Campaign Finance Reform: Soft Money and the Presidental Campaign System

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I. History and Constitutional Issues

Thank you Mr. Chairman and Members of the Committee for onceagain inviting me to testify before this Committee. Today I amtestifying on behalf of the Cato Institute, for which I am anAdjunct Scholar. I am also an Associate Professor of Law at CapitalUniversity Law School in Columbus, Ohio, where I teach, among othersubjects, Election Law. I have researched and written extensively,in both academic and popular journals, on the subject of campaignfinance.

Today I would like to talk with you about soft money and thepresidential campaign system. "Soft money," of course, is moneygiven to political parties which is not subject to the contributionand spending limits of the Federal Elections Campaign Act ("FECA").It is not subject to those provisions of FECA because it is notused to expressly advocate the election or defeat of specificcandidates.

Before getting into details, I think it is important to note upfront that, except for a brief period of less than five years inthe mid-1970s, unlimited contributions and spending of what we nowcall "soft money" have always been lawful in the United States. (Infact, it is unclear that Congress intended to ban "soft money"contributions even in the 1970s, and soft money contributions weresoon reauthorized, first through regulatory interpretation andlater by express act of Congress.) So to suggest a complete ban onsoft money, as some have done, or sharp limits on soft money, asproposed by S. 25 (the "McCain-Feingold bill"), is, in fact, quitea radical departure from our historic system of democraticelections.

Furthermore, during that brief period when soft money was notallowed in the system, the results were bad. In the presidentialelection of 1976 - the only one ever conducted without theassistance of what is now called soft money - Congress noted amarked drop off in grass roots party campaigning, as thepresidential campaigns husbanded their limited "hard money"resources for television ads. State, local, and national partiescould not spend money for the traditional bumper stickers, yardsigns, slate cards, and other grass roots activity, and thesetraditional aspects of American campaigns suffered. But many felt,and I agree, that this type of grassroots campaigning plays animportant role in linking citizens to the political parties and theAmerican system of democratic self-governance. Thus, in 1979,Congress acted to clarify FECA by expressly authorizing soft moneycontributions and spending, even though such contributions andspending might affect federal elections.

In addition to grassroots campaign activity, soft money alsofunds voter registration drives, phone banks, and get-out-the-voteefforts conducted by parties. I think that there can be littledoubt that drying up the source of money for such activities willaccelerate the decline in voter turnout - a decline which, Iemphasize, has increased since we began to heavily regulatecampaign spending and contributions in 1974. Absent the soft money"loophole," parties could not undertake voter registration andget-out-the-vote drives because these activities can benefitcandidates for federal office, and thus would count ascontributions in excess of the amounts allowed under FECA. Thus,Congress should approach the issue of soft money contributionscarefully. Soft money serves a number of valuable purposes in thepolitical system.

Why, then, the sudden concern about soft money after the 1996elections? The concern over soft money comes about because bothmajor parties in 1996 made heavy use of soft money donations notfor the traditional party building activities described above, butfor television advertisements prominently featuring theirpresidential candidates. President Clinton actually collaborated inediting the scripts for such ads, touting his administration andits achievements. The Republicans ran similar ads featuring SenatorDole, 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 thepictures." Observers saw these ads as simple attempts to end-runthe spending limits that both candidates had agreed to under thesystem providing federal funds for their campaigns. Thus, thisappears to undermine the integrity of the presidential system ofcampaigns financed by taxes.

However, any effort to regulate such behavior by the partiesruns into serious constitutional restraints. A ban on these typesof soft money expenditures has never been directly tested in Court,but the Supreme Court's precedents indicate that most efforts toregulate soft money contributions and spending would be struck downas unconstitutional under the First Amendment.

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

However, the Court also held in Buckley that limits onindependent expenditures, that is, expenditures made independentlyof a candidate's campaign, are unconstitutional. This is becauseexpenditures, if truly independent of the campaign, have littlepotential for corruption. This would seem to be especially true ofexpenditures made by parties in support of their own candidates,and last year, in Colorado Republican Federal CampaignCommittee v. Federal Election Commission, 116 S.Ct.2309, theCourt ruled that political parties had a constitutional right tomake independent expenditures. Thus, if party expenditures are madeindependently of the candidate's campaign, they cannot be limitedby 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 contributionswere constitutional, but only to the extent necessary to preventthe reality or appearance of quid pro quo corruption, i.e. a directexchange of campaign contributions for favorable governmenttreatment. Even here, the Court recognized that limits might beunconstitutional if set too low, and lower courts, followingBuckley's principles, have struck down unduly low limitson 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 candidatecontributions in federal races has been eroded by inflation toabout one-third of the amount it was when enacted, it is possiblethat without action by Congress to raise the limit oncontributions, the $1000 limit, upheld as constitutional inBuckley, could now be struck down.

Additionally, the Court held that contribution limits could onlybe applied to contributions for expenditures which "in expressterms advocate the election or defeat of a clearly identifiedcandidate for federal office." The Court explained this to mean theuse of terms "such as 'vote for,' 'elect,' 'support,' 'cast yourballot for,' 'Smith for Congress,' 'vote against,' 'defeat,''reject.'" 424 U.S. at 44. The Court held, correctly, that such anarrow definition of express advocacy was necessary if the limitson contributions were not to have an unconstitutional chillingeffect on speech, due to the uncertainties caused by the vaguenessof the statutory language.

The difficulty of attempting to limit soft money contributionsis that soft money is, by definition, spent on activities that lieoutside the permissive scope of regulation as determined byBuckley. That is to say, soft money expenditures do not gofor direct advocacy in support of a candidate. Even the type oftelevision advertisements featuring party candidates, describedabove, do not include the express words of advocacy, such as"elect" or "defeat," which would allow them to be regulated underthe First Amendment. And, of course, bills such as S. 25particularly single out and ban soft money party expenditures onget-out-the-vote drives, voter registration drives, and any genericparty activity that might affect a federal race (S. 25, Sec. 325 etseq.). This is not only of questionable constitutionality, but isalso ridiculously poor public policy.

These Constitutional restrictions are wise. After all,the purpose of politicalspeech is to influence public policy, which usually meansinfluencing the election of representatives. Thepurpose of campaigns is to discussthe positions of candidates on various issues. We do not want afederal bureaucracy determining who can say what, and in whatamounts. Thus the bright line that Supreme Court has drawn,requiring words of express advocacy before regula0tion ispermissible, is a wise one, indeed.

Many are frustrated that the First Amendment limits our abilityto silence certain voices that they feel "distort" or "corrupt" ourpolitical campaigns. But the Constitutional limits on regulatingcandidate and independent expenditures, campaign and soft moneycontributions, and "issue advocacy," are no more "loopholes" thanthe Fourth Amendment prohibition on unreasonable searches andseizures is a "loophole" in the fight against crime. I have littledoubt that we could catch more criminals if we could dispense withsearch warrants, but we realize that that cannot be done consistentwith the Fourth Amendment and the protection of our liberties. Fewliberties can be more important than the right to engage inpolitical speech, and Congress must tread with great caution inthis area. Congress should stop trying to "get around" FirstAmendment limits on regulating political speech. Only by abandoningsuch unconstitutional schemes to police political speech, can wegain a new perspective on the issues, and begin to seriouslyaddress some of the problems in modern presidential campaigns.

All of the concern over soft money comes about, really, becauseof the limits the FECA places on direct candidate contributions,and on spending in the presidential race. In other words, beforethe passage of FECA, there was no reason to coin such a term as"soft money." Contributions were contributions. So the real issueis to look at the system of regulation and see what effect it hashad, and what potential cures are compatible with the FirstAmendment.

At the federal level, as I'm sure the members of this Committeeknow all too well, contributions to campaigns are limited to $1000in the case of individuals, and to $5000 in the case of politicalaction committees, or PACs. At the presidential level, candidateshave the option of receiving federal matching funds in theprimaries, and federal funding for the general election campaign,if they agree to certain spending limits. Let's break that systemdown and look at the consequences of those three major sections ofthe law: contribution limits; spending limits; and the publicfinancing 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 ofthe electorate. Had it even been adjusted for inflation, it wouldtoday be approximately $3300. But this understates the realincrease necessary, because many of the essentials of a modernpolitical campaign, including paper, postage, and televisionadvertising time, have increased in price faster than the generalinflation rate.

1. Time Constraints and the Appearance ofCorruption

The necessity of raising money in small contributions of $1000or less forces representatives to spend inordinate amounts of timeraising money. In modern America, approximately five percent of theelectorate will make some political contribution in a two yearelection cycle. This may seem like a small number, but the fact is,no other system in the world enjoys such broad based financialsupport. This suggests the difficulty of relying on smallcontributors to finance campaigns. The task gets more difficulteach year, eating up more of a candidate or legislator's time. JackKemp has likened the process of funding a campaign with $1000contributions to that of filling a swimming pool with a teaspoon. Amajor reason that the low contribution limit was foundconstitutional in Buckley was the need to combat the"appearance of corruption." However, because the low contributionlimit forces candidates to spend more time fund raising, itprobably has the effect of contributing to the public perceptionthat candidates are dominated by big money interests.

2. Fewer Candidates

In 1996, several prominently mentioned candidates for Presidentdecided not to seek their party's nomination, including, but notlimited to, General Colin Powell, former Representative Jack Kemp,and former Vice President Dan Quayle. For each, the need to devotesubstantial time to fund raising was cited as a major deterrent torunning. Oddly enough, magazine publisher Steve Forbes, who, underthe Constitution, could spend unlimited sums of his own money onhis own candidacy, did run. Forbes, however, made little secretthat his preference would have been to see Kemp run. Thus, inaddition to diverting candidate energies to fund-raising, FECAseems to be discouraging candidacies and distorting who runs foroffice.

3. Longer Campaigns

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

4. Stifling New Ideas

It is often suggested that campaigns have become bereft of newideas. This can be attributed in part to low contribution limits.To raise campaign funds in small contributions, a candidate mustappeal to a large number of donors from the very start of thecampaign. This means that the candidate will generally adoptpositions on issues which are non-controversial or already quitepopular. 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 orcontroversial solutions to the citizenry. However, whencontributions are limited, a candidate cannot raise the funds tocampaign without beginning with broad appeal; this leads to theadoption of superficial policies and solutions. Candidates who seekto lead, rather than follow, or who stake out bold positions onissues, are deprived of the necessary funds to take their case tothe people, and so placed at a competitive disadvantage. In thelast two presidential elections, the candidates who have broughtnew ideas to the public were two maverick millionaires, Ross Perotand Steve Forbes. It does not really matter, for our purposestoday, what any of us think of the policies they proposed. What Iwant to point out is that they put issues on the agenda that noneof the traditional candidates was discussing, and they were able todo so only because they could spend unlimited personal sums ontheir campaigns. Milquetoast campaigns do not help voter turn-out,and, because controversial issues are ignored, they have a tendencyto deteriorate into personal, negative campaigns, aimed at tearingdown the opposition while doing and saying nothing controversialabout any issue. If personal attacks seem to have replaced ideas inmodern campaigns, contribution limits are certainly a contributingfactor to that trend.

B. Consequences of Campaign Spending Limits

1. An Unfair System

"It has come to my attention that the Cleveland Indians baseballclub is on a pace to hit a major league record 319 home runs thisyear (the old record being just 257). This is unfair, giving theIndians a clear advantage over other teams in scoring runs. Thus,major league baseball should limit each team to just one home runper game."

We would all recognize the above suggestion as preposterous. Werecognize that simply limiting one aspect of the game of baseballmerely makes the game different, not more "fair." Indeed, such aproposal as the one above is blatantly unfair to the Indians.Similarly, in politics, efforts to equalize the amount of moneyspent are hardly "fair." Let's take the 1996 campaign. EventualRepublican nominee Bob Dole faced a tough primary challenge againstseveral well known and well financed candidates. President Clintonfaced off against convicted felon and perennial loser LyndonLaRouche. So while Dole was competing with serious candidates suchas Governor Alexander, Mr. Forbes, Senator Lugar, and SenatorGramm, Mr. Clinton could spend his primary campaign funds on whatwere, in effect, a general election campaign. Was it fair that eachcandidate was allowed to spend the same amount of money prior tobeing officially nominated by their respective parties? Of coursenot. Similarly, if spending limits were extended to congressionaland senatorial races, would it be fair to limit challengers tospending the same amount as incumbents, who usually begin with muchgreater name recognition and the ability to gain media attentionthrough their official acts? Of course not. Is it fair to limitspending to the same amount regardless of primary challenges? Ofcourse not.

S. 25 makes a feeble effort to overcome this by giving Senatecandidates an added allowance if they face primary opposition. Thisfails to take into account the nature of opposition, or thedifferent strengths and weaknesses of the candidate. Indeed, underS. 25, a candidate without primary opposition should have hiscampaign director run against him in the primary, thus triggeringan added spending allowance. Of course, the campaign director'scompeting campaign might be less than effective: it might even berun so incompetently that it would seem to help his opponent.

Similarly, S. 25 allows a candidate to exceed the spendinglimits in order to counter independent expenditures made againstthe candidate. This could also lead to interesting results. Forexample, a clever, pro-Democratic group might runs advertisements"supporting" GOP candidate Jones. The ads, targeted at seniorcitizens, might say, "Candidate Jones wants to cut medicare andmedicaid spending. Isn't it about time we had a Senator with thecourage to say 'no' to the greedy seniors' lobbyists? Vote Jones!"Not only would this ad probably help Jones' opponent directly, butit 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 howmuch should be spent on a campaign, or to make a campaign "fair" insome absolute sense. However, as we saw in the 1996 presidentialrace, spending limits are as likely to add to the unfairness of acampaign as they are to make a campaign in some way more "fair."The "fairest" system is letting the candidates and voters, not thegovernment, decide who spends what.

2. Dishonest Campaigns

Spending limits tend to create dishonest campaigns, whichreduces accountability and adds to voter cynicism. I have justgiven two examples of how spending limits can be circumvented bydishonest campaigning. And, of course, we saw that in the issue adsthat the parties ran supporting their presidential nominees lastyear, ads which nevertheless stopped short of exhorting voters tovote for or against a particular candidate. As I have indicated, itis probably unconstitutional, and in my view bad policy, to attemptto ban such ads.

What we see then, is the inevitable result of attempting tolimit the participation of citizens in politics. A member of thisCommittee was quite right when he described such efforts as"putting a rock on jello." People have a right to participate inpolitical activity, and will find ways to do so. Limiting directparticipation merely forces activity into indirect channels, whichis more harmful, just as a dammed river creates more problems whenit overflows its banks than when allowed to follow its naturalcourse.

C. Consequences of the Existing Funding Formula forPresidential Campaigns

The existing scheme for federal funding of the Presidentialelections has a number of particular defects, some of which relatethe particulars of the system, and others which would be endemic toany 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., theways in which contribution and spending limits generally tend toreduce the number of candidates, lengthen the campaigns, and cutoff new ideas. However, there are issues related specifically tothe presidential system which further distort campaigns.

The first is the state by state limits included in the system. Acandidate seeking his party's nomination is subject not only tototal spending limits, but to limits in each state. This inhibitsthe ability of candidates to structure their campaigns to theirmaximum benefit, and leads to inefficient use of resources ascandidates attempt to get around the state by state limits. Forexample, candidates in the crucial New Hampshire primary will oftenrent cars in Massachusetts and drive them to New Hampshire for usethere. Thus, the cost of the cars is assessed against theMassachusetts spending limit, stretching the New Hampshirebudget.

Also under the presidential system, if a candidate fails to drawat least ten percent of the vote in three successive primaries,that candidate loses eligibility for further matching funds. Thispenalizes candidates based on the order of primaries: inparticular, it makes it very difficult for a candidate withstrength in later primary states to make a comeback if he has donepoorly in earlier states. Thus, it pressures candidates to changethe nature of their campaigns in order to retain eligibility forfunds. Of course, public perception already severely damages anyeffort that does not score quick victories. Still, there seems tobe no reason for the regulatory system to add to that problem.

2. Leveraging Contributions

The matching funds formula artificially assists those candidateswhose average qualifying contribution is highest. For example, in1992, the average qualifying contribution to Lyndon LaRouche was$179, meaning that for each contribution, LaRouche received anaverage of $179 in federal matching funds. Bill Clinton's averagequalifying contribution that year, however, was just $75, andGeorge Bush's just $76. Thus, for each qualifying contribution,LaRouche received twice as much in matching funds as Clinton orBush. It should be obvious by now that I greatly discount theimportance of attempting to artificially assure that each candidatehas the same resources. However, I see no reason at all why thefederal government, if it feels it must subsidize campaigns, shoulddo so in a manner that actually penalizes candidates who rely onsmaller donations.

3. Forced Subsidies of Opposed and BizarreViews

Thomas Jefferson once stated, with typical eloquence, "To compela man to furnish contributions of money for the propagation ofopinions which he disbelieves, is sinful and tyrannical." This is,unfortunately, the essence of publically financed campaigns:forcing citizens to pay for others to express opposingopinions.

This is a serious philosophical issue with any public funding ofcampaigns. However, the argument gains even more force when fundsgo to extremist candidates who are truly anathema to the publicpaying the bill. For example, in 1992, Lenore Fulani, of theultra-left wing New Alliance Party, received almost $2,000,000 inmatching funds. Lyndon LaRouche, though in prison, received$100,000, after receiving $825,000 in 1988. The Natural Law Party'sJohn Hagelin, running on a platform calling for more transcendentalmeditation, received over $350,000 in 1992.

4. Discrimination Against Minor Parties

Even as public funding forces taxpayers to subsidize thepre-nomination campaigns of candidates such as LaRouche, itdiscriminates against third party efforts. A new party is noteligible for federal funds for the general election unless itpolled at least five percent of the vote in the last generalelection. (All of the candidates I just mentioned received theirfederal funds while pursuing their parties' nominations.) If it didnot, it gets no federal funds before the next general election.However, if it polls over five percent in that election, it may beeligible, retroactively, for federal funds. The problem is that thecandidate needs the money to fund the campaign before the election.In fact, even significant third party candidates such as JohnAnderson in 1980 have found it all but impossible to borrow moneybefore the general election, on the assumption that the candidatewill draw five percent of the vote and pay the loan back withfederal funds after the election. This would be a tolerablesituation if new parties were not hamstrung by the same fundraising 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 theburden. In Buckley v. Valeo, the Supreme Courtdeclined to find this situation unconstitutional absent a factualrecord that it would discriminate against third party candidatesand voters. 424 U.S. at 101. That record seems to be in, and in myview, the FECA system of financing presidential elections couldagain by challenged by third parties and independents on FifthAmendment grounds.

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

III. Conclusion

The system of Presidential funding points up the shortcoming ofany effort to limit the amount that candidates and individuals canspend on politics. The purpose of campaigns is to discuss issuesand candidates. Citizens have a desire, and a constitutional right,to participate in politics: and as the Supreme Court hasrecognized, virtually every method of political communicationrequires individuals to spend money. There are some in thisCongress who can't help but see the First Amendment as a "loophole"to their desire to ban or limit private participation in politicaldiscussion. Soft money is merely their most prominent target. Theirgoals cannot, I believe, be realized in a manner consistent withthe 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 Constitutionalarguments, I know he doesn't have much else in his arsenal." ThoughI don't take the Constitution so lightly, I want to stress to thosewho do that these efforts, as I have attempted to show, are alsobad public policy.

Thank you for your time.

Bradley A. Smith

Committee on Rules and Administration
United States Senate