How Campaign Finance Works


Barack Obama Image Gallery Hillary Clinton and Barack Obama have out-raised their Democratic competitors. See more Barack Obama pictures.
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­With the 2008 presidential election fast approaching, you've probably heard more about how much money candidates are raising than the issues they stand behind. This is because campaign finance is big business and one of the most important parts of modern elections in the United States, and increasingly, around the world.

In the 2004 U.S. presidential election, George W. Bush and John Kerry raised nearly half a billion dollars in private funding in their bids to win the White House. Total receipts for all candidates surpassed $850 million for the primary and general election. As of September 2007, the crop of hopefuls for the 2008 election has raised more than $420 million. Analysts expect that candidates will need to raise $500 million each in order to have a chance at winning the presidency [source: Open Secrets­].

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Add to this that nearly two-thirds of all individual contributions are between $1,000 and the maximum of $2,300, and it's pretty clear that Americans are generous with their financial support of candidates [source: Open Secrets].

With this kind of money changing hands, it may leave you wondering where it goes and why it's necessary to raise that much. The fact is, getting the word out on a candidate's platform is becoming more and more expensive. Television and radio ads, billboards, mailers and signs are just a few of the places the money goes. The American public is inundated with messages from the political machine like never before.

Dealing with such huge sums of money also brings the potential for illegalities. Historically, elections around the world have been rife with scandal and corruption. In the United States, the Federal Elections Commis­sion (FEC) has the task of keeping elections as clean as possible by regulating donations, spending and public funding. In addition to the FEC, grassroots organizations like Open Secrets, Election Watchdog and Common Cause keep a close eye on how money is raised and spent. Congress and the Senate have debated campaign finance reform for decades, and the laws in place have been difficult to enforce because of loopholes and tricky bookkeeping.

In this article, we'll look at the history of campaign finance in the United States, how funds are raised and spent today, and what the government is doing about reform. We'll also learn about elections on the state level, and what role campaign finance plays in other countries.

 

Campaign Finance History in the United States

Teddy Roosevelt first called for substantial finance reform.
Teddy Roosevelt first called for substantial finance reform.
Hulton Archive/Getty Images

There's been a strong link between money and politics in the United States from the time we 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 staff 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.

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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.

The campaign of 1872 reached new highs in reliance on private political contributions. Wealthy democrats in New York contributed $10,000 each to help promote the election. Ulysses S. Grant had nearly one quarter of his election campaign paid for by a single donor [source: White House]. With such large donations coming from a limited number of supporters, it was clear that there was a great obligation by elected officials to the wealthy.

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 next section, we'll take a closer look at fundraising in modern American politics.

­

Campaign Fundraising in Today's Political System

Republican candidate Fred Thompson's tour bus accounts for a portion of his campaign funds.
Republican candidate Fred Thompson's tour bus accounts for a portion of his campaign funds.
Scott Olson/Getty Images

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 it's close. In the 2004 general elections, 95 percent of House races and 91 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 2004, nearly one-third of the House races involved candidates with little or no opposition [source: Open Secrets].

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 a somewhat of a quandary. With so much time being spent on fundraising, candidates can shortchange the people's interest they're hoping to represent.

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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.

The public media is 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 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 his endorsement. Former president Bill Clinton has proven to be a huge asset to his wife Hillary's bid for the 2008 White House.

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.

In the next section, we'll examine the regulations for contribution as well as some of the loopholes that allow campaigner­s to dodge them.

Campaign Contributions

Campaign fundraising is big business.
Campaign fundraising is big business.
Digital Vision/Getty Images

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 are limited to donating $5,000 to a single candidate and $15,000 to a political party per election. 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 [source: FEC].

527 groups have become increasingly popular and influential. They're similar to PACs, but don't donate to or work directly with a candidate's campaign. This distinction allows them to operate outside the control of the FEC. You may remember Swift Boat Veterans for Truth as having a significant impact on John Kerry's 2004 presidential campaign bid when the group challenged his military record [source: FEC].

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While PACs and 527s have a financial impact, the lion's share of campaign funds comes from individual American citizens. For the 2008 general election, the contribution limit is $2,300 from an individual to a single candidate and $28,500 to the national party in one calendar year. Contribution limits increase with inflation in odd-numbered years. 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.

One interesting part of campaign finance is that there's no limit on what a candidate can contribute to his own campaign. Wealthy presidential hopefuls Ross Perot and Steve Forbes donated substantial chunks of their own fortunes. Mitt Romney, a candidate in the 2008 presidential race, has been the largest donor to his own campaign by a wide margin [source: Boston Globe].

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: Common Cause].

In the next section, we'll see how expenditure is regulated and disclosed.

Campaign Spending

The Supreme Court has often ruled against reform measures.
The Supreme Court has often ruled against reform measures.
Mark Wilson/Getty Images

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 expenditure 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:

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"A restriction on the amount of money a person or group can spend on political communication during a campaign necessarily reduces the quantity of expression by restricting the number of issues discussed, the depth of their exploration, and the size of the audience reached. This is because virtually every means of communicating ideas in today's mass society requires the expenditure of money." [source: FEC]

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.

­In the next section, we'll look more at campaign reform's past, present and future.

­

Campaign Finance Reform

Senator John McCain is a leader in campaign finance reform.
Senator John McCain is a leader in campaign finance reform.
Mark Wilson/Getty Images

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 no less than 20 bills, acts, 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.

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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:

  • Soft money -- the act put a ban on all soft money contributions.
  • Campaign ads -- the law forbids corporations and labor unions from buying advertisements mentioning a political candidate's name within 60 days of a federal election [source: FEC].

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: Washington Post]. 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. 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.

Campaign Reform on the State Level

Voters take to the polls after months of campaigning by the candidates.
Voters take to the polls after months of campaigning by the candidates.
Chris Graythen/Getty Images

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: Open Secrets]. 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: Common Cause].

­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 [source: Hoover Institution].

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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: Duke Law].

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 [source: Common Cause].

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 penalty and are almost never criminally prosecuted.

Read on to find out how campaign finance works in the rest of the world.

Campaign Finance Around the World

Elections all over the world cost money to win.
Elections all over the world cost money to win.
Junko Kimura/Getty Images

Outside the United States, campaign finance has moved increasingly to the forefront of political debate. Many countries are following America's lead in allowing money to influence the electoral process. As a result, they're getting serious about regulation and reform.

­The democratization of much of the world has given birth to elections in countries that have no experience structuring or regulating them. In the early 1990s, new democracies in Central and Eastern European countries drafted constitutions that didn't impose regulations on party funding and campaign finance. This was left to the legislature. Many of those countries fell behind on this front, allowing corruption and the influence of wealth to become the standard. The lack of campaign regulation early on had a great impact on the quality of life of the citizens of those countries as special interest groups tied the hands of the newly elected officials. Since then, some attempts at regulation have been made [source: IFES].

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All post-Communist countries have free radio and TV broadcasting available for candidates and parties. Almost all of them (94 percent) grant in-kind subsidies such as free postage and free use of public buildings. Disclosure regulations and complete or partial bans against foreign donations are in place in more than 80 percent. Direct public funding of candidates or parties takes place in more than three-quarters of the countries. Roughly half impose limits on spending and contribution.

The U.S. system of funding that comes from both parties and individual candidates is similar to Brazil's. However, most countries run their money through the party system, as limits are more often put on individual candidate expenditure. In England, candidates have low spending limits. Parties are freer to spend, and until recently had no limits at all. The result is that most campaign money is routed through the parties. The British Prime Minister can call for an election at any time during his or her term. This has led to shorter campaign periods than in the United States and as a result, less money spent campaigning.

In Japan, foreigners and corporations that are in deficit or receive government subsidies can't contribute to campaigns or parties. Labor unions and businesses can only give to parties and organizations established by parties, not individual candidates. One interesting feature of Japan's finance law is that individuals and groups are only allowed to donate to parties during election periods. However, parties can distribute those donations to the individual candidates. Disclosure is required from political organizations, but not from the individual candidates. Even so, there's no monitoring system in place to review financial records or to police those who violate these finance laws. Since parties can pass corporate contributions along to candidates, wealthy special interest groups are able to influence the outcome of elections.

Mexico has made great strides toward a fair electoral process in the last 15 years. The country has a mixed finance system in place that publicly funds campaign activity while allowing for a limited amount of private contribution. Electoral officials regulate the spending of public funds but lack the resources to police private donations [source: NDI].­

When talking campaign finance and reform, one thing is clear -- no country that holds elections for public office is free from corruption. Although reform measures are on the agenda in every one these countries, they're often met with resistance from big-money politicians, corporations and unions. And when policies are put in place, there's a universal lack of policing and enforcement.

For more information on campaign finance and reform, the links on the next page will point you in the right direction.

How Campaign Finance Works: Author's Note

Charles W. Bryant, Staff Writer
Charles W. Bryant, Staff Writer
HowStuffWorks 2009

As someone who believes that a political candidate should be elected based on merit alone, it's a little deflating to write about campaign finance. Everyone knows it takes money to win an election, but when you dig into the matter, it seems like money may be the overriding factor in whether or not a candidate is elected. Without heavy funding, a candidate has no chance, and "chasing the money" has become more and more commonplace with each election year. The good news is that the United States government knows this is a problem, and there's more regulatory legislation or proposed legislation than at any other time in our history. Here's one writer who hopes that the United States is able to clean up the election process and regulate the amount of money being contributed by groups or individuals with special interests.

Sources

  • Barnes, Robert. "5-4 Supreme Court Weakens Curbs on Pre-Election TV Ads." Washington Post. June 26, 2007. http://www.washingtonpost.com/wp-dyn/content/article/ 2007/06/25/AR2007062500548.html
  • Cillizza, Chris and VandeHei, Chris. "In Ohio, a Battle of Databases." Washington Post. Sept. 26, 2006. http://www.washingtonpost.com/wp-dyn/content/article/ 2006/09/25/AR2006092501414.html
  • Cohen, Alex. "The Long, Lonely Slog for Campaign Cash." NPR. Oct. 2, 2007. http://www.npr.org/templates/story/story.php?storyId=14892585
  • Heard, Andrew. "Canadian Election Laws & Policies." Simon Fraser University, Political Science Department. http://www.sfu.ca/~aheard/elections/laws.html
  • Ikstens, Janice and Smilov, Daniel. "Campaign Finance in Central and Eastern Europe. Lessons Learned and Challenges Ahead." IFES. April 2002. http://www.ifes.org/publication/13bd01923749e4e0c75ace14d694bbe5/ Campaign-Finance-Study-Final-English.pdf
  • Kuhnhenn, Jim. "Romney pumps millions into his presidential campaign." Boston Globe. Oct. 5, 2007. http://www.boston.com/news/nation/articles/2007/10/05/ romney_pumps_millions_ into_his_presidential_campaign/
  • Lioz, Adam. "The Case for Limits on Campaign Expenditures." The State PIRGs Democracy Program. http://www.buckbuckley.com/pdfs/spending_limits_policy_background.pdf
  • "2004 Election Outcome: Money Wins." Open ­Secrets. Nov. 3, 2004. http://www.opensecrets.org/pressreleases/2004/04results.asp
  • "Bipartisan Campaign Reform Act of 2002." FEC. http://www.fec.gov/pages/bcra/bcra_update.shtml
  • "The Federal Election Campaign Laws: A Short History." FEC. http://www.fec.gov/info/appfour.htm
  • "Public Funding of Presidential Elections." FEC. http://www.fec.gov/pages/brochures/pubfund.shtml#anchor684182
  • "Randall v. Sorrell." Duke Law. http://www.law.duke.edu/publiclaw/supremecourtonline/ ­certGrants/2005/ranvsor
  • "State and Local Overview" Campaignfinancesite.org. http://www.campaignfinancesite.org/structure/states1.html
  • "Statement of the NDI Pre-Election Delegation To Mexico's July 2, 2006 Presidential Elections" National Democratic Institute. 2006 http://www.accessdemocracy.org/library/2003_mx_preeelct_040906.pdf
  • "The States: Laboratories of Reform." OpenSecrets. http://www.opensecrets.org/pubs/history/history4.html
  • "What is Amendment 27?" Common Cause. http://www.commoncause.org/site/pp.asp?c=dkLNK1MQIwG&b=3119299

Campaign Finance: Cheat Sheet

Stuff you need to know:

  • The regulatory group that governs the donations, spending and public funding involved in a political campaign is the Federal Elections Commission.
  • The first politician to run an election similar to how we do so today was President Andrew Jackson.
  • Abraham Lincoln nearly bankrupted himself by largely financing his campaign with his own money.

Now, test your knowledge with these quizzes!

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