How Campaign Finance Works

There's been a strong link between money and politics in the United States from the time the country started holding elections. In the late 1700s, only white male landowners over the age of 21 were allowed to vote. This meant that you had to have some money to have your say. By 1828, states had the power to grant voting rights, and the land ownership mandate was largely dropped. The elections themselves were often fraught with corruption, with some voters being paid outright for votes.

Andrew Jackson was one of the first politicians to run a political campaign along modern lines. In the election of 1828, Jackson used a campaign staffer to help him raise money and secure votes. He created committees that would organize rallies and parades to get his message to the masses. The result was a voter turnout that doubled that of previous elections. Twenty years later, Abraham Lincoln used his own finances to pay for his campaign. This plan nearly bankrupted him, even though he combined his own money with donations from wealthy supporters.

After the Civil War, it became clear to wealthy Americans that they had a lot to gain by supporting the campaigns of politicians. Notable families like the Astors and Vanderbilts were as influential in early politics as the politicians. The first federal campaign finance law also came about in this post-Civil War period. The Navy Appropriations Bill, passed in 1867, prohibited government employees from soliciting contributions from Navy yard workers.

Corporations soon got in on the act, leading Teddy Roosevelt to speak out after being embarrassed by his own corporate financing. In 1905, he proposed to Congress that all corporate contributions be outlawed. This measure was met with stiff resistance, as the elected officials were beholden to the donors that helped them get into office. This catch-22 would prove to be a common problem for politicians in the United States. Soon after, the Tillman Act prohibited corporations and nationally chartered banks from making direct financial contributions. As with many attempts at reform, this act was difficult to enforce and full of loopholes. In the years that followed, more limits were placed on contributions and expenditures. Again, these laws were rarely enforced and easy to get around. It would be decades later before any meaningful campaign finance reform legislation would be introduced.

In the United States, fundraising plays a large role in getting a candidate elected to public office. Without large sums of money, a candidate has virtually no chance of achieving his goal. This doesn't mean that the person who raises and spends the most wins every time, but that's typically what happens. In the 2018 general elections, 89 percent of House races and 83 percent of Senate races were won by the candidate who spent the most on his campaign. It's also easier to stay in office than to get into office. Incumbents are generally able to raise more money than their opponents, which often results in elections with no financial opposition. In 2018, 45 percent of the House races were won by candidates whose opponents spent little to no money [source: Center for Responsive Politics].

With these statistics, it's no wonder that so much importance is put on raising money. It's become a necessary evil for politicians and leaves them in somewhat of a quandary. With so much time being spent on fundraising, candidates can shortchange the people's interest they're hoping to represent.

Candidates raise money in a variety of ways. Billboards, lawn signs, direct mailings and leaflets are a good way to get the word out. TV advertising is easily the most expensive way to bring a candidate into the public's eye. Candidates can raise large sums of money in a single night by hosting a sit-down dinner for targeted, wealthy donors for a per-plate fee. Many of these donors hope to get a few words with the candidate to express an interest they hope can be fulfilled. Some of them simply like being seen at premier social events. In 2008, Barack Obama became the first presidential candidate to use social media advertising to raise large sums of money; altogether, 2008 candidates spent $22.3 million on online ads. By the 2016 presidential election, that figure skyrocketed to $1.4 billion [source: American Bar Association].

The public media are another useful tool for the aspiring politician. Candidates often use newspapers and TV news to garner free advertising. Staffers organize protests and rallies, volunteers cold-call and text, and candidates go on whistle stop tours to spread the word that they care about the common man in the small town. Another technique is to ride the coattails of a popular politician by gaining their endorsement. Former president Bill Clinton proved to be a huge asset during his wife Hillary's two bids for the 2008 and 2016 White House. During the 2020 contest, former president Barack Obama and former first lady Michelle Obama both stumped for Joe Biden, Barack Obama's former vice president.

All of these events and advertising methods cost some serious money. Campaigns spend funds just about as fast as they're raised. Aside from the material items like posters, pins, leaflets, billboards and TV airtime, the money is largely spent on funding the fundraising. Plane tickets, hotel rooms, campaign headquarters overhead, staff, event catering, event space and entertainment are just a handful of costs incurred on the campaign trail.

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].

Campaign spending limits may be the most hotly contested issue of campaign finance. Proponents argue that excessive spending breeds corruption, hinders grassroots candidates and keeps wealthy special interest groups in the hip pocket of the candidate [source: Common Cause] . Opponents say that limiting spending is a violation of our First Amendment rights to free speech and that if a candidate can raise the money, he or she should be able to spend it. A cap on expenditures was initially made into legislation with FECA. However, the Supreme Court overturned the law in a landmark case just a few years later.

The high court ruled in the 1976 case of Buckey v. Valeo that:

The result of Buckley v. Valeo was that candidates have no cap on spending as long as the money is raised from private donors. Many state and local elections have voluntary spending limits, and the result is usually a more level playing field for candidates. Politicians on the federal level are hesitant to back any provisions on spending limits because of the reality that more money usually ensures victory at the polls.

Disclosure is another important part of campaign finance legislation. In 1910, the Federal Corrupt Practices Act established disclosure requirements for House candidates. The following year, the act was expanded to include the Senate. It wasn't until FECA that the current system of disclosure was put in place [source: FEC]. Candidates are now strictly required to identify the names, occupations, employers and addresses of any individual who contributes more than $200 in an election cycle. They must also identify PACs that contribute to their campaign, and those PACs must disclose their financial information. While striking down the spending cap, Buckley v. Valeo upheld the strict regulations for disclosure.

If you ask most political pundits, they'll likely say that campaign finance reform in the United States is an exercise in frustration. Almost every attempt at reform has been policed so little that it's fairly easy to cook the books and get away with breaking the rules. Still, at the onset of each election you'll likely hear a great deal about the need for new reform legislation and greater enforcement of current laws.

Since the Navy Appropriations Bill of 1867, there have been some two dozen bills, acts, amendments, laws and Supreme Court decisions in the interest of reform. FECA and Buckley v. Valeo were landmarks in the road to reform and until recently were the major components of modern reform attempts.

In 2002, the Bipartisan Campaign Reform Act (BCRA) was signed into law. The law is also known as the McCain-Feingold Act, named for its chief sponsors, Sens. John McCain (R) and Russell Feingold (D). The BCRA introduced many changes to federal campaign finance law, but contained two major components:

As with most reform legislation, the law didn't last long before it was challenged. The Supreme Court ruled that soft money funds would be allowed with spending restrictions. It also ruled in June 2007 that banning ads mentioning candidates by name within 60 days of the general election was unconstitutional. These ads are now allowed once again, as long as they aren't direct pleas for votes for or against a specific candidate [source: Barnes]. The ruling was a major victory for big money and wealthy special interest groups and a blow to reform proponents.

The FEC is comprised of three Republicans and three Democrats. These members are nominated by the president and approved by the Senate. The structure, while fairly balanced along party lines, often leads to partisan deadlock on reform proposals. Grassroots organizations like Common Cause call for an independent FEC structure, free from partisan influence. They contend that only then can true reform and enforcement take place.

In the future, there will likely be more calls for reform that will be met with resistance from corporations, unions and special interest groups. In 2019, Democrats in the House wasted no time introducing the For the People Act, aimed in part at chipping away at the influence of big money in elections. While it passed the Democrat-controlled House on a party-line vote, Republicans blocked it in the Senate [source: Center for Responsive Politics]. Regardless of what reform legislation may be passed, a lack of enforcement and myriad loopholes have made the American public skeptical about the dedication to cleaning up elections on the federal level.

Many states have taken matters into their own hands and are attempting to clean up their own elections. We'll look at those efforts in the next section.

It's clear when looking at campaign finance reform that America's local communities are leading the charge. Throughout U.S. history, states have often been ahead of federal efforts, leading former Supreme Court Justice Louis Brandeis to label them "laboratories of reform" [source: Blakeman]. California, New York and Massachusetts implemented disclosure laws well ahead of the federal government. In 1909, Colorado passed the nation's first public funding system, only to have it ruled unconstitutional just one year later. Americans would have to wait 60 years to see another public funding plan [source: University of Denver].

Today, each state has control of its own campaign finance regulations, and some states have passed radical laws that govern their elections. Thirty states have made substantial changes to their campaign finance laws in the last 15 years. Maine has pushed for public financing for all elections. Washington state requires online spending disclosure. Many states have lobbied for shorter campaign periods, voluntary spending limits and contribution caps with great success. By making spending limits voluntary, states are able to avoid violating the terms of the Buckley v. Valeo ruling.

Some states limit contributions from individuals to PACs and from PACs to candidates. Unions and corporations are heavily monitored and limited in their influence, with Texas and Alaska prohibiting them from spending on a candidate's behalf altogether. Every state but Louisiana requires that campaign ads disclose who paid for them, and most mandate that ads paid for by organizations outside the campaign indicate that the candidate didn't authorize the ad. The same holds true for all radio and print advertising.

Vermont passed a controversial law called Act 64 in 1997 that put a mandatory cap on spending and contributions to candidates and PACs. However, this groundbreaking measure was met with opposition on the federal level and overturned by the Supreme Court in 2006 on the precedent of Buckley v. Valeo [source: Warren].

Colorado passed an aggressive piece of legislation in 2002 called Amendment 27. This finance reform initiative included caps on spending and contributions, as well as full disclosure of funds. Wealthy special interest groups were held in check by the measure, forcing candidates to work for a broad base of supporters instead of getting huge checks from a smaller pool. It also attempted to curb "attack ads" on the opposition by requiring candidates to personally stand behind their ads. Soon after, the opposition introduced legislation that would have rendered Amendment 27 useless, but grassroots efforts and a unified media campaign kept these provisions from being approved. In 2010, Colorado Republicans challenged Amendment 27, following the U.S. Supreme Court's ruling in "Citizens United v. FEC." However, the amendment wasn't overturned [source: Ballotpedia].

While states are generally bolder in their reform attempts, there are still many shortcomings. Many states do not have the money to support public funding of elections, and enforcement agencies are often understaffed and overworked. Candidates who cheat the system rarely draw penalties and are seldom criminally prosecuted.