What happened with soft money in 1996?

A. Soft money contributions have been growing at an exceptional rate in recent years. In the 1992 election cycle, the parties raised a combined $83 million in soft money; in the 1996 cycle, that figure tripled to $262 million. Soft money fundraising by the Democratic Party increased in 1996 by 232 percent, to $102 million. Republicans increased their soft money fundraising by 106 percent, to $122 million. As a result, both major party presidential campaigns spent more in soft money than they spent under the public financing system that governs campaign spending in presidential elections, despite the pledge by both presidential candidates that they would not raise and spend money outside the public financing system. Congressional campaigns also benefited from large sums of soft money in 1996.

Q. What happened with soft money in 1998?

A. During the 1997-98 election, the parties raised $172.5 million in soft-money contributions, a 112 percent increase over the 1993-94 cycle. It is expected that the soft money loophole will continue to be exploited until this problem is addressed.

Q. Who gives soft money donations?

A. During the 1996 election cycle, corporations were the single largest source of soft money donations for Democrats and Republicans. Labor unions were another large source, giving almost exclusively to Democrats. Tobacco industry giant Philip Morris was the single largest soft money contributor in the last election cycle, weighing in with more than $3 million in contributions, mostly to the Republican Party. In the first six months of 1997, tobacco companies pumped an additional $2 million into Republican Party coffers; they contributed lesser amount to the Democratic Party. Not surprisingly, these donations coincided with a push by tobacco companies for congressional approval of a settlement that could shield them from smokers' lawsuits and potentially save them billions of dollars.

In the 1998 election cycle, Philip Morris was once again the largest single contributor of soft money to the political parties, giving $1.7 million. The financial services industry was the leading soft-money sector, with aggregate corporate contributions of $28 million. In the 105th Congress, both the tobacco and financial services industries were the focus of key bills under debate.

Q. Has the soft money loophole always existed?

A. No, the loophole was opened by a 1978 Federal Election Commission (FEC) ruling designed to strengthen political parties by allowing them to use unrestricted funds for activities such as voter registration drives and get-out-the-vote efforts. Soft money was used primarily for this purpose throughout most of the 1980s, but by the 1992 election cycle, attorneys for the parties determined that they could use soft money to pay for television advertising while remaining within the letter, if not the spirit, of the law.

Q. What are "independent expenditures"?

A. Under current law, activities that are not coordinated with campaigns can be carried out without any limits. During the 1996 election, business and labor groups took advantage of this loophole and spent large sums on "independent" media campaigns to endorse or oppose specific candidates. The political parties also made campaign expenditures that supposedly were independent of their own candidates. Advocates of campaign finance reform believe that the definitions of "independence" need to be substantially strengthened to ensure that these expenditures do not overwhelm the system, effectively allowing corporations, labor unions and others to make unlimited campaign contributions to candidates.

Q. What is the problem with issue advocacy?

A. Like independent expenditures, "issue ads" are permitted and not included in current limits on campaign contributions so long as they don't expressly say "vote for" or "vote against" a particular candidate. In the 1996 election, interest groups made unprecedented use of issue ads to target individual candidates for victory or defeat. By not using these phrases, these groups could avoid disclosure requirements and contribution limits. The result, say those advocating reform, is that candidates are losing control of their own campaigns, and outside interest groups have more influence over who is elected to Congress. Advocates want to tighten the definition of issue advocacy so that it can't be used as a subterfuge to get around campaign contribution and spending limits.

Q. What are the constitutional issues involved in campaign finance reform?

A. In its landmark Buckley v. Valeo decision, the Supreme Court held that mandatory spending limits on candidates are unconstitutional. Spending limits must be voluntary. To encourage candidates to comply, spending limits can be linked to public financing and other incentives, as long as the incentives are not overly coercive. The Court made an important distinction between spending limits and contribution limits, asserting that contributions can be limited in order to fight corruption or the appearance of corruption. The problem with the Buckley decision, according to many critics, is that it equates money with free speech and, as a result, limits the freedoms of those who aren't able to make political contributions.

Q: Doesn't the Constitution prohibit Congress from banning soft money or regulating issue advocacy?

A: No, there is no constitutional prohibition preventing Congress from closing the soft money loophole. The Supreme Court held in Buckley v. Valeo that the government has a compelling interest in combating the appearance and the reality of corruption, an interest that could justify restricting large campaign contributions in federal elections. A soft money ban is constitutional.

Q. How could issue advocacy be regulated without stepping on free speech rights?

A. Reform advocates believe that current law can be changed to close the loophole without violating the Constitution. Under one proposal, any ads that mention a candidate 60 days before a general election could not be financed with corporate funds or union dues, but could use publicly disclosed donations subject to reasonable contribution limits. This change is known as the "bright line test" because it draws a bright and unambiguous line between money that can be spent on true issue ads and money that can be spent on electioneering.

Q. What are political action committees?

A. Corporations and labor unions are prohibited by law from donating money directly to federal candidates. However, these types of organizations may legally establish political action committees (PACs). Originally set up to enable small contributors to participate in elections, PACs were supposed to raise voluntary contributions from individuals -- e.g., union and association members, employees -- to finance contributions to favored candidates. Corporate and labor PAC donations to candidates are considered "hard" money because the contributions go directly to candidates' campaigns and are subject to disclosure requirements.

A. One problem is that individual giving to the interest groups often is not a voluntary process. An organization's members or employees either may be compelled to give or may not really know they are giving. The major problem with PAC giving, according to many advocates, is that special interests can play a preeminent role in congressional campaigns today. More than half of House incumbents receive grater than 50 percent of their contributions from PACs. While a ban on PACs would be unconstitutional, advocates say that additional limits on PAC giving can be justified, and that qualified candidates need alternative sources of campaign funds so they aren't as dependent on special interests.

Q. How else do special interests seek to influence elections today?

A. Another avenue for special interest contributions to candidates are large gifts from individual donors who represent organizations with policy interests before the government. Large individual contributions are a major issue in the U.S. Senate, where PAC giving is less a factor than in the House. In 1994, more than half of the individual contributions to Senate candidates was for $500 or more.

Q. How would public financing of elections work?

A. Partial public financing is already in place for presidential elections, although the use of soft money has subverted the system. Under a public financing system for congressional elections, candidates who demonstrate substantial public support would be provided with a fixed amount of publicly financed campaign money. In exchange, they would agree not to accept private contributions to their campaigns and to abide by reasonable spending limits. Under some proposals, complying candidates also would receive a fixed amount of free television time in exchange for their agreement to abide by voluntary limits on spending.

Candidates who receive public financing also could be required to participate in activities such as debates and other public forums in order to increase the opportunities for meaningful communication between citizens and elected officials.

Q: What is soft money?

A: Soft-money contributions are unlimited donations to the political parties from corporations, labor unions and wealthy individuals. There are no limits on the amount of soft money an individual, corporation or union can give to the parties. Six-figure soft money contributions are now entirely commonplace. In theory, soft money is used for “party-building” activities such as voter registration and get-out-the-vote drives. In reality, soft money is increasingly used to pay for a barrage of party-financed negative attack ads that often depress voter turnout.

Q: Has the soft money loophole always existed?

A: No. The soft-money loophole was opened by a 1978 Federal Election Commission (FEC) ruling designed to strengthen political parties by allowing them to use unrestricted funds for such activities as voter registration drives and get-out-the-vote efforts. Soft money was used primarily for this purpose throughout most of the 1980s, but by the 1992 election cycle, clever attorneys for the parties determined they could use soft money to pay for massive amounts of television attack ads while remaining within the letter, if not the spirit, of the law.

The soft-money loophole is abused by both parties:

 

Soft money raised in 1996 election cycle	Percent increase over 1992
Republicans: $138.2 million	178 percent increase
Democrats: $123.9 million	242 percent increase
Soft money raised in 1998 election cycle	Percent increase over 1994
Republicans: $93.7 million	144 percent increase
Democrats: $78.8 million	84 percent increase

Q: Is the use of soft money on the rise?

A: Over the last three presidential cycles, total soft money receipts have grown exponentially. In the 1988 election cycle, the parties raised a combined $45 million in soft money; in the 1992 cycle, that figure nearly doubled to $82 million, and in the 1995-96 cycle, combined soft-money contributions tripled to an astounding $262 million. During the 1997-98 election, the parties raised $172.5 million in soft-money contributions, which was a 112 percent increase over the 1993-94 cycle.

Q: Doesn't the Constitution prohibit Congress from banning soft money?

A: No. There is absolutely no constitutional barrier preventing Congress from closing the soft money loophole. In Buckley v. Valeo, the Supreme Court held that the government has a compelling interest in combating the appearance and reality of corruption, an interest that justifies restricting large campaign contributions in federal elections. Raising constitutional questions about banning soft money is simply a red herring, a way for politicians to preserve the soft-money system without publicly defending six-figure contributions. Fortunately, the Court in Buckley clearly rejected the notion that limits on campaign contributions violate the First Amendment.

Q: Who gives soft-money donations?

A: During the 1995-1996 election cycle, corporations were the single biggest source of soft-money donations for both Democrats and Republicans. Labor unions also were big soft money givers, almost exclusively to Democrats.

Tobacco industry giant Philip Morris was the single largest soft-money contributor in the 1996 election cycle, weighing in with over $3 million in contributions, mostly to the Republican party. Not surprisingly, these donations coincided with a push by tobacco companies for congressional approval of a settlement that could shield them from smokers’ lawsuits, potentially saving them billions of dollars.

In the 1998 election cycle, Philip Morris was once again the largest single contributor of soft money to the political parties, giving $1.7 million. The financial services industry was the leading soft-money sector, with contributions of $28 million. In the 105th Congress, both the tobacco and financial services industries were the focus of key bills under debate.

Q: What effect does the soft money loophole have on the public financing of presidential campaigns?

A: The soft-money loophole has effectively undermined the system of partial public financing of presidential campaigns established in the wake of the Watergate scandal. During the 1996 election, both President Clinton and Senator Dole directly participated in the raising of enormous amounts of soft money for their respective parties. The parties subsequently used this money to pay for a barrage of sham issue advocacy television advertisements that allowed the Clinton and Dole campaigns to ignore spending limits they had agreed to in exchange for public financing of their campaigns.

Unless the soft money loop is closed, it will be a simple matter for candidates to evade the spending limits associated with public financing of presidential campaigns.

Questions and Answers on Corporations, Labor Unions and Campaign Finance

Q: How do unions and corporations participate in elections?

 A: There are several ways in which unions and corporations make substantial contributions to election campaigns. Since 1947, labor unions have been prohibited from donating union treasury money directly to federal candidates. (Treasury money is that money received in the form of dues from union members and those nonunion members who pay "agency fees" to cover collective bargaining costs.) Corporations have been subject to similar restrictions against direct spending since passage of the Tilman Act in 1907. However, both unions and corporations may legally establish political action committees (PACs). Corporate and union PACs raise voluntary contributions from their members to finance contributions to favored candidates. Corporate and labor PAC donations to candidates are considered "hard" money, because they may not come directly from corporate or union treasury funds, they are limited to $5,000 per candidate, per election, and they are subject to disclosure requirements.

In addition to PAC contributions, unions frequently provide extensive organizational and grassroots support to favored candidates, from operating phone banks to organizing literature drops. Corporations and unions also communicate with their shareholders and members about candidates.

Q: Are there other ways unions and corporations participate in election campaigns?

 A: Yes. In addition to hard money contributions from their PACs and grassroots support, unions and corporations have increasingly taken advantage of the soft money loophole, which allows them to make unlimited contributions directly from their treasuries to the political parties. Unions and corporations now routinely make six-figure contributions to the parties, who frequently use the money to finance a barrage of campaign ads on behalf of their candidates before elections. The soft money loophole has made a mockery of laws designed to keep corporate and union treasury funds out of federal elections.

Q: What about all the TV and radio ads that ran in recent elections?

A: By narrowly interpreting current election law, many groups exploited the sham issue ad loophole, allowing them to spend heavily on ad campaigns clearly designed to influence the outcome of federal elections. Unions, business groups such as the Chamber of Commerce, and ideological and single-issue groups spent heavily on sham issue ads. Because of the sham issue ad loophole, all of these groups were able to use undisclosed, unrestricted funds, including corporate and union treasury money, to pay for the ads. This loophole represents a major new route for campaign spending.

Q: How did the labor issue affect Senate debate on campaign finance reform in the 105th Congress?

 A: In the 105th Congress, the Senate Republican leadership attempted to amend the bipartisan reform bill by adding an extremely broad provision that would require prior written consent from all union members before any portion of their dues could be used for political activities, including lobbying and internal communication with union members about matters unrelated to federal elections.

Although the amendment, dubbed the "Paycheck Protection Act" by its sponsor, Senator Trent Lott (R MS), would place new restrictions on labor unions, it would leave effectively untouched the ability of corporations to use their resources for political purposes without the approval of shareholders. Because Senator Lott declared that even if his amendment passed he would vote against the bill, it was clearly a poison pill designed to kill reform. More on the myth of labor's political advantage.

Q: Is the "Paycheck Protection Act" necessary or fair?

 A: No. A ban on soft money and closure of the sham issue ad loophole would apply equally to both unions and corporations. The Paycheck Protection Act, however, seeks to curtail a wide range of political activity by unions while allowing corporations to continue engaging in the very same activities unchecked.

While the Paycheck Protection Act would require prior written consent from union members before their dues could be used for any political activities, it imposes no similar restraints on corporations. When corporations use general revenues to make soft money contributions or run sham issue ad campaigns, they are using corporate profits. The Paycheck Protection Act would in no way provide stockholders who disagree with a corporation's political activities a means for receiving a refund of those portions of their profits used for partisan electioneering purposes.

Finally, in Communication Workers of America v. Beck, the Supreme Court already has ruled that nonunion workers who pay agency fees to unions to support their collective bargaining efforts are entitled to a full refund of that portion of their dues used for political activity. See myths of "paycheck protection".

If campaign finance reform is to pass, it must be a fair and even-handed effort to close loopholes in the law, rather than a purely partisan effort to eviscerate political opponents.