Campaign finance reform began not with Watergate but during the Progressive Era, when--not coincidentally--the first federal regulatory activities came into being. Theodore Roosevelt actually proposed public financing of elections in 1907, arguing that "if our political institutions were perfect, they would absolutely prevent the political domination of money in any part of our affairs." Though public financing was as much a nonstarter then as it is now, Congress did prohibit corporate campaign contributions. During World War II this ban on contributions was extended to labor unions.
But if corporate and labor union contributions are banned, how is it we so often read in the paper that some corporation has contributed thousands of dollars to a particular candidate, or that labor unions are planning to spend millions of dollars in this November's election? Corporations and labor unions are allowed to have their own political action committees, and although corporate funds may not be used for contributions, a corporation may pay the PAC's administrative expenses.
Corporations raise their money from a defined "restricted class" of employees, usually executives, administrators, shareholders, and their families. Corporations and their PACs are not allowed to communicate with their entire labor force. Labor unions, on the other hand, are technically "membership organizations," and as such can raise PAC funds directly through dues and "communicate" (which includes endorsing candidates) with all of their members. This is how labor unions are able to raise and spend millions without running afoul of the contribution limits or independent expenditure regulations. Strict contribution limits have led to a proliferation of alternative routes for money from organized interest groups. The biggest end run around the contribution limits is "soft money," which is a donation to the "non-federal" bank accounts of official political party committees, such as the Republican National Committee or Democratic National Committee.
"Soft money" is not tied to any individual candidate but is supposedly intended for "party-building" activities, such as voter registration drives and opinion polling. There are no limits on "soft money" contributions, which is why Dwayne Andreas of Archer- Daniels-Midland can give millions directly to both political parties and maintain the fiction that he isn't trying to buy ethanol subsidies because he doesn't contribute much directly to candidates. Charles Keating attempted to use this route to give more than $1 million indirectly to several senators in exchange for their calling off the bank regulators--but earmarked soft money (as well as the purchase of official action) are big no-nos in federal election law. Similarly, using another loophole, Andreas can allow Bob Dole and other politicians to fly on his private jet for the cost of a first class airline ticket, and it doesn't count as any kind of contribution or personal gift.
The second end run around the direct contribution limits is "bundling," in which a political organization rounds up a large number of individual contributions and forwards them to a favored candidate. This is the technique perfected by EMILY's List, which raises large sums for women Democratic candidates.
Finally, there is the "independent expenditure." PACs or individuals who feel especially strongly for or against a candidate can exercise their First Amendment right of free speech, launch a media campaign, and spend any sum of money they choose.
Independent campaign activities, however, must be "uncoordinated" with the candidate, although it is permissible (but risky) to "inform" the candidate of your plans. Organizations that engage in "indirect" political activity, such as GOPAC in the days when it was mostly a cassette tape distribution service and not a real PAC at all, are not subject to contribution limits or reporting requirements. Hence, a wealthy donor who faces a $5,000-per-election limit for contributions to a PAC can give unlimited amounts to organizations that do not formally support individual candidates. Such organizations, of course, provide a handy means for donors to give large sums to benefit the pet projects of their favorite politicians. The basic problem with campaign finance reform is that campaign contributions are like the proverbial toothpaste tube: Squeeze it here, and it will swell up somewhere else. The attempt to limit the influence of money in politics through regulation is futile so long as moneyed interests have so much at stake in what goes on in Washington. Interests will always find a way around the regulations to feed the politicians' insatiable demand for money. The only sure means of reducing the corrupting effect of money in politics is to reduce the size and scope of government.