Soft Money, Hard Money: Campaign-Finance Reform’s Impact on Business

The U.S. Supreme Court’s decision to consider the constitutionality of the controversial Bipartisan Campaign Reform Act (BCRA) raises the prospect that the act’s ban on corporate and union political donations will be made permanent, and the business community will be forced to find alternative ways of advancing its agenda on Capitol Hill.

 

The court is expected to begin its examination in the fall, following a decision by a federal district court to suspend its own conclusions on the act after a six-month review that was published May 2. In a monumental 1,638-page report, the court upheld some parts of the act and struck down others but reached no unified decision and left campaigners on both sides little wiser as to which parts of the law would be allowed to stand.

 

The district court’s report on the Act – better known as McCain-Feingold for its principal Congressional sponsors – was the subject of a symposium held by the University of Pennsylvania Law School and the National Constitution Center on May 15. The event, which featured speakers from academia and groups such as the non-partisan Campaign Finance Institute, examined and critiqued the court’s conclusions and looked at their political implications.

 

At the heart of the act, which was signed into law in March 2002, is the ban on “soft money” being raised or spent by political parties and candidates. Soft money consists of donations – mostly from corporations – that are not limited by statute and are used for so-called party-building activities such as voter registration and get-out-the-vote campaigns. By contrast, “hard money,” which is used for direct contributions to candidates, is regulated by the Federal Election Commission. Individual donations, for example, are limited to $2,000 to each candidate or candidate committee per election.

 

The three-judge district court upheld the Act’s ban on soft money raised or spent by federal candidates or office holders. It also endorsed the prohibition on parties spending soft money on “issue” advertisements in which an election issue such as gun control is associated with a candidate without explicitly endorsing or attacking that candidate’s election effort. But the court ruled as unconstitutional the ban on national and state parties using the money for party-building activities.

 

The court ruled that issue advertising by non-party groups is indistinguishable from campaign spending and may be regulated by Congress. And it said the so-called magic words such as “vote for” or “vote against” are not constitutionally required for an ad to be considered part of federal election speech.

 

Despite the unclear conclusions of the district court, the general expectation is that the Supreme Court will uphold the soft-money ban on federal candidates or office holders because the principle has been in effect since the passage of the BCRA’s predecessor, the Federal Election Campaign Act in 1971, said Nathaniel Persily, symposium chairman and a professor at Penn Law School. But the court is more likely to strike down the ban on using soft money to pay for issue ads which purport to be about election topics but are effectively a means of supporting or attacking a particular candidate. That part of the law is “the most vulnerable,” Persily said, and has been challenged on First Amendment grounds.

 

Expectations that the Supreme Court will uphold the soft-money ban rose when it ruled June 16 that the right to free speech did not outweigh that of Congress to regulate corporate influence on legislators. The court ruled in the case of Federal Election Commission v Beaumont in which groups including North Carolina Right to Life Inc. challenged the ban on direct corporate donations to candidates.

 

Selling Out to the Highest Bidder

The purpose of the BCRA and its forerunners is to limit the influence of special interests on the lawmaking process so that the voices of ordinary citizens don’t get drowned out by the persuasive effect of big money.

 

A crucial question is whether politicians’ acceptance or soliciting of special-interest money constitutes corruption. The conclusion of the federal district court appeared to be that it does, said Trevor Potter, chairman of the Campaign and Media Legal Center, and former chairman of the Federal Election Commission.

 

The court argued that if candidates accept soft money there is not only the appearance of corruption but also actual evidence of it, Potter told the Penn Law symposium. “There is proof that access to federal office holders is sold to the highest bidder and that members of Congress sometimes vote for donors’ wishes. These are not exactly dramatic findings but they drive home the reasons that this act was passed,” Potter said.

 

“There is ample evidence, including polls and press reports, to support Congress’s judgment that the special access and perceived special influence accorded to those large donors have undermined the public’s confidence in the independence of its elected representatives from those donors, thereby giving rise to an appearance of corruption,” wrote Judge Richard J. Leon, one of the three district court judges.

 

But Leon appears to believe that the receipt of funds does not in itself constitute corruption, said Persily. “Leon believes that the only time money becomes corrupting is when the party uses the money to boost a candidate. Only when political parties are conduits for corruption can this be regulated,” he told the conference.

 

Potter defended the court against media criticism that it had delivered a cumbersome and excessively complex report that confused rather than clarified the issue.

 

“The district court has perhaps been given a bum rap,” Potter said. “The press is in disbelief that it takes 1,700 pages to say anything. In fact, with these decisions, we have to overlay them to find what the consensus of the court is. It’s important to understand that you have three judges approaching this in three different ways.”

 

Nevertheless, because the court upheld some parts of the law and struck down others, no one will welcome its conclusions wholeheartedly, and all sides will appeal, Potter said.

 

The High Cost of Elections

The importance of party fundraising is underscored by the rising cost of elections. The total cost of the 2000 Congressional and Presidential elections was nearly $3 billion, up from $2.2 billion in 1996 and $1.8 billion in 1992, according to Opensecrets.org, a Washington-based research group that tracks campaign-finance reform and other government issues. Next year’s elections are expected to far exceed the 2000 cost, the organization said.

 

Donors’ contributions have jumped by similar amounts. According to Federal Election Commission figures quoted by Opensecrets, the two major parties raised $1.2 billion between them in the 1999-2000 election cycle, up 36% from 1995-96. Within the total, soft money surged 87%, well ahead of the 20% increase in hard-money donations. Soft money accounted for 40% of the total raised by the main parties in 1999-2000, up from 33% in 1996.

 

The Democratic Party almost doubled its soft-money contributions to $243.1 million in 2000 from $122.3 million four years earlier while the Republicans logged a 73% increase to $244.4 million. “The Democrats are realizing that the soft-money ban is hurting them more than it’s hurting the Republicans,” Persily said.

 

But neither party is likely to be badly hurt in its “party-building” efforts if the Supreme Court upholds the ban on using soft money for those purposes, said Jonathan Krasno, a Yale University Professor and expert witness to the FEC. “The parties’ efforts to boost turnout rates have been largely ineffective,” he told the symposium.

 

The sharp increases in donations in general and soft money in particular indicates that the parties have become adept at manipulating the campaign-finance laws, according to Opensecrets. “Political parties and outside groups have taken advantage of loopholes in the law – soft money being among the biggest of them – in ways that reformers say have all but eviscerated the campaign-finance system of its ability to control the flow of money,” the organization said on its web site.

 

If the Supreme Court upholds the soft-money ban, the parties are likely to attempt to close the funding gap mainly by increasing the number of hard-money donations, said Steve Weissman, associate director for policy at the Campaign Finance Institute, in an interview. And businesses will likely increase their support of third-party organizations such as the Club for Growth or Americans for Tax Reform that share their ideology and may be able to influence lawmakers. Corporate donations to such organizations are not subject to limits because they are not political parties.

 

Although soft-money donors – which also include unions, wealthy individuals and trade associations – would no doubt suffer some reduction in influence if the soft-money ban is upheld, the major impact would be on the parties, Weissman argued. The huge increase in soft-money donations – from $84 million in 1992 to $495 million in 2000 – has been largely due, not to the business community’s desire to pay for influence, but to politicians’ efforts to build up their own coffers.

 

“The soft money has been largely extorted,” Weissman said. “They (corporations and unions) felt they had to give it. There is no other explanation for soft money having risen so rapidly. I believe that this was the parties putting pressure on business to provide the extra money so that they could compete better.”

 

Pressure from politicians has turned some parts of the business community against the soft-money system in recent years, said Don Simon, general counsel at the lobby group Common Cause, which works on issues including campaign-finance reform. “It was almost a protection racket.”

 

Show Me the Voters

In looking for alternative ways to influence policy, businesses are increasingly turning to employee education, said Greg Casey, president and CEO of the Business Industry Political Action Committee (BIPAC), a prominent pro-business PAC. Companies seek to persuade their employees to vote for favored candidates, as well as boost their turnout, by educating them on pro-business issues. “It’s a great opportunity to influence voters,” said Casey. “Voters are more powerful than deep pockets.”

 

A permanent soft-money ban would also lead to an increase in the number of political action committees – special-interest groups dedicated to the election of a particular candidate – and the increased funding of existing PACs, which can only be financed through hard money, predicted Simon of Common Cause.

 

Businesses are also likely to increase their support of state and local political parties if the law prevents them from making unlimited donations at the federal level, analysts said.

 

The National Association of Manufacturers and the U.S. Chamber of Commerce, both of which challenged McCain-Feingold in the federal district court, are primarily concerned with the Act’s ban on issue ads within 60 days of an election, and have challenged that on First Amendment grounds. “We’re mostly interested in preserving the option to run issue ads,” said Darren McKinney, a spokesman for the NAM.

 

The business community acknowledges that a Supreme Court decision to uphold the soft-money ban would make it necessary to find new ways of influencing policy. “It would force some dramatic changes,” said Linda Rozett, a spokesperson at the U.S. Chamber of Commerce. “But if you’re asking whether it would stop us advancing our agenda with lawmakers, the answer is ‘no.’”

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