Gagging on Political Reform

The Federal Election Commission and its "good government" allies are crushing free speech.

Well before either major political party had held its 1996 convention, they were already accusing each other of violating the election laws in various arcane ways. Bob Dole even warned NBC's Katie Couric during an interview that her line of questions might be against these laws. We can expect more such charges as the major, well-funded contenders attempt to harass one another.

But we can also expect the Federal Election Commission to turn its ever-more-ambitious regulatory attention to grassroots groups and citizens who want to take part in the debate, too--groups far less well-funded and less capable of extricating themselves from the tangle of FEC regulations. Such groups will encounter an FEC that functions more and more as a censor of political expression, especially by issue-oriented, grassroots activists.

Regulating political speech was once unthinkable. In a provocative 1973 essay, Nobel laureate economist Ronald Coase disparaged even the possibility. Noting the "large number of false and misleading statements" in newspaper articles and political speeches, Coase wrote: "Government action to control false and misleading advertising is considered highly desirable. Yet a proposal to set up a Federal Press Commission or a Federal Political Commission modeled on the Federal Trade Commission would be dismissed out of hand."

But less than a year later, Congress reacted to the trauma of Watergate by creating the FEC, which has ever since been attempting to assert itself as just such a political power. It wasn't that Coase was shortsighted: Congress did not mean to censor political speech, and the courts have for years attempted to restrain the commission's regulatory reflexes. Rather, the FEC is a case study in the growth and transformation of oversight power. It begins with the reform of political financing, develops into ever more complex regulation of political activities, and finally matures into attempts to control political speech itself.

The result is that political expression, which the framers of the First Amendment clearly intended to be the most protected kind of speech, is in fact today the least protected. If the FEC and its good-government--or "goo-goo"--cheerleaders have their way, the attack on the First Amendment will get a lot worse.

Limiting Funds and Limiting Speech

The FEC is supposed to be roughly analogous to the Securities and Exchange Commission, which promotes full disclosure of essential information to investors and seeks to enforce certain fundamental rules to prevent fraud and market manipulation. Indeed, most people probably suppose that the FEC is chiefly in the business of collecting campaign contribution reports from candidates and imposing fines when contribution limits have been exceeded or when presidential campaigns (which operate by their own set of rules) go over spending limits.

But in fact the FEC is increasingly behaving like a combination of the Federal Trade Commission and the Internal Revenue Service. Like FTC enforcement, the FEC's activities frequently seem arbitrary, and its regulatory burden falls disproportionately on the "little guy." And as with the IRS, any political organization that falls into its ever-expanding purview is subject to burdensome and complicated reporting requirements and restrictions. Like the IRS, the FEC has the authority to audit finances and can haul a political committee's hapless treasurer into court for filing reports late or incorrectly.

FEC regulations can hamstring grassroots groups in two principal areas. First, they govern whether political messages that discuss current events constitute "express advocacy" of a candidate's election or defeat. If so, the cost of the spot is credited either as an "independent expenditure" or a "contribution" to the relevant campaign. Second, they determine whether such activity by a corporation, even an incorporated nonprofit, can be construed as a violation of the ban on corporate campaign contributions.

To understand the full story, it is necessary to know the rudiments of these campaign finance regulations and a little of the history behind how they operate today. In the aftermath of the Watergate scandal, Congress in 1974 passed amendments to the Federal Election Campaign Act that set strict contribution limits of $1,000 per donor per candidate per election. The act also set an aggregate contribution cap of $25,000, meaning a wealthy donor could not make $1,000 contributions to more than 25 candidates in an election. Political action committees enjoy higher limits; you can give $5,000 to a PAC, and a PAC can give $5,000 per candidate per election to as many candidates as it wishes. These caps, it is important to note, are not adjusted for inflation. Today the maximum amounts have roughly one-third the value they had when they were enacted.

These relatively low contribution ceilings naturally created intense interest in alternative ways to influence elections (see sidebar below). The authors of the 1974 FECA amendments anticipated this effect. So the amendments attempted to ban independent expenditures of more than $1,000 and to limit candidates' spending. But both spending and independent expenditure limits were quickly struck down by the Supreme Court in the landmark 1976 case Buckley v. Valeo. In that case the Court ruled that FECA's spending caps violated the First Amendment's free speech guarantee, but it upheld the contribution limits.

Subsequently, the Court has, in a number of cases, affirmed that corporations as well as real people have First Amendment free speech rights. However, corporate free speech rights can be regulated (or, in the case of federal campaign contributions, prohibited) in the interest of preventing corruption.

A Bright Line in the Sand

The Court also wrestled with the problem of identifying what kind of political speech could be considered an independent expenditure, and it crafted a definition of "express advocacy" that has been at the heart of the FEC controversy ever since. Many organizations--for example, this magazine's parent, the Reason Foundation, or the National Organization for Women--comment on controversial issues and the opinions elected officials may have on those issues. To safeguard such issue-oriented speech from burdensome FEC regulations and the blanket ban on corporate election spending, the Court crafted a bright-line standard.

It stated that a political message must clearly identify a specific candidate and "expressly advocate" the candidate's election or defeat with words such as "vote for," "elect," "defeat," "reject," or "cast your ballot for." In an era when Supreme Court opinions are notorious for their ambiguity and narrow application, the Buckley decision stands out for its clarity and broad application.

But the FEC and the goo-goos have never been satisfied to live within the strictures of Buckley. To the reform mentality, any kind of political speech that escapes FEC regulation represents a "loophole" that ought to be closed, and the Buckley express advocacy standard allows many kinds of political speech to fall outside of campaign regulation. The FEC has proposed a broader standard, encompassing messages which, when "taken as a whole," include "expressions of support for or opposition to a clearly identified candidate."

"Taken as a whole" is the key phrase. This guideline is a clear attempt to turn express advocacy into implied advocacy. This is intended to get at such devices as the voter's guides that activist groups distribute around election time, containing information about how various candidates stand on issues of particular concern. They seldom include explicit endorsements, leaving readers to connect the dots for themselves.

The judiciary has repeatedly thumped the FEC on the snout for its attempt to implement a broader express advocacy standard. In a series of cases over the past decade, the Supreme Court and lower courts have said to the FEC, in effect: We really meant what we said in Buckley; stop trying to get around it.

The 'Evil' of Expression

In 1979, the FEC brought an action against the American Federation of State, County, and Municipal Employees, taking issue with a poster AFSCME had produced before the 1976 election depicting President Gerald Ford hugging Richard Nixon, with the headline "Pardon Me." A federal district court rejected the FEC's contention that the poster amounted to express advocacy, saying that the poster represented political speech protected by the First Amendment.

The FEC was not to be deterred by this early setback, and it brought a suit against the Central Long Island Tax Reform Immediately Committee (CLITRIM), a grassroots anti-tax group. CLITRIM had circulated a voter's guide that discussed the organization's views on taxes and government spending, along with the stands local candidates had on these issues. The publication did not contain any of the express advocacy terms spelled out in Buckley. The nearest it came was the suggestion, "if your Representative consistently votes for measures that increase taxes, let him know how you feel."

This time the Second Circuit Court of Appeals delivered the FEC's rebuff, writing pointedly that "contrary to the position of the FEC, the words 'expressly advocating' meant exactly what they say….The [FEC's] position is totally meritless." As if to underscore its impatience, the court added, "The danger [to the First Amendment] is especially acute when an official agency of government has been created to scrutinize the content of political expression, for such bureaucracies feed upon speech and almost ineluctably come to view unrestrained expression as a potential 'evil' to be tamed, muzzled or sterilized."

The Supreme Court revisited the issue in 1986, in a case the FEC had brought against Massachusetts Citizens for Life (MCFL), an anti-abortion group that had circulated a newsletter before the 1978 election titled "Everything You Need to Know to Vote Pro-Life." MCFL surveyed nearly 500 candidates, featured several hundred, and spent under $10,000 to produce the newsletter. It listed pro-life candidates on a coupon that voters could take to the polls. The FEC contended that this was express advocacy and sought a $5,000 civil penalty against MCFL. The heart of the FEC's complaint against MCFL was that because MCFL was a corporation (albeit a not-for-profit corporation), it had violated the prohibition against corporate campaign contributions.

Allowing Advocates to Advocate

The Supreme Court agreed with the FEC that the take-to-the-polls coupon did constitute express advocacy, but, significantly, the Court recognized that nonprofit, issue-oriented organizations exist precisely for the purpose of engaging in this kind of political speech. So the Court carved out an exception to the ban on corporate campaign contributions, allowing certain nonprofits to spend general corporate funds for political messages.

The Court concluded that if a nonprofit was formed to express ideas, rather than for a business purpose; has no shareholders; and was not established by a business corporation or labor union, the corporate spending ban could not constitutionally apply to its activities. Groups that advocate positions on social issues probably fall within the test, but groups formed by businesses to advocate positions on economic issues, such as the U.S. Chamber of Commerce, cannot take advantage of this exception.

Buoyed by this partial victory (MCFL did have to report its expenses for voter's guides to the FEC as an independent expenditure), the FEC crafted a regulation saying that voter's guides must not "suggest or favor any position on the issues covered" or offer any "editorial opinion." It immediately set out after Maine Right to Life for a voter's guide that discussed candidates according to a 0-to-100 rating system.

Once again the FEC was slapped down in court. The U.S. Court of Appeals for the First Circuit used direct and clear language: "Trying to discern when issue advocacy crosses the threshold and becomes express advocacy invites just the sort of constitutional questions the Court sought to avoid in adopting the bright-line advocacy test in Buckley….It is not the role of the FEC to second-guess the wisdom of the Supreme Court."

The FEC also went after fundraising letters from the National Organization for Women and the Survival Education Fund that contained disparaging comments about officeholders, including President Reagan. The FEC lost these cases in district court.

Pictures, Parties, and Pandora's Box

More recently, the FEC hauled the Christian Action Network into court for TV ads it had produced before the 1992 election that were critical of then-candidate Bill Clinton's position on homosexuality. Although the ads contained none of the express advocacy terms spelled out in Buckley, the FEC sought to create a new standard for video, arguing that visual messages should be evaluated differently than purely verbal messages because visual messages "raise strong emotions amongst viewers."

Once again, a district court sent the FEC packing, writing: "To expand the express advocacy standard…in this manner would be to render the standard meaningless. Such an expansion of the judicial inquiry would open the very Pandora's Box which the Supreme Court consciously sought to keep closed."

In June of this year, the FEC's crusade to cast a wide net over independent political advocacy received its sharpest setback yet, in Colorado Republican Federal Campaign Committee v. FEC. This case arose out of radio ads by the Colorado Republican Party attacking then-Sen. Tim Wirth's positions on various issues. These ads were broadcast months before the 1986 election, when there were no declared Republican candidates running for the seat. But the FEC sought to have these radio ads deemed express advocacy on behalf of the eventual Republican nominee, and therefore to count against the party's spending limit. In effect, the FEC's interpretation made it technically impossible for parties to make independent expenditures.

The Court sided with the Republican Party, striking down the limitations on independent party expenditures, reasoning that even a political party was entitled to express its views independent of coordination with a candidate. In an unexpected sign of timidity, however, the Court did not address the question of whether the Wirth advertisement contained express advocacy at all. Whether this lapse indicates a First Amendment loss of faith on the Court remains to be seen.

The Commission from Another Planet

The FEC has suffered the worst losing streak since the 1973 Philadelphia 76ers went 9-73. But the agency is stubborn, and has promulgated rules that flagrantly ignore the standards of Buckley. These regulations include the Buckley "magic words" test but also find express advocacy in communications that, "[w]hen taken as a whole and with limited reference to external events, such as the proximity to the election, could only be interpreted by a reasonable person as containing advocacy of the election or defeat of one or more clearly identified candidate(s)."

To apply this "reasonable person" standard, the regulations require the FEC to consider whether the advocacy is "unmistakable, unambiguous, and suggestive of only one meaning;" and "[r]easonable minds could not differ as to whether it encourages actions to elect or defeat one or more clearly identified candidate(s) or encourages some other kind of action." Hardly the model of clarity anticipated by the Supreme Court.

Significant portions of these regulations were declared unconstitutional in a second case brought by the Maine Right to Life Committee. But since this is a federal district court decision, it does not provide precedent to protect corporations outside the District of Maine. Elsewhere, both parts of the express advocacy definition will be enforced by the FEC. Once again, grassroots groups cannot freely exercise their First Amendment rights as determined by the Supreme Court.

Former FEC Chairman Trevor Potter acknowledged this stubbornness: The FEC is "close to being on a different planet from the Supreme Court." Conversely, Commissioner Danny Lee McDonald complains that "the Court just doesn't get it."

An Insiders' Game

If the problem with government regulation of politics were simply a matter of the FEC's definition of express advocacy, then--given the judiciary's solicitude for the First Amendment and its jaundiced eye toward the FEC's animadversions--there might not be that much to get upset about. But there is much more to this story than a dispute about the law of free speech. As a practical matter, because of the ambiguity and complexity of the campaign finance laws, participating in the political process, even indirectly through issue advocacy, is becoming as difficult, confusing, and cumbersome as complying with the income tax laws.

Like the tax laws, the campaign finance laws seem largely arbitrary and evolve from case to case as the FEC tries to keep its thumb on every species of ordinary political behavior. The result is a contradictory patchwork of complex rules that is transforming the world of political campaigning into a domain for insiders and experts.

Just as executives and entrepreneurs can't make a move without consulting their accountants about the tax consequences, most public affairs executives and PAC directors can't take many actions today without consulting their election law attorneys. When it's easier to calculate the tax consequences of a like-kind transfer than it is to determine whether you can solicit a contribution from someone on behalf of an organization you both belong to, something is clearly wrong.

If your organization is deemed to have "expressly advocated" in favor of (or against) a particular candidate, the FEC will deem it an independent expenditure in that campaign, or an "in-kind" contribution to the candidate's campaign if you are careless enough to mention your plans to a campaign staffer. In either situation, your organization becomes subject to the complex FEC reporting requirements, as well as the possibility of civil fines if you don't do the reports correctly. This puts the FEC in the business of regulating speech depending on its political content; if you want to avoid having to submit to FEC reporting requirements and contributions limits, you better watch what you say.

To appreciate how perverse this is, consider the following paradox: If you set up a pornographic site on the World Wide Web, the government cannot regulate you in any way. But if you set up your own "Vote for Bill Clinton" site on the Web (or simply print your own bumper stickers), and spend more than $250 on the project, you become subject to FEC reporting requirements. If you spend more than $1,000, you have to register with the FEC as a "political committee." While the actual expense of registering and reporting is negligible (provided you do so correctly), failure to file could result in a substantial fine--even if you never have a single contact with the Clinton campaign.

To be sure, the FEC is not saying that you can't exercise your right to political speech; it is only saying that you must submit to the "disclosure" process if you do. But this scheme would seem to fall within the compass of Judge Joseph Story's famous maxim that what the government may not do directly it may not do indirectly. And the indirect effect of this regime is clear: It is more difficult and costly to engage in political speech. The practical result, of course, is to reduce participation from genuine grassroots organizations, which lack the resources and the expertise to comply with this increasingly complicated system.

A Culture of Complaints

In other contexts the goo-goos of the world could be expected to complain about the "chilling effect" this regime is having on political speech. But in fact the goo-goos are a large part of the problem. While the IRS and other federal agencies with investigatory and audit powers typically initiate their own investigations, the FEC routinely opens investigations of political activities at the behest of private parties.

In fact, more FEC investigations result from outside complaints than from the FEC's own initiative. Goo-goo groups such as the Center for Responsive Politics and Common Cause specialize in filing complaints with the FEC alleging violations by PACs, candidates, and donors, which the FEC frequently acts upon. The Center for Responsive Politics pores over contribution reports and prides itself on blowing the whistle on individuals who exceed their aggregate $25,000 annual contribution limit.

Filing an FEC complaint has become a favorite harassment tactic for opposing campaigns and interest groups. The National Abortion Rights Action League brought the initial complaint against Massachusetts Right to Life back in 1978. Anti-abortion groups have brought complaints that resulted in FEC investigations of NOW and Planned Parenthood. The Republican and Democratic parties bring complaints against each other regularly. And the Democratic Party launched an attack on the Christian Coalition, alleging that it made a variety of forbidden contributions and expenditures on behalf of candidates running in 1992 and 1994. Just recently, the FEC filed suit based upon those allegations.

Once a complaint is filed, the FEC opens a "Matter Under Review" (MUR) investigation. The MUR files are made public at the conclusion of the investigation, which can take years to complete. Our analysis of the 524 MURs completed and made public during the past three years shows that 366 were initiated as a result of outside complaints. And, in an unusual twist, federal law allows complainants who are dissatisfied at the FEC's dismissal of their complaint to file suit in federal court. Hence, your opponents can use federal election laws to make your life miserable even when the FEC won't play along. A case involving the American-Israel Public Affairs Committee, originally filed with the FEC in January 1989, is still in court.

The Cost of Doing Politics

Those unfortunate groups that do become the object of an FEC investigation face high costs and years of legal battle. While these expenses are a "cost of doing politics" for the well-larded major parties, candidates, and committees, they can crush smaller organizations. A good example of how this process works, and how FEC investigations stifle speech, is the case involving the AIDS activist group ACT-UP (AIDS Coalition To Unleash Power).

During the 1990 election season, ACT-UP chapters in Washington, D.C., and San Francisco announced a boycott of Philip Morris because of the company's support for Sen. Jesse Helms (R-N.C.), then in a tough fight for re-election against Harvey Gantt. The boycott had originated with the Dallas Gay Tavern Guild, which encouraged gay-owned bars and taverns to stop buying Miller beer, made by a Philip Morris subsidiary. Although none of the ACT-UP materials used any of the Buckley-proscribed terms, an ACT-UP member told the Washington Blade, a gay newspaper: "It all stems from our opposition to Helms. We've got until November to take whatever measures are at hand to defeat Jesse Helms….We have got to get rid of Helms."

This was enough for the Helms campaign to file a complaint with the FEC in August 1990 charging that neither ACT-UP nor the Dallas Gay Tavern Guild were "registered political committees," and they were therefore "ineligible to expend funds in connection to a federal election." Further, the complaint wondered if ACT-UP and the Tavern Guild had violated the ban on corporate contributions. The FEC's counsel ruled that there was sufficient basis to launch an investigation.

An FEC MUR investigation resembles an ordinary piece of litigation, with all the attendant expense and delay. Each of the organizations and several of the individuals within them had to retain separate legal counsel. Following discovery, the FEC determined that ACT-UP had spent more than $5,000 to organize and publicize the boycott, and that this expense constituted an independent expenditure and possibly an illegal corporate contribution. ACT-UP and the other subjects of the investigation had surely racked up many times this amount in legal fees fighting the FEC. (These ACT-UP chapters no longer exist, and calls to their attorney of record asking for comment were not returned.)

By now it was 1993, the election long over, and Helms safely re-elected. Nonetheless, the FEC was pressuring ACT-UP to enter a "conciliation process," in which the FEC "negotiates" with you about the size of the civil fine you will have to pay. ACT-UP decided to continue fighting the FEC. In 1994 the FEC's general counsel, Larry Noble, advised the commissioners to drop the investigation, chiefly because so much time had passed and the ACT-UP chapters involved had gone out of business!

This kind of tortuous process is typical of FEC investigations. One MUR concluded earlier this year dealt with George Bush's campaign appearances in 1988, when he was vice president. Just as Democrats are complaining that Bob Dole violated the spending limits last spring by having the Republican National Committee pay for his travel when his own campaign could no longer legally spend money, Bush in the spring of 1988 traveled at the expense of the Ohio Republican Party to "party building" rallies and meetings. In the course of his remarks, Bush would sometimes lash out at Michael Dukakis, the Democrats' then-apparent nominee. Democrats complained to the FEC, whose investigation stretched over seven years.

The controversy turned on whether Bush's attacks on Dukakis amounted to "express advocacy" on the part of the Ohio Republican Party, or whether, as that party argued, Bush's remarks "taken as a whole" were "incidental" and therefore fell short of the FEC's expansive express advocacy standard. Like this episode from 1988, the current Democratic charges that Dole overspent, and Republican charges that Clinton violated the law in directing Democratic National Committee TV advertising in the spring, can be expected to reverberate around the FEC for years to come.

Critics charge that the FEC, whose $25 million annual budget makes it minuscule by federal standards, is notoriously ineffective: Its investigations of campaign finance law violations seldom begin until after an election has taken place, and they usually drag on for years. Often the investigations are dropped because too much time passes, or because the investigated organization goes out of existence. In 1993 the FEC dismissed 137 cases, and in July 1994 it dropped 29 more cases, including those dating from the 1992 presidential campaigns.

The fact that virtually every presidential campaign since the FEC came into being has been fined for some infraction suggests that FEC oversight could be regarded as a kind of campaign excise tax, since the fines are not levied until well after the election is over. But as the implications of government regulation of politics become more clear, we may well be thankful that the FEC enforcement capacity lags so far behind its workload.

Giving Away Air

Recognizing how complex the regulation of campaign finance has become, the FEC issues "advisory opinions" to any person or organization seeking clarification of what they can and can't do. FEC advisory opinions require assent of four of the six FEC commissioners; if the commission members deadlock, you're on your own. This process sets up the FEC as the "Mother May I" agency for political activity and lays bare the power of the FEC to clog up the nation's political arteries.

For example, goo-goos are ecstatic right now at the TV networks' offer to give presidential candidates free air time this fall. The irony is that, narrowly construed, giving free TV time is a violation of the ban on corporate campaign contributions that goo-goos otherwise support. The FEC has a long record of issuing advisory opinions saying that businesses may not give away anything of value that they otherwise sell or for which they require a deposit (e.g., phone services, T-shirts, computers). TV networks sell programming or advertising to support programming, and air time would seem to fall clearly into the category of goods or services that can't be given away. None of the TV networks has asked for an advisory opinion, and, predicts former FEC Chairman Potter, "There's no way the FEC is going to rule that this offer is illegal, because it is so popular with everyone. If asked, they will find a way to say that it fits under the general 'news event' exception that exists in the law for newspapers, TV, and radio."

But not all media can expect to find such favor. In January, CompuServe asked for an advisory opinion on whether it could offer free on-line sites to any federal candidate who wished to have one. The FEC said no: Even though CompuServe does give away some free on-line sites from time to time, "the Commission still concludes that your proposed gift to Federal candidates of valuable services which enable them to communicate with voters and advocate their candidacies would constitute in-kind contributions to those candidates and would be prohibited."

A Manifest Failure

The issue of federal regulation of politics seldom reaches the threshold of public consciousness, chiefly because people are disgusted by the open, brazen influence of interest-group money in Washington. That none-too-well-concealed influence peddling distracts us from the deeper issue of whether it is advisable, let alone possible, for the government to regulate the very political process by which it is reconstituted at each election.

The existing regulations have done very little to reduce the actual influence of big money in politics. Instead, the political reforms of the Watergate era have made campaign financing into an even finer art, largely dominated by insider practitioners in Washington. If anything, the post-reform climate has enhanced the ability of special interests to influence Congress, demonstrating again that the law of unintended consequences is the most frequently enacted of all laws (though whether this effect was in fact unintended may be open to a healthy skepticism). Meanwhile, genuine grassroots citizen groups face substantial hurdles to effective participation. The result is a distinct chilling of political speech, if not a direct attack on the First Amendment.

A few keen observers of this situation, such as the University of Virginia's Larry Sabato, recognize that campaign reform is a manifest failure and that we should ease or remove existing campaign finance regulations. In their recent book Dirty Little Secrets, Sabato and Glenn Simpson advocate what they call "deregulation plus," which would involve significantly increasing--if not abolishing--contribution limits, along with strengthened disclosure rules. We should, they argue, "[l]et a well-informed marketplace, rather than a committee of federal bureaucrats, be the judge of whether someone has accepted too much money from a particular interest group or spent too much money to win an election."

Conventional wisdom runs the other way: Reformers want a vast expansion of the government's power to regulate politics. Although campaign finance reform recently died (again) in Congress, it is sure to return for an encore engagement, cheered on by Common Cause, the Center for Responsive Politics, Ralph Nader's Public Citizen, and other goo-goos who are often the darlings of a goo-goo media.

Reformers would like to ban "soft money" and "bundling," and sharply curtail independent expenditures. Since independent expenditures are protected under the First Amendment and can't be banned outright, the reformers propose a scheme of public financing under which a candidate would receive extra public funds to match any independent expenditure on behalf of his or her opponent.

Reformers also seek a blanket ban on PACs, which would almost surely be unconstitutional. Even more ominous, the goo-goos have proposed giving the FEC injunctive powers, so that it could step in during an election campaign and stop unregulated political activity, such as ACT-UP's boycott or a Christian Coalition voter's guide.

This would amount to setting up a political police. In the words of Jan Baran, a Washington attorney who represents a variety of clients in election law matters (he argued the Colorado case before the Supreme Court): "The political police have never been benign anywhere. Why do we think we can be any better at it than any other society? Are we somehow special?"

SIDEBAR: Moving Money Around Washington
A Brief Tour of "Bundling" and Other Beltway Bypasses

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.

Contributing Editor Steven Hayward ([e-mail]) is vice president for research at the Pacific Research Institute, a San Francisco-based think tank. Allison Hayward (Allison_Hayward/[e-mail]) practices election law with the Washington, D.C., firm of Wiley, Rein and Fielding. She represents a variety of clients in matters relating to the FEC. Nothing in this article necessarily represents the views of the firm or its clients.