US Campaign Finance

Introduction to US Campaign Finance

The financing of national and state elections has been a political topic in the US since the early nineteenth century. In 1828, then-candidate for the US presidency Andrew Jackson was one of the first politicians to create a campaign committee to help him raise money, secure votes, organize rallies and spread his message to the public. One of the results of Jackson's organizing was that voter turnout nearly doubled in the presidential election of 1828 (in which he was victorious). However, Jackson's innovation also served to dramatically increase the cost of running a national political campaign. The rising price of campaigning led to the "spoils system," in which government jobs were given by victorious political parties in return for financial support from wealthy citizens. As a presidential candidate only 20 years later, Abraham Lincoln paid for his campaign out of his own pocket, which, even with the support of donations from wealthy individuals, nearly bankrupted him. Following the US Civil War, it became clear that politicians would need wealthy families and individuals to help bankroll their campaigns. In exchange, these wealthy groups expected politicians to support their specific interests, such as supporting legislation in certain areas or fighting against proposed legislation in other areas. In 1872, the Republican Party and Ulysses S. Grant received significant support from a relatively small group of individuals; for example, nearly a quarter of the Republicans' campaign expenses were paid for by railroad tycoon Jay Cooke.

The first campaign finance law passed by the US Congress was the Navy Appropriations Bill in 1867. This bill prohibited government employees from soliciting contributions from yard workers at Navy shipyards and piers. In 1905, US President Theodore Roosevelt proposed to Congress that all corporate contributions should be outlawed. According to Roosevelt, hostility towards government officials that resulted from contentious contributions was weakening the infrastructure of the government. Roosevelt thought that campaign finance reform would make the elections more fair and transparent. An additional regulation in his proposal would have required that candidates who took public funds limit the donation amount and disclose their receipts. The Tillman Act followed this proposal by prohibiting corporations and nationally chartered banks from making direct financial contributions to campaigns for the presidency or in connection with any election for Congress. However, a significant loophole in the Tillman Act allowed businesses and corporations to give their employees additional bonuses that they were then directed to use as individual campaign contributions, thereby circumventing the restrictions of the Tillman Act.

Congress attempted to close some of these loopholes by enacting the Publicity Act (also known as the Federal Corrupt Practices Act) of 1910. The purpose behind the Publicity Act was to force public disclosure of the uses of campaign money, which would dissuade political corruption in the form of bribes. This act remained in place until the Teapot Dome Scandal occurred in the early 1920s. The scandal involved bribery by which companies were granted leases to emergency US Navy oil reserves in exchange for payoffs given to several federal officials. The scandal resulted in the conviction of US Secretary of the Interior Albert Fall and led to the passage of the Federal Corrupt Practices Act of 1925. In 1943, political action committees (PACs) were first formed as a result of Congress expanding the Tillman Act's ban on direct corporate campaign contributions to include labor unions. The primary purpose of PACs is to raise money in order for the PACs to make campaign contributions to candidates' committees. However, in 1966, US President Lyndon B. Johnson pointed out that this initiative actually created more loopholes in the finance laws than it closed.

The Federal Election Campaign Act

In addition to the legislative acts highlighted above, the Taft-Hartley Act was adopted over the veto of US President Harry S. Truman in 1947. The law was aimed at curtailing the political actions and influence of labor unions in US federal elections. Specifically, the Act amended the National Labor Relations Act (NLRA) to include restrictions against political activities and protests undertaken by unions. More importantly, the law prohibited unions from utilizing their general funds to contribute directly to federal campaigns.

Overview of FECA

Despite the piecemeal attempts of Congress discussed above, the legislation was ill-equipped to deal with the advent of broadcast television during the 1950s and 1960s. Broadcast advertisement quickly became the new "arms race" in federal elections and the cost of campaigns increased exponentially, as did the need to fundraise from large corporate donors. In order to combat this latest explosion in corporate electoral spending, Congress created comprehensive reform legislation aimed at addressing several perceived shortcomings of the earlier legislation. Ultimately, there were also provisions which appealed to corporate interests. The legislation was titled the Federal Election Campaign Act (FECA).

As originally passed in 1971, FECA included: (1) "sunshine" provisions that sought to ensure candidate disclosure of federal campaign contributions; (2) spending limitations on media advertisements (which were ultimately repealed); (3) public funding options for presidential campaigns that forego the use of private funds and agree to limit their spending to a pre-set amount; and (4) the basic legislative framework for the use of "separate segregated funds" by unions and corporations to support federal campaigns. Although the Taft-Hartley and Tillman Acts had the effect of explicitly banning direct campaign contributions by corporations and labor unions in federal elections, FECA carved out an exception through which these entities could use their general funds to establish and operate "separate segregated funds." Today, these entities are popularly referred to as PACs. Once created, PACs are able to solicit contributions on behalf of the separate segregated fund, the proceeds of which are used to contribute to federal candidates.

Legislative History of FECA

The presidential race of 1972 set the stage for a series of pointed amendments to FECA. In the months following the election, evidence was brought to light which indicated numerous electoral abuses by the administration of US President Richard Nixon. Most famous of these was the June 17, 1972, break-in at the Democratic National Committee (DNC) headquarters at the Watergate complex in Washington, D.C. The Watergate break-in was ultimately connected to the Committee for the Re-Election of the President through the misuse of campaign funds. The scandal led to Nixon's resignation, but the revelation of widespread abuses in campaign finance convinced Congress to undertake comprehensive amendments in 1974 designed to give federal campaign finance restrictions true regulatory force.

The amendments to FECA established the Federal Election Commission (FEC) as an independent, regulatory agency in 1975. By finally creating an entity that would shoulder the burden of enforcing federal elections standards, Congress created an agency that assumed the administrative duties that had been shared by congressional officers and the US General Accounting Office (GAO) under the 1971 iteration of FECA. Specifically, the FEC was granted jurisdiction over civil enforcement matters, empowered to write regulations and tasked with independently monitoring FECA compliance. As mandated by these amendments, the FEC is composed of six commissioners who are appointed by the US president and confirmed by the US Senate. Each member serves a single, six-year term with two seats being subject to appointment every two years. By law, no more than three commissioners may be the member of the same political party. Additionally, at least four votes are required for any official FEC action.

Litigation

The US Supreme Court has consistently ruled that campaign spending amounts to political speech, which is considered protected speech under the First Amendment to the US Constitution. Therefore, restrictions on federal election expenditures must survive strict scrutiny: the restrictions must serve a compelling government interest and be narrowly tailored to achieve the law's purpose. Given the impacts of FECA, there have been many challenges to its legitimacy since its passage. Various opinions have placed further "shine" on the law, with the first being the significant 1979 amendments to FECA in the wake of Buckley v. Valeo, more fully discussed below. However, in addition to the landmark ruling in Valeo, several other legal challenges have had a significant impact on the scope of FECA.

Following the Court's holding in Valeo, the Court next considered a challenge to FECA in the 1981 case of California Medical Association v. FEC. In California Medical Association, the Court found that FECA limitations on campaign contributions made by unincorporated associations were legitimate under both the First Amendment and the Equal Protection Clause of the Fifth Amendment.

However, in FEC v. National Conservative Political Action Committee, the Court ruled that restrictions on expenditures in presidential campaigns that prohibited any "political committee" not affiliated with an official political party were unconstitutional. Specifically, the Court found that FECA's definition of "political committee" was overbroad:

[A]ny committee, association, or organization (whether or not incorporated) which accepts contributions or makes expenditures for the purpose of influencing, or attempting to influence, the nomination or election of one or more individuals to Federal, State, or local elective public office.
However, although the Court ruled on FECA's restrictions with specific regard to presidential elections and unincorporated entities, the Court ultimately ordered the US District Court for the Eastern District of Pennsylvania to dismiss the case for lack of standing. Additionally, in FEC v. Massachusetts Citizens for Life, Inc., the Court struck down restrictions on corporate spending related to independent expenditures because it "infringes protected speech without a compelling justification for such infringement."

In their 1995 holding in Colorado Republican Federal Campaign Committee v. FEC, the Supreme Court ruled that FECA spending restrictions placed on political parties do not encompass independent expenditures that are made without coordination with any candidate. The case involved an advertisement run by the state Republican party attacking the Democratic Party generally, as opposed to an advertisement advocating for or against a specific candidate.

In February 2013, the US Supreme Court granted certiorari in a case challenging the limitation on individual contributions to political campaigns. In McCutcheon v. FEC [PDF], the Court will consider the FECA limitation on individual contributions on the basis that the rule is unconstitutional for lack of a sufficient governmental interest. If the Court found for McCutcheon, it would need to overturn the presumption articulated in Buckley v. Valeo that a sufficient governmental interest is enough to overcome First Amendment concerns when limiting speech in the context of campaign contributions.

Buckley v. Valeo

Following the fallout of the Watergate scandal, the nation's leaders sought legislative means of curbing the corruption that riddled political campaigns. The avenue of such an attack was centered on restrictions of financial contributions to political candidates. Following the passage of FECA in 1971, a suit ensued which would challenge its provisions on constitutional grounds. In January 1975, several political figures, including Senator James L. Buckley of New York, filed suit in the US District Court for the District of Columbia challenging the constitutionality of FECA. The defendants in the case included Francis R. Valeo, the secretary of the Senate and an ex officio member of the FEC. The plaintiffs argued that both FECA and the Presidential Election Campaign Act were unconstitutional because they violated separation of powers and First Amendment rights. The district court did not agree, and upheld FECA and the means by which the FEC was commissioned. The US Supreme Court granted certiorari after an appeal was made one month later. The main issues in Buckley v. Valeo centered on the limits placed upon electoral expenditures by FECA and its related Internal Revenue Code (IRS) provisions. Other issues raised concerned whether the legislation violated First Amendment rights of freedoms of speech and association for those wishing to make contributions to political campaigns, as money expenditure by voters is viewed by some as the highest form of political expression. There was also the ancillary question as to whether the method for appointing members of the FEC was a violation of the constitutional separation of powers.

The Court came to its multifaceted decision on January 30, 1976, which left FECA in a very different state than when it was first passed. The first part of the opinion in Buckley ruled that the FECA provision imposing limitations on individual campaign contributions is constitutional. The Court also found the recordkeeping and reporting requirements of the Act constitutional. However, the Court found the limitations on campaign expenditures unconstitutional as an abridgment of candidates' First Amendment free speech rights.

The multi-part decision begins with the Court upholding the restrictions in FECA on individual contributions to political campaigns in order to protect to integrity of the electoral process. The Court found that restrictions on individual contributions "necessarily reduce[d] the quantity of expression by restricting the number of issues discussed, the depth of the exploration, and the size of the audience reached." In essence, the Court saw expenditure of money as the crux of modern free speech rights, and thus, such a restriction would require a governmental interest in doing so. The Court found such a justification, stating that election laws are the "primary weapons against the reality or appearance of improper influence stemming from the dependence of candidates on large campaign contributions." Thus, though the law did restrict speech rights to some degree, it did not impinge upon the fundamental speech rights through its protection of the electoral process from corruption by wealthy contributors in the eyes of the Court.

The appellants in Buckley sought to exempt all reporting requirements regarding the nature and source of campaign contributions made during federal elections. The Court, however, upheld these requirements, stating that there were significant governmental interests that compelled such disclosures. Among these interests, the Court cited the deterrence of corruption, allowance of voters to fully evaluate candidates and a means to detect election law violations. The Court did note that disclosure presented some threat to minor parties who may face threats or public reprisal for their contribution, though none were present in this case. Thus, the Court left open the possibility of minor parties bringing a challenge against FECA in the future if an injury-in-fact could be shown.

Another key component of the decision was the Court's finding that governmental restriction of independent expenditures during campaigns, limits on candidates' personal expenditures for campaigns and limits on total campaign expenditures all violate First Amendment speech rights. These practices, the Court found, do not raise the potential for corruption in the same way individual contributions might, and the "direct and substantial restraints on the quantity of political speech" were not based upon a high degree of danger posed by these activities. Thus, because this danger is not significantly high, the Court refused to curtail free speech and association rights for the marginal protections the restrictions could afford. The appellees in the case argued that these restrictions would even the electoral field by limiting the amount every campaign could spend. The Court, however, saw that it would be important that money spent on campaigns would vary with the "size and intensity" of support for a particular candidate. In the Court's opinion, for the judiciary to make decisions about the wasteful or excessive nature of campaign spending would be an unconstitutional use of its power. Similarly, the Court viewed a restriction on a candidate's use of personal funds as an unconstitutional interference with an individual's right to engage in discussion of public issues and advocate for his or her own election.

Another procedural challenge in this case was based upon the method of appointing the six members of the FEC. The procedure mandated in FECA provided that the president, the Speaker of the House of Representatives and the President pro tempore of the Senate would each appoint two members at their discretion. The Court found that the Appointments Clause of the Constitution permitted only the president to appoint officers, with the advice of the Senate. The Court went further, stating that the Commission, as it was configured, could not exert executive functions because it was legislative in nature, failing to satisfy Appointments Clause restrictions limiting its members to those appointed solely by the president. The Court allowed all past decisions of the FEC to stand and required that the appointment provision be rewritten in compliance with the Appointments Clause.

The McCain-Feingold Act

The Bipartisan Campaign Reform Act of 2002 (BCRA), also known as the McCain-Feingold Act, is a federal law that amended FECA, changing the nature of campaign finance, specifically in the realm of soft money. FECA had previously been amended to limit individual contributions and expenditures by individuals and groups. As a result of Buckley, campaign contributions became less scrutinized than expenditures. Additionally, the US Supreme Court ruled that Congress could not, consistent with the First Amendment, regulate advertisements that discuss public issues, though it could require the disclosure of independent expenditures because of the public's right to election information. In passing the BCRA, Congress attempted to address the need for substantive campaign finance reform in light of the spending excesses of the 1996 election. Overview of the BRCA The BRCA consisted of comprehensive amendments to FECA that created a new form of speech in light of the "express advocacy" standard created in Buckley. Specifically, the BCRA distinguishes a new form of campaign advertising called electioneering communications, defined as an ad that: (1) airs 60 days before a general election or 30 days before a primary, runoff, or caucus; (2) refers to a specific federal candidate; and (3) is targeted to the relevant electorate. An electioneering communication is an ad with the sole purpose of attacking, opposing, supporting or promoting a federal candidate with the exceptions of news stories and editorials. Electioneering communications must disclose independent expenditures. Individuals and groups making independent expenditures must disclose who is receiving the money and the amount of money. However, corporations and labor unions are banned from using funds from their general treasuries for electioneering communications. Amounts spent on political advertising that are not directed by, or associated with, a candidate or political campaign are known as independent expenditures and are not subjected to the spending limits set forth in the Act. The most well-known and arguably most important part of the BRCA is its ban on soft money (contributions that are not regulated by federal election laws). The BCRA prohibits national, local and state party committees from receiving or spending soft money. Legislative History On September 7, 1995, the original version of BCRA was introduced as S. 1219 in the 104th Congress. The original bill provided more than restrictions on soft money; it also called for voluntary spending ceilings in congressional races, free broadcast time and reduced rate mailing privileges for candidates who abided by the spending ceilings and limits on self-financing of candidate campaigns. In each session of Congress thereafter, Senators John McCain and Russ Feingold introduced a modified version of their bipartisan campaign reform legislation. On January 22, 2001, the 107th Congress referred the modified bill, S. 27, which the Senate passed by a vote of 59-41, to the Committee on Rules and Administration. Previously, the Senate had blocked passage of the Shays-Meehan bill, a substitute bill. The House Administration Committee initiated a series of hearings on campaign finance reform from March through May of 2002. On July 12, 2002, the House rejected, by 203-228, a proposed rule to consider the campaign finance issue, leaving the bills suspended. Because the McCain-Feingold bill had already failed in the Senate, the Shays-Maheen bill was as close to the McCain-Feingold bill as possible without losing the legislation in the conference committee, which the Senate approved on March 22, 2002. On March 27, 2002, President George W. Bush signed the BCRA, which was sponsored by Representatives Martin Meehan and Christopher Shays, into law. The BCRA is still commonly referred to as the McCain-Feingold bill.

Litigation

Because the sponsors recognized that the BCRA would likely be challenged in court, a provision was included that allowed for an expedited court review process. A three-judge federal panel in Washington, DC, would first hear legal challenges to BCRA, and the ruling of the panel would be subject to direct review by the US Supreme Court.

The same day that BCRA came into effect, Senator Mitch McConnell challenged its constitutionality in McConnell v. Federal Election Commission, in which the US Supreme Court found that the government had a substantial interest in preventing corruption that was proven by an overwhelming amount of evidence. The ban on soft money was upheld, as was most of the BRCA, including the limitations imposed on electioneering communications, as the government had an interest in eliminating ads that were designed to look like issue ads but were actually designed to favor a particular candidate. Justice Scalia dissented, however, stating that limiting candidates in the amount of assistance they can receive is actually a limit on the candidate's fundamental right to free speech.

In Federal Election Commission v. Massachusetts Citizens for Life, Massachusetts Citizens for Life (MCFL), a nonprofit corporation under Massachusetts law, sought to make expenditures to urge voters to support pro-life candidates. In the case, the US Supreme Court examined whether MCFL's expenditures fell under the BCRA's expenditure ban and, if so, whether this law, as applied to MCFL, was valid. The Court found that even if MCFL did not expressly advocate the election or defeat of a candidate, its pamphlets and message urging voters to support pro-life candidates constituted a form of "express advocacy" that was within the range of activities proscribed by this section of the law. However, the Court ruled that the BCRA, as applied to MCFL, was unconstitutional, noting that MCFL's expenditures were the type of independent expenditures described in Buckley and protected by the First Amendment's free speech protections.

Citizens United and PACs

On January 21, 2010, the US Supreme Court issued its ruling in Citizens United v. FEC, a dispute in which the creators of a documentary unfavorable to 2008 presidential candidate Hillary Clinton challenged the prohibition on corporations making independent expenditures during campaigns. Independent expenditures consist of campaign spending that expressly advocates for or against the election of a candidate (in this case Hillary Clinton during the Democratic primary election) without coordinating with that candidate. The Court ruled, in a 5-4 decision, that corporations and unions are "people" for the purposes of free speech, and like individuals and PACs, have a constitutional right to make unlimited independent expenditures. Corporations and unions, however, have more often chosen to funnel their unlimited donations through "super PACs," discussed below.

Public reaction against the Citizens United ruling was strong and swift. Senate Democrats quickly introduced a bill, known as the DISCLOSE Act [PDF], designed to reduce the impact of the ruling by restricting foreign corporations and government contractors from falling under its scope and strengthening disclosure requirements. US President Barack Obama condemned the decision as creating loopholes in existing corporate spending restrictions. In his 2010 State of the Union speech, President Obama criticized its possible effect on the power of special interest groups. While many members of the public shared this opinion, many also noted the perceived electoral advantage to Republicans, who generally raise more funds from corporations than Democrats. However, despite outraising US President Obama with the help of super PAC funding allowed by Citizens United, 2012 Republican presidential candidate Mitt Romney lost the presidential election.

In addition to political ramifications, legal consequences of Citizens United and its overturning of First Amendment precedent have abounded. JURIST Forum Guest Columnist Josh Douglas believes that the US Supreme Court, through its decision in Citizens United, created a restrictive new doctrine regarding campaign finance law:

[T]he majority adopted a very crabbed view of corruption, stating that campaign finance restrictions on independent expenditures in candidate elections are valid only if they are tied to rooting out quid pro quo corruption. Of course, if corruption means only quid pro quo arrangements, then it is impossible to corrupt an inanimate ballot initiative that does not hold office and cannot give legislative favors in return for support. As Justice Stevens argued in his dissenting opinion, however, corruption comes in many forms, including through increased access.
Another interesting legal debate that has sprung from the Court's conclusion that corporations and unions have free speech rights in at least the context of independent expenditures is whether such entities can be restricted in any campaign spending as free speech. The US District Court for the Eastern District of Virginia ruled as much when it struck down restrictions on corporations and unions' direct contributions from their treasuries to political campaigns. The US Court of Appeals for the Fourth Circuit subsequently reversed the District Court's opinion, citing Federal Election Commission v. Beaumont's finding that such restrictions are allowed. The Fourth Circuit found that Citizens United did not overrule this finding of Beaumont.

PAC Overview

Individual donors and PACs constitute a majority of campaign contributors in the US. Restrictions on individual and PAC donations to candidates' campaign committees include a $2,500 spending cap per candidate per election; since primaries and general elections each constitute an "election," the practical limit a person or PAC can donate to any given candidate per federal election is $5,000. Because campaign contributions are considered speech and thus only carefully restricted, individuals and PACs can donate a maximum of $5,000 to as many candidates as they wish.

Leadership PACs are another kind of political action committee that are run by incumbent members of Congress. The same campaign finance laws govern regular and leadership PACs, meaning such organizations can raise and give money to candidates at a limit of $5,000 per candidate per election cycle. While a member of Congress's leadership PAC is prohibited from contributing directly to that member's campaign, the leadership PAC can contribute to another member of Congress's campaign committee. Similarly, Congressional candidates can direct contributions toward the leadership PACs of prominent members of Congress.

Entities known as super PACs formed in the wake of Citizens United as repositories for unlimited contributions from corporations and unions. Any corporation, union or wealthy individual can donate as much as they choose to any super PAC without the $5,000 limit that applies to individuals' and PACs' donations to campaign committees. However, unlike regular and leadership PACs, super PACs cannot give directly to a candidate's campaign committee; they can only make independent expenditures uncoordinated with candidates. The only restriction on who can donate to super PACs consists of the requirement that the donor be a citizen or permanent resident of the US.

While not technically PACs, 501(c) nonprofits have also played a prominent role in modern campaign finance, particularly since the Citizens United ruling; Citizens United itself is a nonprofit corporation. Unlike super PACs, politically active nonprofits do not have to disclose their donors; for example, Karl Rove's political fundraising apparatus during the election cycles following the Citizens United ruling consisted of large donations to Crossroads GPS, a 501(c)(4), which then was able to make unlimited donations to super PAC American Crossroads.

In order to maintain their tax-exempt status, nonprofits that participate in the political process through contributions cannot have politics as their primary purpose. The US Chamber of Congress is one prominent example of a politically active nonprofit.


JURIST Calls for Commentary
Timeline

2/19/2013: Supreme Court granted certiorari in campaign finance case

11/7/2012: Colorado, Montana passed ballot measures seeking campaign finance reform

10/24/2012: Seventh Circuit allowed cap on campaign contributions for upcoming election

10/23/2012: Supreme Court rejected challenge of Montana political contribution limits

10/16/2012: Ninth Circuit allowed Montana campaign contribution limits for upcoming election

10/9/2012: Ninth Circuit reinstated Montana campaign finance law

 ...[more]

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