Free Money - loopholes in campaign finance laws

Reason, August, 2000 by James V. DeLong

Congress did not go that far, but it did ban corporate contributions to federal elections in 1907, require disclosure in 1910, impose expenditure limits in 1911, and require yet more disclosure in 1925. During the New Deal, Republican fears of the new army of bureaucrats brought about the Hatch Act of 1939, which limited government employees' political activity. As a balancer, caps were imposed on individual contributions to campaigns and on expenditures on presidential elections. The rising power of unions was attacked in 1943, when they, like corporations, were forbidden to contribute to federal campaigns.

It did not take long to find loopholes in these reforms. For example, the parties quickly decided that the 1939 limits on contributions and expenditures applied only to individual committees and that there was no limit on the number of committees a party could form. The 1940 election was characterized by multiple committees, no real limits on either contributions or expenditures for anyone who knew enough to write more than one check, and a new record for money spent on a presidential election: $21 million, or $257 million in 2000 dollars.

Costs kept rising--Johnson vs. Goldwater cost $60 million in 1964, Nixon vs. Humphrey $100 million in 1968 ($331 million and $492 million, respectively in current dollars)--and the issue finally erupted in the 1970s. In 1971 Congress passed a mild bill, directed mostly at disclosure. The election of 1972 set new records for spending ($400 million for all parties in all races, or $1.6 billion in current dollars) and was followed by the post-Watergate disclosures of sleazy tactics. With the public aroused, the result was the Federal Election Campaign Act of 1974.

It was promptly challenged by one of the oddest coalitions ever to enter a courtroom. The plaintiffs included conservative New York Sen. James Buckley (brother of William F.), liberal Sen. Eugene McCarthy, the American Civil Liberties Union, the Mississippi Republican Party, and the Libertarian Party. In Buckley v. Valeo, the U.S. Supreme Court rightly found that large chunks of the law violated the First Amendment right of free speech. Other provisions were upheld, though, based on distinctions not readily apparent to the naked eye.

Buckley was quickly followed by important decisions of the new Federal Election Commission (which had been established by the 1974 law) and then by more congressional action in response to both the Court and the FEC. When the dust settled, we had pretty much our current system, though there have been some tweaks since, largely in the form of FEC and judicial interpretations of the '74 law.

Speech Impediments

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.