Testimony

Campaign Finance Reform: Soft Money and the Presidental Campaign System

By Bradley A. Smith
May 14, 1997
Committee on Rules and Administration
United States Senate

I. History and Constitutional Issues

Thank you Mr. Chairman and Members of the Committee for once again inviting me to testify before this Committee. Today I am testifying on behalf of the Cato Institute, for which I am an Adjunct Scholar. I am also an Associate Professor of Law at Capital University Law School in Columbus, Ohio, where I teach, among other subjects, Election Law. I have researched and written extensively, in both academic and popular journals, on the subject of campaign finance.

Today I would like to talk with you about soft money and the presidential campaign system. “Soft money,” of course, is money given to political parties which is not subject to the contribution and spending limits of the Federal Elections Campaign Act (“FECA”). It is not subject to those provisions of FECA because it is not used to expressly advocate the election or defeat of specific candidates.

Before getting into details, I think it is important to note up front that, except for a brief period of less than five years in the mid-1970s, unlimited contributions and spending of what we now call “soft money” have always been lawful in the United States. (In fact, it is unclear that Congress intended to ban “soft money” contributions even in the 1970s, and soft money contributions were soon reauthorized, first through regulatory interpretation and later by express act of Congress.) So to suggest a complete ban on soft money, as some have done, or sharp limits on soft money, as proposed by S. 25 (the “McCain-Feingold bill”), is, in fact, quite a radical departure from our historic system of democratic elections.

Furthermore, during that brief period when soft money was not allowed in the system, the results were bad. In the presidential election of 1976 - the only one ever conducted without the assistance of what is now called soft money - Congress noted a marked drop off in grass roots party campaigning, as the presidential campaigns husbanded their limited “hard money” resources for television ads. State, local, and national parties could not spend money for the traditional bumper stickers, yard signs, slate cards, and other grass roots activity, and these traditional aspects of American campaigns suffered. But many felt, and I agree, that this type of grassroots campaigning plays an important role in linking citizens to the political parties and the American system of democratic self-governance. Thus, in 1979, Congress acted to clarify FECA by expressly authorizing soft money contributions and spending, even though such contributions and spending might affect federal elections.

In addition to grassroots campaign activity, soft money also funds voter registration drives, phone banks, and get-out-the-vote efforts conducted by parties. I think that there can be little doubt that drying up the source of money for such activities will accelerate the decline in voter turnout - a decline which, I emphasize, has increased since we began to heavily regulate campaign spending and contributions in 1974. Absent the soft money “loophole,” parties could not undertake voter registration and get-out-the-vote drives because these activities can benefit candidates for federal office, and thus would count as contributions in excess of the amounts allowed under FECA. Thus, Congress should approach the issue of soft money contributions carefully. Soft money serves a number of valuable purposes in the political system.

Why, then, the sudden concern about soft money after the 1996 elections? The concern over soft money comes about because both major parties in 1996 made heavy use of soft money donations not for the traditional party building activities described above, but for television advertisements prominently featuring their presidential candidates. President Clinton actually collaborated in editing the scripts for such ads, touting his administration and its achievements. The Republicans ran similar ads featuring Senator Dole, who noted, “It never says that I’m running for President, though I hope that’s fairly obvious, since I’m the only one in the pictures.” Observers saw these ads as simple attempts to end-run the spending limits that both candidates had agreed to under the system providing federal funds for their campaigns. Thus, this appears to undermine the integrity of the presidential system of campaigns financed by taxes.

However, any effort to regulate such behavior by the parties runs into serious constitutional restraints. A ban on these types of soft money expenditures has never been directly tested in Court, but the Supreme Court’s precedents indicate that most efforts to regulate soft money contributions and spending would be struck down as unconstitutional under the First Amendment.

The Supreme Court has correctly recognized that limits on campaign contributions and spending have the effect of directly limiting political speech. For that reason, the Court has struck down mandatory limits on campaign spending, Buckley v. Valeo, 424 U.S. 1 (1976). The presidential campaign system of tax dollar funding is constitutional only because it is voluntary: candidates agree to limit their spending in return for limited government financing of their campaigns.

However, the Court also held in Buckley that limits on independent expenditures, that is, expenditures made independently of a candidate’s campaign, are unconstitutional. This is because expenditures, if truly independent of the campaign, have little potential for corruption. This would seem to be especially true of expenditures made by parties in support of their own candidates, and last year, in Colorado Republican Federal Campaign Committee v. Federal Election Commission, 116 S.Ct.2309, the Court ruled that political parties had a constitutional right to make independent expenditures. Thus, if party expenditures are made independently of the candidate’s campaign, they cannot be limited by Congress. However, if expenditures by parties cannot be limited, can the size of the contributions to the parties be limited? Again, serious constitutional difficulties arise.

The Buckley Court did find that limits on contributions were constitutional, but only to the extent necessary to prevent the reality or appearance of quid pro quo corruption, i.e. a direct exchange of campaign contributions for favorable government treatment. Even here, the Court recognized that limits might be unconstitutional if set too low, and lower courts, following Buckley’s principles, have struck down unduly low limits on campaign contributions. See e.g. Carver v. Nixon, 72 F.3d 633 (8th Cir. 1995); Day v. Holahan, 34 F.3d 1356 (8th Cir. 1994); National Black Police Assn. V. District of Columbia Board of Elections, 924 F. Supp. 270 (D.D.C. 1996). Indeed, given that FECA’s $1000 limit on candidate contributions in federal races has been eroded by inflation to about one-third of the amount it was when enacted, it is possible that without action by Congress to raise the limit on contributions, the $1000 limit, upheld as constitutional in Buckley, could now be struck down.

Additionally, the Court held that contribution limits could only be applied to contributions for expenditures which “in express terms advocate the election or defeat of a clearly identified candidate for federal office.” The Court explained this to mean the use of terms “such as ‘vote for,’ ‘elect,’ ‘support,’ ‘cast your ballot for,’ ‘Smith for Congress,’ ‘vote against,’ ‘defeat,’ ‘reject.’” 424 U.S. at 44. The Court held, correctly, that such a narrow definition of express advocacy was necessary if the limits on contributions were not to have an unconstitutional chilling effect on speech, due to the uncertainties caused by the vagueness of the statutory language.

The difficulty of attempting to limit soft money contributions is that soft money is, by definition, spent on activities that lie outside the permissive scope of regulation as determined by Buckley. That is to say, soft money expenditures do not go for direct advocacy in support of a candidate. Even the type of television advertisements featuring party candidates, described above, do not include the express words of advocacy, such as “elect” or “defeat,” which would allow them to be regulated under the First Amendment. And, of course, bills such as S. 25 particularly single out and ban soft money party expenditures on get-out-the-vote drives, voter registration drives, and any generic party activity that might affect a federal race (S. 25, Sec. 325 et seq.). This is not only of questionable constitutionality, but is also ridiculously poor public policy.

These Constitutional restrictions are wise. After all, the purpose of political speech is to influence public policy, which usually means influencing the election of representatives. The purpose of campaigns is to discuss the positions of candidates on various issues. We do not want a federal bureaucracy determining who can say what, and in what amounts. Thus the bright line that Supreme Court has drawn, requiring words of express advocacy before regula0tion is permissible, is a wise one, indeed.

Many are frustrated that the First Amendment limits our ability to silence certain voices that they feel “distort” or “corrupt” our political campaigns. But the Constitutional limits on regulating candidate and independent expenditures, campaign and soft money contributions, and “issue advocacy,” are no more “loopholes” than the Fourth Amendment prohibition on unreasonable searches and seizures is a “loophole” in the fight against crime. I have little doubt that we could catch more criminals if we could dispense with search warrants, but we realize that that cannot be done consistent with the Fourth Amendment and the protection of our liberties. Few liberties can be more important than the right to engage in political speech, and Congress must tread with great caution in this area. Congress should stop trying to “get around” First Amendment limits on regulating political speech. Only by abandoning such unconstitutional schemes to police political speech, can we gain a new perspective on the issues, and begin to seriously address some of the problems in modern presidential campaigns.

All of the concern over soft money comes about, really, because of the limits the FECA places on direct candidate contributions, and on spending in the presidential race. In other words, before the passage of FECA, there was no reason to coin such a term as “soft money.” Contributions were contributions. So the real issue is to look at the system of regulation and see what effect it has had, and what potential cures are compatible with the First Amendment.

At the federal level, as I’m sure the members of this Committee know all too well, contributions to campaigns are limited to $1000 in the case of individuals, and to $5000 in the case of political action committees, or PACs. At the presidential level, candidates have the option of receiving federal matching funds in the primaries, and federal funding for the general election campaign, if they agree to certain spending limits. Let’s break that system down and look at the consequences of those three major sections of the law: contribution limits; spending limits; and the public financing formula.

II. Consequences of FECA

A. Consequences of Contribution Limits

The contribution limit of $1000 has existed for 23 years, without being adjusted for inflation or for the increased size of the electorate. Had it even been adjusted for inflation, it would today be approximately $3300. But this understates the real increase necessary, because many of the essentials of a modern political campaign, including paper, postage, and television advertising time, have increased in price faster than the general inflation rate.

1. Time Constraints and the Appearance of Corruption

The necessity of raising money in small contributions of $1000 or less forces representatives to spend inordinate amounts of time raising money. In modern America, approximately five percent of the electorate will make some political contribution in a two year election cycle. This may seem like a small number, but the fact is, no other system in the world enjoys such broad based financial support. This suggests the difficulty of relying on small contributors to finance campaigns. The task gets more difficult each year, eating up more of a candidate or legislator’s time. Jack Kemp has likened the process of funding a campaign with $1000 contributions to that of filling a swimming pool with a teaspoon. A major reason that the low contribution limit was found constitutional in Buckley was the need to combat the “appearance of corruption.” However, because the low contribution limit forces candidates to spend more time fund raising, it probably has the effect of contributing to the public perception that candidates are dominated by big money interests.

2. Fewer Candidates

In 1996, several prominently mentioned candidates for President decided not to seek their party’s nomination, including, but not limited to, General Colin Powell, former Representative Jack Kemp, and former Vice President Dan Quayle. For each, the need to devote substantial time to fund raising was cited as a major deterrent to running. Oddly enough, magazine publisher Steve Forbes, who, under the Constitution, could spend unlimited sums of his own money on his own candidacy, did run. Forbes, however, made little secret that his preference would have been to see Kemp run. Thus, in addition to diverting candidate energies to fund-raising, FECA seems to be discouraging candidacies and distorting who runs for office.

3. Longer Campaigns

A common complaint among the electorate is that campaigns have become too long. This is also, in part, a consequence of FECA. Because of the low fund raising limits and the corresponding time that must be spent raising funds, candidates must, as a practical matter, declare their candidacies earlier with each election. It is worth noting that in 1968, before FECA, Senator Gene McCarthy was able to launch a challenge to President Lyndon Johnson, starting just a few months before the critical New Hampshire primary. He was able to do this because he was able to raise the necessary funds in a very short period of time, getting large, six figure contributions from Stewart Mott, Jack Dreyfuss, and a handful of others. Under FECA, it would be next to impossible for a candidate to launch such a late starting campaign, unless, like Ross Perot or Steve Forbes, the candidate was a multi-millionaire capable of funding his or her own campaign.

4. Stifling New Ideas

It is often suggested that campaigns have become bereft of new ideas. This can be attributed in part to low contribution limits. To raise campaign funds in small contributions, a candidate must appeal to a large number of donors from the very start of the campaign. This means that the candidate will generally adopt positions on issues which are non-controversial or already quite popular. Absent restrictions on the size of contributions, candidates, supported only by a small group of committed citizens, might be able to raise the money and take their case for new or controversial solutions to the citizenry. However, when contributions are limited, a candidate cannot raise the funds to campaign without beginning with broad appeal; this leads to the adoption of superficial policies and solutions. Candidates who seek to lead, rather than follow, or who stake out bold positions on issues, are deprived of the necessary funds to take their case to the people, and so placed at a competitive disadvantage. In the last two presidential elections, the candidates who have brought new ideas to the public were two maverick millionaires, Ross Perot and Steve Forbes. It does not really matter, for our purposes today, what any of us think of the policies they proposed. What I want to point out is that they put issues on the agenda that none of the traditional candidates was discussing, and they were able to do so only because they could spend unlimited personal sums on their campaigns. Milquetoast campaigns do not help voter turn-out, and, because controversial issues are ignored, they have a tendency to deteriorate into personal, negative campaigns, aimed at tearing down the opposition while doing and saying nothing controversial about any issue. If personal attacks seem to have replaced ideas in modern campaigns, contribution limits are certainly a contributing factor to that trend.

B. Consequences of Campaign Spending Limits

1. An Unfair System

“It has come to my attention that the Cleveland Indians baseball club is on a pace to hit a major league record 319 home runs this year (the old record being just 257). This is unfair, giving the Indians a clear advantage over other teams in scoring runs. Thus, major league baseball should limit each team to just one home run per game.”

We would all recognize the above suggestion as preposterous. We recognize that simply limiting one aspect of the game of baseball merely makes the game different, not more “fair.” Indeed, such a proposal as the one above is blatantly unfair to the Indians. Similarly, in politics, efforts to equalize the amount of money spent are hardly “fair.” Let’s take the 1996 campaign. Eventual Republican nominee Bob Dole faced a tough primary challenge against several well known and well financed candidates. President Clinton faced off against convicted felon and perennial loser Lyndon LaRouche. So while Dole was competing with serious candidates such as Governor Alexander, Mr. Forbes, Senator Lugar, and Senator Gramm, Mr. Clinton could spend his primary campaign funds on what were, in effect, a general election campaign. Was it fair that each candidate was allowed to spend the same amount of money prior to being officially nominated by their respective parties? Of course not. Similarly, if spending limits were extended to congressional and senatorial races, would it be fair to limit challengers to spending the same amount as incumbents, who usually begin with much greater name recognition and the ability to gain media attention through their official acts? Of course not. Is it fair to limit spending to the same amount regardless of primary challenges? Of course not.

S. 25 makes a feeble effort to overcome this by giving Senate candidates an added allowance if they face primary opposition. This fails to take into account the nature of opposition, or the different strengths and weaknesses of the candidate. Indeed, under S. 25, a candidate without primary opposition should have his campaign director run against him in the primary, thus triggering an added spending allowance. Of course, the campaign director’s competing campaign might be less than effective: it might even be run so incompetently that it would seem to help his opponent.

Similarly, S. 25 allows a candidate to exceed the spending limits in order to counter independent expenditures made against the candidate. This could also lead to interesting results. For example, a clever, pro-Democratic group might runs advertisements “supporting” GOP candidate Jones. The ads, targeted at senior citizens, might say, “Candidate Jones wants to cut medicare and medicaid spending. Isn’t it about time we had a Senator with the courage to say ‘no’ to the greedy seniors’ lobbyists? Vote Jones!” Not only would this ad probably help Jones’ opponent directly, but it would then allow that opponent to spend more money in order to “counter” these independent expenditures.

The fact is, there is no legitimate method to determine just how much should be spent on a campaign, or to make a campaign “fair” in some absolute sense. However, as we saw in the 1996 presidential race, spending limits are as likely to add to the unfairness of a campaign as they are to make a campaign in some way more “fair.” The “fairest” system is letting the candidates and voters, not the government, decide who spends what.

2. Dishonest Campaigns

Spending limits tend to create dishonest campaigns, which reduces accountability and adds to voter cynicism. I have just given two examples of how spending limits can be circumvented by dishonest campaigning. And, of course, we saw that in the issue ads that the parties ran supporting their presidential nominees last year, ads which nevertheless stopped short of exhorting voters to vote for or against a particular candidate. As I have indicated, it is probably unconstitutional, and in my view bad policy, to attempt to ban such ads.

What we see then, is the inevitable result of attempting to limit the participation of citizens in politics. A member of this Committee was quite right when he described such efforts as “putting a rock on jello.” People have a right to participate in political activity, and will find ways to do so. Limiting direct participation merely forces activity into indirect channels, which is more harmful, just as a dammed river creates more problems when it overflows its banks than when allowed to follow its natural course.

C. Consequences of the Existing Funding Formula for Presidential Campaigns

The existing scheme for federal funding of the Presidential elections has a number of particular defects, some of which relate the particulars of the system, and others which would be endemic to any effort to design a public financing scheme.

1. Distortion of Campaigns

The presidential system distorts campaigns in a variety of ways. I have already addressed certain types of distortion: i.e., the ways in which contribution and spending limits generally tend to reduce the number of candidates, lengthen the campaigns, and cut off new ideas. However, there are issues related specifically to the presidential system which further distort campaigns.

The first is the state by state limits included in the system. A candidate seeking his party’s nomination is subject not only to total spending limits, but to limits in each state. This inhibits the ability of candidates to structure their campaigns to their maximum benefit, and leads to inefficient use of resources as candidates attempt to get around the state by state limits. For example, candidates in the crucial New Hampshire primary will often rent cars in Massachusetts and drive them to New Hampshire for use there. Thus, the cost of the cars is assessed against the Massachusetts spending limit, stretching the New Hampshire budget.

Also under the presidential system, if a candidate fails to draw at least ten percent of the vote in three successive primaries, that candidate loses eligibility for further matching funds. This penalizes candidates based on the order of primaries: in particular, it makes it very difficult for a candidate with strength in later primary states to make a comeback if he has done poorly in earlier states. Thus, it pressures candidates to change the nature of their campaigns in order to retain eligibility for funds. Of course, public perception already severely damages any effort that does not score quick victories. Still, there seems to be no reason for the regulatory system to add to that problem.

2. Leveraging Contributions

The matching funds formula artificially assists those candidates whose average qualifying contribution is highest. For example, in 1992, the average qualifying contribution to Lyndon LaRouche was $179, meaning that for each contribution, LaRouche received an average of $179 in federal matching funds. Bill Clinton’s average qualifying contribution that year, however, was just $75, and George Bush’s just $76. Thus, for each qualifying contribution, LaRouche received twice as much in matching funds as Clinton or Bush. It should be obvious by now that I greatly discount the importance of attempting to artificially assure that each candidate has the same resources. However, I see no reason at all why the federal government, if it feels it must subsidize campaigns, should do so in a manner that actually penalizes candidates who rely on smaller donations.

3. Forced Subsidies of Opposed and Bizarre Views

Thomas Jefferson once stated, with typical eloquence, “To compel a man to furnish contributions of money for the propagation of opinions which he disbelieves, is sinful and tyrannical.” This is, unfortunately, the essence of publically financed campaigns: forcing citizens to pay for others to express opposing opinions.

This is a serious philosophical issue with any public funding of campaigns. However, the argument gains even more force when funds go to extremist candidates who are truly anathema to the public paying the bill. For example, in 1992, Lenore Fulani, of the ultra-left wing New Alliance Party, received almost $2,000,000 in matching funds. Lyndon LaRouche, though in prison, received $100,000, after receiving $825,000 in 1988. The Natural Law Party’s John Hagelin, running on a platform calling for more transcendental meditation, received over $350,000 in 1992.

4. Discrimination Against Minor Parties

Even as public funding forces taxpayers to subsidize the pre-nomination campaigns of candidates such as LaRouche, it discriminates against third party efforts. A new party is not eligible for federal funds for the general election unless it polled at least five percent of the vote in the last general election. (All of the candidates I just mentioned received their federal funds while pursuing their parties’ nominations.) If it did not, it gets no federal funds before the next general election. However, if it polls over five percent in that election, it may be eligible, retroactively, for federal funds. The problem is that the candidate needs the money to fund the campaign before the election. In fact, even significant third party candidates such as John Anderson in 1980 have found it all but impossible to borrow money before the general election, on the assumption that the candidate will draw five percent of the vote and pay the loan back with federal funds after the election. This would be a tolerable situation if new parties were not hamstrung by the same fund raising restrictions as the Republicans and Democrats. However, they labor under the same difficulty of raising money in amounts of $1000 or less, with no offsetting federal funds to relieve the burden. In Buckley v. Valeo, the Supreme Court declined to find this situation unconstitutional absent a factual record that it would discriminate against third party candidates and voters. 424 U.S. at 101. That record seems to be in, and in my view, the FECA system of financing presidential elections could again by challenged by third parties and independents on Fifth Amendment grounds.

This system also leads to the odd situation in which a one-time campaign, such as Anderson’s, is then eligible for federal funds in a future campaign, even though it is running no candidates.

III. Conclusion

The system of Presidential funding points up the shortcoming of any effort to limit the amount that candidates and individuals can spend on politics. The purpose of campaigns is to discuss issues and candidates. Citizens have a desire, and a constitutional right, to participate in politics: and as the Supreme Court has recognized, virtually every method of political communication requires individuals to spend money. There are some in this Congress who can’t help but see the First Amendment as a “loophole” to their desire to ban or limit private participation in political discussion. Soft money is merely their most prominent target. Their goals cannot, I believe, be realized in a manner consistent with the Constitution.

However, this seem relatively unimportant to some. For example, in an interview earlier this year, one sponsor of S. 25 commented, “when [Senator McConnell] starts relying on those Constitutional arguments, I know he doesn’t have much else in his arsenal.” Though I don’t take the Constitution so lightly, I want to stress to those who do that these efforts, as I have attempted to show, are also bad public policy.

Thank you for your time.