Free Money

Campaign finance "loopholes" are the best part of the system.

James V. DeLong from the August/September 2000 issue

(Page 2 of 5)

The fundamental problem with controlling campaign finance involves free speech. How can government constitutionally prohibit someone, whether an individual or a corporation, from running an ad that says "Candidate X is a schmuck" or "Candidate Y voted for higher defense budgets"? In fact, given First Amendment precedents, how can the government prevent a citizen from donating money for a candidate to spend on such messages? Free speech rights are not easily reconciled with the laws passed in the 1970s, and the courts have spent a quarter-century in the delicate political task of accommodating reformist alarms without doing excessive violence to the Constitution.

The task is complicated by the reality that campaign laws present a stark fox-guarding-the-henhouse scenario: Except for judicial enforcement of the Constitution, incumbents have carte blanche to write the rules under which people will try to unseat them. Any legislators who cannot protect themselves forever are too dumb to deserve to stay in office. In 1998, political action committees gave $220 million to congressional races; 78 percent went to incumbents, 10 percent to challengers, and 12 percent to candidates in open-seat races.

The courts are not big on contemporary political theory, and they rarely make use of public choice models that assume politicians, like actors in the private sector, relentlessly seek to increase their market share. The models of administrative law the courts do use are all based on treacly New Deal platitudes. Nonetheless, many judges, especially in the U.S. circuit courts, are aware of the campaign laws' potential as incumbent-protection devices, and this awareness infuses their decisions, however subtly. In Shrink Missouri Government v. Adams (1998), for example, the U.S. Court of Appeals for the 8th Circuit expressed skepticism about the testimony of various state legislators concerning the need to battle "corruption," noting that they had failed to cite any actual instances.

In Buckley, the Supreme Court struck down provisions of the 1974 law imposing limits on expenditures in House and Senate races. It also threw out, as an unconstitutional abridgement of free speech, limits on how much a wealthy person can spend on his own campaign. But limits on how much a person can give to someone else's campaign were upheld, and so were limits on how much an individual can give to all campaigns in a single year. Money, in the Court's view, somehow loses its character as speech when it leaves the donor's hands. Stewart Mott, the heir to a fortune in General Motors stock who largely funded Eugene McCarthy's 1968 insurgency, would no longer be able to do such a thing, though he could run himself and spend as much as he wanted. Hence the candidacy of Steve Forbes, who had to carry the economic reform banner himself because he was not allowed to finance a campaign by anyone else.

The contribution limits--$1,000 to individual campaigns and $5,000 to PACs per year, up to a total of $25,000 per year--have not been raised since 1974, even though inflation has reduced their real value by two-thirds. The next time some incumbent moans about how much time he spends raising money, think of how simple it would be to increase the limits, and suppress your sympathy. The limits may make an incumbent's life unpleasant, but they make a challenger's impossible, and that is why they remain.

Pre-1974 bans on campaign contributions by corporations and unions remained in place, except that the 1974 law allows these organizations to pay the costs of administering political action committees. PACs can collect contributions from individuals and dole them out to candidates, subject to the limit on the amount contributed to any single campaign.

The law also established the FEC to administer the system, write regulations, and implement myriad reporting requirements imposed on everyone who dabbles in elections. This has led to a numbing array of nit-picking rules. The FEC's Campaign Guide for Corporations and Labor Unions is 80 pages long, and the print is small. There are separate guides for party committees, for candidates, and for PACs. The FEC digest of court cases on the law decided between 1976 and September 1999 contains 328 entries. The list of FEC advisory opinions issued since 1977 totals more than 1,130. These concern issues such as whether companies may reimburse their employees for making campaign contributions (forbidden) and whether fathers may funnel dollars through their kids (also forbidden, but you can use your spouse, as long as both names are on the account and both sign the check).

Forbidden Words

The biggest regulatory challenges come from those areas that reformers call "loopholes" and others call the exercise of free speech rights. These fall into three categories: independent expenditures, soft money, and volunteer activity.

An independent expenditure is spending by someone outside a campaign that is not coordinated with the campaign. Advertising is the most obvious example, but the category also encompasses material such as voter guides. If these were classified as campaign contributions, it would be illegal for businesses, unions, and nonprofit corporations to make them at all. For individuals, their cost would count against contribution limits.

In 1974, Congress, acting just as a public choice theorist would predict, did indeed try to control independent expenditures. But the pesky Supreme Court would not agree. In Buckley, it read the statute narrowly so as to avoid constitutional problems (a tried and true legal technique), saying the prohibition of corporate expenditures "in connection with an election" extended only to contributions to candidates and "express advocacy," which meant ads using phrases like "Vote for Candidate X" or "Defeat Candidate Y."

"Issue ads" that present an argument and perhaps link it to a candidate but that stop short of express advocacy are not covered by the law. Similarly, other expenditures of all sorts are allowed as long as they are not coordinated with a particular campaign. A later case held that even express advocacy is protected if it is conducted by a nonprofit corporation and is not coordinated with a candidate's campaign. (A fortiori, this applies to individuals.) The FEC has moved to bring such spending into the system, though, counting donations to advocacy groups against limits on individual contributions to candidates and requiring extensive reporting.

After Buckley, groups with a stake in elections learned the arts of independent action and issue advocacy. Unions poured $40 million into the 1996 election, environmentalists use issue advocacy regularly, and various conservative groups depend on it. To reformers, this participation by groups that care about issues is a "loophole."

A brisk legal business advises people how to walk the line between issue advocacy, which escapes regulation, and express advocacy. To the FEC, an ad saying, "Higher defense spending is good; Congressman X is opposed to it," is express advocacy. But if it says, "Higher defense spending is good; write Congressman X and tell him to change his position," it is an issue ad. The FEC keeps pushing to expand the law's coverage, and the courts, for the most part, keep pushing back. (See "Feckless FEC," July 1997.)

In one of the weirder aspects of this odd field, the definition of express advocacy differs in the East and the West. The U.S. Court of Appeals for the 9th Circuit, which covers California and eight other states, supports a squishy FEC test that says it all depends on what you intended to do. Other circuits say that only the precise words mentioned in Buckley and their synonyms are covered.