Campaign Finance Reform: Same Time, Next Five Years

The history of campaign finance reform is a tale of unintended consequences. That ought to give us pause before we embark again on a new system for regulating political money.

“Soft money” is the target this time. It would be banned as part of the bill by Sens. John McCain (R-Ariz.) and Russell D. Feingold (D-Wis.) approved by the Senate last week and now goes before the House of Representatives.

We have learned a few things in our experience with campaign finance, one of which is that when you cut off a source of political money, it is likely to come back in another guise. But the bigger lesson is how we got tangled up in the soft-money problem in the first place.

In 1974, Congress passed reforms to prevent the kind of abuses revealed by the Watergate scandal: undisclosed political slush funds and unlimited contributions from wealthy donors to the presidential campaign. It also limited the amount of money political parties could spend on federal candidates.

But five years later, lawmakers were back at the drawing board. In their zeal to make politics clean, they had virtually shut down the state political parties. The parties were so hamstrung by the 1974 law that helping state and local candidates, let alone federal ones, was problematic. Party officials worried that mounting even the most civically virtuous activities--putting up yard signs or running registration and get-out-the-vote drives--would violate federal election law.

In 1979, Congress responded with revisions to the campaign finance law that allowed state and local political parties to spend money for basic campaign activities and party building. Helped along by a series of muddy decisions from the Federal Election Commission, those revisions opened the door to the great boogeyman we now call soft money. In the 2000 elections, the political parties and their House and Senate campaign committees spent more than $500 million of it.

Political watchdog groups such as Common Cause fastened on soft money as the primary evil in the nation’s political system well before McCain became the most vocal champion of that view. Even elected officials who understand that the story is more complicated have come to realize that resisting McCain-Feingold is politically risky. President George W. Bush, no previous fan of a soft-money ban, is now wrestling with the same problem.

But for all the hand wringing on soft money, nobody seems to have asked the fundamental question: What do political parties actually do with soft money? One thing they do is transfer huge amounts to state parties. That’s not illegal, but reformers are correct that a lot of that money has become the conduit for political advertising that crosses the line--”issue ads” that really are thinly veiled campaign commercials for candidates. Even so, an examination of the voluminous financial records of the 50 state Democratic and Republican parties from 1992 through 1998 suggests that we might do more harm than good by banning soft money. Here are just three of the unintended consequences that the data point to:

* A ban on soft money could weaken the parties and reduce voter turnout. The conventional thought is that parties spend soft money primarily on “issue ads.” Parties neatly circumvent the 1974 and 1979 laws by avoiding direct phrases like “Vote for Smith.” But it turns out that almost 85% of soft money spent by the state parties in the 1998 elections was not related to issue ads. Instead, much of the soft money funded voter mobilization programs such as registration, direct mail and telephone banks. In presidential years, the portion of soft money spent on media tends to be higher, but even then, 65% of the soft money went to things other than ads. In other words, the bulk of the money went toward activities that Congress intended to promote with the 1979 revision.

* A ban would favor incumbents. While the usual wisdom is that soft money protects incumbents, in fact, parties distribute soft money to make races more competitive. Rather than funnel money to sure-win incumbents--a practice common with interest groups who want to curry favor--parties are more likely to invest in quality challengers, which encourages greater competition.

In 1998, for instance, the National Republican Senatorial Committee targeted 60% of its soft dollars to states with Republican challengers to Democratic incumbents. Such funds are especially critical to challengers, who benefit more than incumbents from extra money. So while most reformers decry the natural advantages of incumbency--to the point of supporting term limits--banning soft money could actually help incumbents even more.

* A ban on soft money could intensify single-issue congressional campaigns. In a preliminary analysis of 2000 House elections, parties aired $40 million in issue commercials, while interest groups sponsored $30 million worth. The McCain-Feingold bill would try to reduce issue ads by eliminating party soft money and by banning labor unions and corporations from mentioning specific candidates in their ads 30 days before a primary and 60 days before a general election.

But even if corporations and organized labor are out of the picture, other powerful interest groups will certainly continue to use issue ads and could dominate the election agenda. Groups engaged in such issue ads tend to highlight “hot button” themes such as abortion and gun control.

Before we congratulate ourselves that McCain-Feingold solves the problems of campaign finance, it would be worth remembering that today’s solution to soft money may well become tomorrow’s new variation on slush funds. Arguably, had we increased contribution limits Congress set back in 1974 to keep pace with inflation, we might have prevented some of the excesses in soft-money financing. The only thing that the history of campaign finance reform guarantees is that we’ll be back here five years from now.

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Ray LaRaja is a PhD candidate in political science at UC Berkeley and a scholar at the Citizens’ Research Foundation, a nonpartisan think tank that studies campaign finance.