Campaign Financing Regulated by Tortuous Tangle of Rules

Although John McCain and Bill Bradley ended their presidential campaigns last week, their vigorous calls for campaign finance reform have given the perennial issue new prominence. But the federal election system behind the sound bites and posturing is complex and riddled with loopholes.

Here’s a look at the key laws, how campaigns bend them, and some proposed reforms:

Primaries

Candidates vying for the Democratic and Republican presidential nominations fund their campaigns with a combination of donations from individuals, political action committees and public funds. To qualify for public money, candidates must raise at least $5,000, in contributions of $250 or less, in at least 20 states. The federal government gives candidates up to $250 in matching funds for each individual donation they receive during the primary season, up to $16.9 million.

Individuals may donate up to $1,000 per candidate. Individual donations of $200 or more must be reported to the Federal Election Commission, which enforces campaign finance laws. Corporations and unions are barred from giving directly to candidates for federal office, but they may create political action committees, which receive contributions of up to $1,000 each from their members and can donate up to $5,000 per candidate. Foreign corporations (except their U.S. subsidiaries) and foreign citizens (except immigrants with green cards) are not permitted to contribute.

All candidates must agree to abide by federal election laws and file regular reports to the FEC detailing their donations and spending. But only those candidates who choose to accept public matching funds must adhere to state-by-state and total spending limits. This primary season, GOP candidates Texas Gov. George W. Bush and multimillionaire Steve Forbes chose not to accept public money, so they were able to spend freely.

This year’s spending limit for candidates who accepted matching funds is, technically, about $33.8 million. But because the rules allow candidates to exempt 20% of their spending, plus legal and accounting services, the actual amount a candidate is limited to spending from the beginning of the primary season until his party’s national convention is closer to $40 million.

Campaigns that violate state spending limits are subject to federal penalties, but the FEC normally does not impose the fine until long after the campaign is over--if at all. Candidates who accept matching funds must limit their use of personal funds: They cannot use more than $50,000 of their own money.

General Elections

After the party conventions, nominees receive federal funding to run their campaigns. The amount is adjusted for inflation; this year it will be about $67 million each for the Republican and Democratic candidates. Candidates from minor parties that received at least 5% but less than 25% of the popular vote in the previous election are eligible for a percentage of the full grant; this year’s Reform Party nominee will get $12.6 million. Candidates for new parties may be also receive public funding if they receive more than 5% of the vote, but not until after the election. Candidates of minor parties are not subject to the same restrictions on raising money.

To receive such funds, candidates must pledge not to raise money from individuals, PACs or party committees, except to cover legal and accounting expenses. (Individuals and PACs can double the maximum allowed contribution to a candidate by giving to his campaign’s so-called “compliance fund.”) Candidates also are restricted in this phase of the campaign to using no more than $50,000 of their own money.

The public funding is provided by federal taxpayers who check off the box on their returns indicating that $3 ($6 for joint filers) will go to the Presidential Election Campaign Fund. This designation does not increase filers’ tax liabilities.

Conventions

The public also funds the national party conventions. This year both of the major parties received $13.2 million from the government for their conventions in August. Because the Reform Party candidate received more than 5% of the vote in the last presidential election--the federal standard--that party also is eligible for federal funds; it received $2.5 million for its convention.

Issue Ads

Independent organizations also are increasingly weighing in on presidential elections, paying for issue advertisements that avoid the “vote for” language but often not-so-subtly promote or attack particular candidates. Coordination between the organization and a campaign is prohibited; the money spent on these ads, therefore, does not count toward a candidate’s spending limit. The ads must clearly state who paid for them. Individuals, groups and corporations may donate to these organizations, which must file a report with the FEC. So far in this election, the Sierra Club, the National Right to Life Committee, the National Smokers Alliance, Republicans for Clean Air, the Republican Leadership Council, Americans for Tax Reform and Hands Across New Jersey are among the groups that have broadcast issue ads attacking various policy positions of different presidential candidates.

Soft Money

In 1988, the Republican and Democratic parties began exploiting a major loophole in the laws. By insisting that they would not use the money to benefit federal candidates, each party solicited huge donations from wealthy individuals, corporations and unions. The parties then used this unregulated “soft money”--often donated in amounts of $100,000 and more--to fund get-out-the-vote efforts, party positions and tens of millions of dollars in issue advertising that clearly benefited the party’s candidate. In return, the parties offered large donors special perks such as meeting with high-level government officials. In 1996, the parties raised $262 million in soft money, triple the amount they had raised in 1992.

Reform

Because lawmakers who benefit from the current campaign finance system must vote on any changes, reform efforts have died in Congress for many years. Last fall, the House voted 252-177 to ban soft money in federal elections and to require that issue ads be paid for with regulated funds, and that the identity of donors to the groups be disclosed.

A Senate filibuster prevented a similar bill from coming up for a vote.

GOP candidate Sen. John McCain of Arizona and Democratic rivals Vice President Al Gore and former Sen. Bill Bradley all support a ban on all soft money. Bush has called for a ban on unregulated contributions by corporations and unions, but not by individuals. Gore has challenged the GOP nominee to ban the use of soft money in the 2000 general election and to forgo televised ads in exchange for twice-weekly debates.

Total Donations

In addition to the $1,000 per candidate that individuals may contribute during the primary cycle, they may donate up to $1,000 to a candidate’s compliance fund during the general election to pay for legal and accounting expenditures. Individuals also may contribute up to $20,000 in so-called hard money a year to a national political party committee, but total hard-money contributions to federal elections--presidential, congressional candidates and parties--may not exceed $25,000 per donor per year. There is no limit to the amount of soft money that individuals, corporations or unions may give to political parties, nor is there a cap on donations to independent organizations that run issue ads during campaigns.