How Campaign Finance Works

When considering donations, it's important to make the distinction between individuals, political action committees (PACs) and 527 groups. PACs are private organizations that donate or spend more than $1,000 for the purpose of influencing an election. If the PAC is corporate- or union-based, it's only allowed to ask for money from union members, their families, shareholders or executives. PACs were limited to donating $5,000 to a single candidate and $15,000 to a national political party per federal election in 2019-2020. Individuals can give a maximum of $5,000 to a PAC per year. TV, radio and print campaign ads from PACs must include a disclaimer that clearly states who paid for the ad [sources: FEC, FEC, FEC].

527 groups have become increasingly popular and influential. Similar to PACs, the term is commonly considered to refer to nonprofit political groups formed to influence policy issues and elections. However, the groups don't actively lobby for or against any candidate or work with candidate organizations. This distinction allows them to operate outside the control of the FEC [source: The Center for Public Integrity]. You may remember the 527 group Swift Boat Veterans for Truth as having a significant negative impact on John Kerry's 2004 presidential campaign bid when the group challenged his military record [source: Center for Presidential History].

While PACs and 527s have a financial impact, the lion's share of campaign funds come from individual American citizens. For the 2020 general election, the contribution limit was $2,800 from an individual to a single candidate and $35,500 to the national party in one calendar year. Contribution limits increase with inflation in odd-numbered years [source: FEC]. Foreign nationals are prohibited from making any contributions or spending any money on behalf of an election in the United States. Green card holders aren't considered foreign nationals, so they're allowed to donate under the same terms as American citizens [source: FEC].

In 2010, the U.S. Supreme Court changed a century-old policy regarding campaign finance restrictions with its ruling in "Citizens United v. Federal Election Commission." This decision removed all limits on the amount of money corporations and other outside groups can spend on elections, causing an uproar among those who feared this would result in corruption and outsized influence by the wealthy and big business. The upshot has been a rise in super PACs (which don't have to abide by the rules of PACs) and nonprofits using "dark money" that don't have to disclose the names of the people behind them. From 2010-2018, super PACs spent $2.9 billion on the federal elections. And most of the donations came from a few wealthy people [source: Lau].

Having rich friends helps in politics. But so does being rich yourself, as there's no limit to what a candidate can contribute to his own campaign. Wealthy 2020 presidential hopefuls Michael Bloomberg and Tom Steyer became the top self-funding candidates in history, donating substantial chunks of their own fortunes, all in vain. Bloomberg shelled out $1.1 billion of his own money, while Steyer ponied up $342 million. Neither secured the Democratic nomination [source: Center for Responsive Politics].

The Federal Elections Campaign Act (FECA) of 1971 prohibits corporations and incorporated charitable organizations from giving to or spending for a candidate. However, PACs are a good way for corporations to dodge this law. If you're confused, then you're not alone. It seems like for every regulation in place, there's a loophole that allows groups to bypass it.

Bundling is another tactic used to skirt the regulations of the FEC. Bundling is when an individual gathers contributions from a large number of people and donates the money all at once to a campaign. The bundler often enjoys prominence in the campaign and can gain access to the candidate to make a plea for his or her special interest. Bundling is currently a hot topic of debate and frequently called out in reform talks [source: Overby].