Although attempts to regulate campaign finance by legislation date back to 1867, the first successful attempts nationally to regulate and enforce campaign finance originated in the 1970s. The Federal Election Campaign Act (FECA) of 1972 required candidates to disclose sources of campaign contributions and campaign expenditure. It was amended in 1974 with the introduction of legal limits on contributions, and creation of the Federal Election Commission (FEC). It attempted to restrict the influence of wealthy individuals by limiting individual donations to $1000 and donations by Political Action Committees (PACs) to $5000. These specific election donations are known as ‘Hard money’. The Bipartisan Campaign Reform Act (BCRA) of 2002, also known as "McCain-Feingold," after its sponsors, is the most recent major federal law on campaign finance, which revised some of the legal limits of expenditure set in 1974, and prohibited unregulated contributions (called "soft money") to national political parties. ‘Soft money’ also refers to funds spent by independent organizations that do not specifically advocate the election or defeat of candidates, and are not contributed directly to candidate campaigns.
By the time of the presidential election of 1828, 22 of the 24 states chose presidential electors through the popular vote and most had abandoned the property requirement. Some politicians had been known to buy votes and pay repeat voters. In 1823 the price of a vote in New York City was $5 and for repeat voters, went as high as $30.
In order to gain votes from recently enfranchised, unpropertied voters, Andrew Jackson launched his campaign for the 1828 election through a network of partisan newspapers across the nation. After his election, Jackson began a political patronage system that rewarded political party operatives, which had a profound effect on future elections. Eventually, appointees were expected to contribute portions of their pay back to the political machine. During the Jacksonian era, some of the first attempts were made by corporations to influence politicians. Jackson claimed that his charter battle against the Second Bank of the United States was one of the great struggles between democracy and the money power. The Bank of the United States in turn spent over $40,000 from 1830 to 1832 in an effort to stop Jackson's re-election.
In the 1850s Pennsylvania Republican Simon Cameron began to develop what became known as the "Pennsylvania Idea" of applying the wealth of corporations to help maintain Republican control of the legislature. Political machines across the country used the threat of hostile legislation to force corporate interests into paying for the defeat of the measures. U.S. Senators of the time were elected not by popular vote, but by state legislatures, whose votes could sometimes be bought. Exposed bribery occurred in Colorado, Kansas, Montana and West Virginia.
Abraham Lincoln's attempt to finance his own 1858 Senate run bankrupted him, even though he had arranged a number of $500 expense accounts from wealthy donors. However, he was able to regain enough money in his law practice to purchase an Illinois newspaper to support him in the presidential election of 1860, for which he gained the financial support of businessmen in Philadelphia and New York City.
After the Civil War, parties increasingly relied on wealthy individuals for support, including Jay Cooke, the Vanderbilts and the Astors. In the absence of a civil service system, parties also continued to rely heavily on financial support from government employees, including assessments of a portion of their federal pay. The first federal campaign finance law, passed in 1867, was a Naval Appropriations Bill which prohibited government employees from soliciting contributions from Navy yard workers. Later, the Pendleton Act of 1883 established the civil service and ended the practice of assessments at the Federal level. However, this loss of a major funding source increased pressure on parties to solicit funding from corporate and individual wealth.
In the campaign of 1872 a group of wealthy New York Democrats pledged $10,000 each to pay for the costs of promoting the election. On the Republican side, one Ulysses S. Grant supporter alone contributed one fourth of the total finances. One historian said that never before was a candidate under such a great obligation to men of wealth. Vote buying and voter coercion were common in this era. After more standardized ballots were introduced, these practices continued, applying methods such as carbon paper under ballots for proof of payment.
Boise Penrose mastered post-Pendleton Act corporate funding through extortionist tactics, such as squeeze bills (legislation threatening to tax or regulate business unless funds were contributed.) During his successful 1896 U.S. Senate campaign he raised a quarter million dollars within 48 hours. He allegedly told supporters that they send him to Congress to enable them to make more money.
In 1896 a wealthy Ohio industrialist, shipping magnate and political operative, Mark Hanna became Chairman of the Republican National Committee. Hanna directly contributed $100,000 to the nomination campaign of fellow Ohioan William McKinley, but recognized that more would be needed to fund the general election campaign. Hanna systemized fund-raising from the business community. He assessed banks 0.25% of their capital, and corporations were assessed in relation to their profitability and perceived stake in the prosperity of the country. McKinley's run became the prototype of the modern commercial advertising campaign, putting the President-to-be's image on buttons, billboards, posters, etc. Business supporters, determined to defeat the Democratic-populist William Jennings Bryan, were more than happy to give, and Hanna actually refunded or turned down what he considered to be "excessive" contributions that exceeded a business's "assessment.
Twentieth century Progressive advocates, muckraker journalists and political satirists argued to the general public that the policies of vote buying and excessive corporate and moneyed influence were abandoning the interests of millions of taxpayers. They advocated strong antitrust laws, restricting corporate lobbying and campaign contributions, and greater citizen participation and control, including standardized secret ballots, strict voter registration and women's suffrage.
In his first term, President Theodore Roosevelt, following President McKinley's assassination of 1901, began trust-busting and anti corporate influence activities, but fearing defeat, turned to bankers and industrialists for support in what turned out to be his 1904 landslide campaign. Roosevelt was embarrassed by his corporate financing and was unable to clear a suspicion of a quid pro quo exchange with E.H. Harriman for what was an eventually unfulfilled ambassador nomination. There was a resulting national call for reform, but Roosevelt claimed that it was legitimate to accept large contributions if there were no implied obligation. However, in his 1905 message to Congress following the election, he proposed that "contributions by corporations to any political committee or for any political purpose should be forbidden by law." The proposal, however, included no restrictions on campaign contributions from the private individuals who owned and ran corporations. Roosevelt also called for public financing of federal candidates via their political parties. The movement for a national law to require disclosure of campaign expenditures, begun by the National Publicity Law Association, was supported by Roosevelt but delayed by Congress for a decade.
This first effort at wide-ranging reform resulted in the Tillman Act in 1907. Named for its sponsor, South Carolina Senator Ben Tillman, the Tillman Act prohibited corporations and nationally chartered (interstate) banks from making direct financial contributions to federal candidates. However, weak enforcement mechanisms made the Act ineffective. Disclosure requirements and spending limits for House and Senate candidates followed in 1910 and 1911. General contribution limits were enacted in the Federal Corrupt Practices Act (1925). An amendment to the Hatch Act of 1939 set an annual ceiling of $3 million for political parties' campaign expenditures and $5,000 for individual campaign contributions. The Smith-Connally Act (1943) and Taft-Hartley Act (1947) extended the corporate ban to labor unions. ***
All of these efforts were largely ineffective, easily circumvented and rarely enforced. In 1971, however, Congress passed the Federal Election Campaign Act, requiring broad disclosure of campaign finance. In 1974, fueled by public reaction to the Watergate Scandal, Congress passed amendments to the Act establishing a comprehensive system of regulation and enforcement, including public financing of presidential campaigns and creation of a central enforcement agency, the Federal Election Commission. Other provisions included strict limits on contributions to campaigns and expenditures by campaigns, individuals, and other political groups.
The new law was immediately challenged on First Amendment grounds in Federal Court, resulting in a landmark Supreme Court decision, Buckley v. Valeo. The Buckley decision recognized that regulation burdened the rights of free speech and assembly, but held that the compelling government interest in preventing corruption or its appearance justified some restrictions on free speech. The resulting decision upheld contribution limits, so long as they were not so low as to prevent campaigns from amassing the resources necessary to communicate effectively with the public, disclosure requirements, and voluntary public financing. It found limits on expenditures to be unconstitutional infringements on free speech. It also restricted the reach of the law to speech by candidates and parties, that is, groups established for the purpose of electing candidates, and to communications that expressly advocated the election or defeat of a candidate, using phrases such as "vote for," "vote against," "support," or "defeat."
The Congress passed the Bipartisan Campaign Reform Act (BCRA), also called the McCain-Feingold bill after its chief sponsors, John McCain and Russ Feingold. Final passage in the Senate came after supporters mustered the bare minimum of 60 votes needed to shut off debate. The bill passed the Senate, 60-40 on March 20, 2002, and was signed into law by President Bush on March 27, 2002. In signing the law, Bush expressed concerns about the constitutionality of parts of the legislation but concluded, "I believe that this legislation, although far from perfect, will improve the current financing system for Federal campaigns … Taken as a whole, this bill improves the current system of financing for Federal campaigns, and therefore I have signed it into law." The bill was the first significant overhaul of federal campaign finance laws since the post-Watergate scandal era. Academic research has used game theory to explain Congress's incentives to pass the Act.
The BCRA was a mixed bag for those who wanted to remove the money from politics. It eliminated all soft money donations to the national party committees, but it also doubled the contribution limit of hard money, from $1,000 to $2,000 per election cycle, with a built-in increase for inflation. In addition, the bill aimed to curtail ads by non-party organizations by banning the use of corporate or union money to pay for "electioneering communications," a term defined as broadcast advertising that identifies a federal candidate within 30 days of a primary or nominating convention, or 60 days of a general election. This provision of McCain-Feingold, sponsored by Maine Republican Olympia Snowe and Vermont Independent James Jeffords, as introduced applied only to for-profit corporations, but was extended to incorporated, non-profit issue organizations, such as the Environmental Defense Fund or the National Rifle Association, as part of the "Wellstone Amendment," sponsored by Senator Paul Wellstone.
The law was challenged as unconstitutional by groups and individuals including the California State Democratic Party, the National Rifle Association, and Republican Senator Mitch McConnell (Kentucky), the Senate Majority Whip. After moving through lower courts, in September 2003, the U.S. Supreme Court heard oral arguments in the case, McConnell v. FEC. On Wednesday, December 10, 2003, the Supreme Court issued a ruling that upheld the key provisions of McCain-Feingold; the vote on the court was 5 to 4. Justices John Paul Stevens and Sandra Day O'Connor wrote the majority opinion; they were joined by David Souter, Ruth Bader Ginsburg, and Stephen Breyer, and opposed by Chief Justice William Rehnquist, Anthony Kennedy, Clarence Thomas, and Antonin Scalia.
Since then campaign finance limitations continue to be regulated in the Courts. In an interesting case, in 2005 in Washington State, Thurston County Judge Christopher Wickham ruled that media articles and segments were considered in-kind contributions under state law. The heart of the matter focused on the I-912 campaign to repeal a fuel tax, and specifically two broadcasters for Seattle conservative talker KVI. Judge Wickham's ruling was eventually overturned on appeal in April 2007, with the Washington Supreme Court holding that on-air commentary was not covered by the State's campaign finance laws. (No New Gas Tax v. San Juan County).
In 2006, the United States Supreme Court issued two decisions on campaign finance. In Wisconsin Right to Life v. Federal Election Commission, it held that certain advertisements might be constitutionally entitled to an exception from the 'electioneering communications' provisions of McCain-Feingold limiting broadcast ads that merely mention a federal candidate within 60 days of an election. On remand, a lower court then held that certain ads aired by Wisconsin Right to Life in fact merited such an exception. The Federal Election Commission appealed that decision, and in June 2007, the Supreme Court held in favor of Wisconsin Right to Life. In an opinion by Chief Justice John Roberts, the Court declined to overturn the electioneering communications limits in their entirety, but established a broad exemption for any ad that could have a reasonable interpretation as an ad about legislative issues. Indicating the new Court majority's temperament, Roberts' opinion declares flatly, "Enough is enough."
Also in 2006, the Supreme Court held that a Vermont law imposing mandatory limits on spending was unconstitutional, under the precedent of Buckley v. Valeo. In that case, Randall v. Sorrell, the Court also struck down Vermont's contribution limits as unconstitutionally low, the first time that the Court had ever struck down a contribution limit.
The Voting with Dollars plan would establish a system of modified public financing coupled with an anonymous campaign contribution process. It has two parts: patriot dollars and the secret donation booth. It was originally described in detail by Yale Law School professors Bruce Ackerman and Ian Ayres in their 2004 book Voting with Dollars: A new paradigm for campaign finance All voters would be given a $50 publicly funded voucher (Patriot dollars) to donate to federal political campaigns. All donations including both the $50 voucher and additional private contributions, must be made anonymously through the FEC. The strength of this system is that it 'marketizes' public finance, avoiding centralized eligibility decisions while putting a lenient, high limit on private campaign donations, while at the same time removing the possibility of quid pro quo contributions. Ackerman and Ayres include model legislation in their book in addition to detailed discussion as to how such a system could be achieved and its legal basis.
Of the Patriot dollars (eg $50 per voter) given to voters to allocate, they propose $25 going to presidential campaigns, $15 to Senate campaigns, and $10 to House campaigns. Within those restrictions the voucher can be split among any number of candidates for any federal race and between the primary and general elections. At the end of the current election cycle any unspent portions of this voucher would expire and could not be rolled over to subsequent elections for that voter. In the context of the 2004 election cycle $50 multiplied by the approximately 120 million people who voted would have yielded about $6 billion in “public financing” compared to the approximate $4 billion spent in 2004 for all federal elections (House, Senate and Presidential races) combined Ackerman and Ayers argue that this system would pool voter money and force candidates to address issues of importance to a broad spectrum of voters. Additionally they argue this public finance scheme would address taxpayers' concerns that they have "no say" in where public financing monies are spent, whereas in the Voting with Dollars system each taxpayer who votes has discretion over their contribution.
The second aspect of the system significantly increases private donation limits, but all contributions must be made anonymously through the FEC. In this system, when a contributor make a donation to a campaign they send their money to the FEC indicating which campaign they want it to go to. The FEC masks the money and distributes it directly to the campaigns in randomized chunks over a number of days. Ackerman and Ayres compare this system to the reforms adopted in the late 19th century aimed to prevent vote buying, which led to our current secret ballot process. Prior to that time voting was conducted openly, allowing campaigns to confirm that voters cast ballots for the candidates they had been paid to support. Ackerman and Ayres contend that if candidates do not know for sure who is contributing to their campaigns they are unlikely to take unpopular stances to court large donors which could jeopardize donations flowing from voter vouchers. Conversely, large potential donors will not be guaranteed political access or favorable legislation in return for their contributions since they cannot prove to candidates the supposed extent of their financial support. This second aspect addresses the concern that donation restrictions limit political speech.
Another method allows the candidates to raise funds from private donors, but provides matching funds for the first chunk of donations. For instance, the government might "match" the first $250 of every donation. A system like this is currently in place in the U.S. presidential primaries. As of February 2008, there are fears that this system has become a safety net for losers in these races. Evidence for this includes a loan taken out by John McCain's campaign that used the promise of matching funds as collateral
Another method, which supporters call Clean Money, Clean Elections, gives each candidate who chooses to participate a certain, set amount of money. In order to qualify for this money, the candidates must collect a specified number of signatures and small (usually $5) contributions. The candidates are NOT allowed to accept outside donations or to use their own personal money if they receive this public funding. Candidates receive matching funds, up to a limit, when they are outspent by privately-funded candidates, attacked by independent expenditures, or their opponent benefits from independent expenditures. This is the primary difference between Clean Money public financing systems and the presidential campaign system, which many have called "broken" because it provides no extra funds when candidates are attacked by 527s or other independent expenditure groups. In contrast, Clean Elections matching funds are so effective at leveling the playing field in Arizona that during the first full year of its implementation, disproportionate funding between candidates was a factor in only 2% of the races ().
This procedure has been in place in races for all statewide and legislative offices in Arizona and Maine since 2000. Connecticut passed a Clean Elections law in 2005, along with the cities of Portland, Oregon and Albuquerque, New Mexico. 69% of the voters in Albuquerque voted Yes to Clean Elections. However, an initiative in California that included Clean Elections as part of an initiative that had other aspects that were viewed as anti-corporate was defeated by a wide margin at the November, 2006 election, with just 25.7% in favor, 74.3% opposed (results), showing the Clean Elections is better off voted on by itself. A 2006 poll showed that 85% of Arizonans familiar with their Clean Elections system thought it was important to Arizona voters.
Many other states (such as New Jersey) have some form of limited financial assistance for candidates. Wisconsin and Minnesota have had partial public funding since the 1970s, but the systems have largely fallen into desuetude.
A clause in the Bipartisan Campaign Reform Act of 2002 ("McCain-Feingold") required the nonpartisan General Accounting Office to conduct a study of Clean Elections programs in Arizona and Maine. Although the ensuing report, issued in May of 2003, cautioned that "it is too early to precisely draw causal linkages to resulting changes, if any, involving voter choice, electoral competition, interest group influence, campaign spending, and voter participation," in none of these categories did the study GAO find positive results from Clean Elections systems. (). A more recent study by the Center for Governmental Studies found that Clean Elections programs resulted in more candidates, more competition, more voter participation, and less influence-peddling ().
Supporters of private donations argue that this is an unrealistic goal and say that these are one of the most common means for ordinary citizens to participate in politics. They also say that government subsidization of political speech is contrary to the spirit of democracy and/or freedom.
Many others argue that providing public subsidies for campaigns is simply unnecessary government spending. However, the actual dollar amount is small (federal elections cost approximately $5B in 2004 ) when compared to the total budget of the United States at around $3 trillion. Nevertheless, critics argue that citizens should not be forced to subsidize with their tax dollars candidates and political speech with which they disagree, or that offends them. Supporters respond that voters shouldn't hear mostly from one partisan side simply because that side is better at raising money.
In some places in which the laws were designed to favor the major parties, such as Connecticut, public subsidies have also faced criticism from minor parties, who often face large hurdles on access to public funds that don't trouble major-party candidates. Other laws, such as those in Arizona and Maine, are designed so that the strongest candidates can qualify for funds regardless of party, while still assuring that fringe candidates won't receive public funds. The proposed Clean Money law in California, defeated at the polls in 2006, ( pro, con) would have treated major and minor parties differently but not to the same extent as Connecticut.
Some claim that public financing has already corrupted the political process, with big government advocates buying voters' votes with promises of increases in entitlement programs, welfare, and pork barrel spending. Supporters say that when there's a level playing field, as they claim public funding provides, American voters can be trusted to make the "right" choices, and that elected officials will be accountable only to the voters, because the government paid for their campaigns, not private interests.
In addition to criticisms grounded in the First Amendment, campaign finance reform is often criticized for its unintended consequences, including less competitive elections, insulation of incumbents, and the discouragement of political giving and grassroots political activism due to the complexity of regulations.
Most opponents claim that CFR infringes on free speech and violates First Amendment rights. The argument is that the purpose of the free speech clause of the First Amendment is the guarantee that people have the right to publish their political views. Under this view, when the laws prohibit people from advocating for or against political candidates by restricting the content or the amount of political advertising, the laws are in conflict with the constitutional guarantee of freedom of political speech.
Many opponents have charged that changes to campaign finance laws can produce unintended harmful consequences. For example, many political scientists say that the rise of PACs helped hasten the weakening of political parties in the United States, as candidates grew more entrepreneurial in their fund raising and gained access to campaign finance outside of party channels; opponents have noted (and decried) this unexpected change which has resulted in unusually long periods of fund raising and proportionally less time for campaigning. Another example is that disclosure requirements may lead individuals to avoid giving to challengers, and increase giving to incumbents, as individual large donors might wish to avoid angering the current office-holder . Restrictions on giving and spending also seem to benefit incumbents, further entrenching them from effective challenge .
Critics of campaign finance regulation form a broad coalition, as both conservative interest groups (such as the National Rifle Association and the Christian Coalition) and liberal interest groups (AFL-CIO and American Civil Liberties Union) are vehemently opposed to regulation in this area.
In addition, many opponents point out that campaign finance regulations are excessively complicated. This, they say, prevents ordinary citizens from participating in the election process (especially from running for office) and limits participation to a wealthy elite who can afford the legal apparatus necessary to run. In modern campaigns, legal and accounting expenses are significant percentage of the overall budget. Opponents also claim that excessively complicated rules discourage participation more generally by dissuading people from even attempting political work or activism.
Still, others point to the lack of systematic evidence that campaign contributions affect legislators' votes. In this regard, studies by political scientists have found that contributions are generally motivated by ideology and social connections.
In February 2008, a new group calling itself "SpeechNow.org" challenged FEC rules that prevent political action committees from collecting more than $5,000 annually from each contributor. SpeechNow.org wants to collect unlimited donations to help elect federal candidates who support free speech.