U.S. Campaign Finance

By | Updated Nov 9, 2016 9:59 PM UTC

The collapse of U.S. campaign finance regulations set the stage for a 2016 presidential race brimming with cash. Advocates for limits on political donations say a small number of wealthy donors are drowning out the common folk. Billionaire contributors say they’re exercising their free speech rights. Since the U.S. Supreme Court has been unwilling to silence the spending, money is doing a lot of talking.

The Situation

The two major parties’ candidates for president were former Secretary of State Hillary Clinton, the Democrat, and New York real-estate developer Donald Trump, the Republican and winner. There were more than 40 fund-raising committees and organizations associated with them. Some of the groups were super-PACs, political action committees that, thanks to a 2010 federal court ruling, could raise unlimited amounts of money from individuals, corporations and labor unions. Unlike traditional PACs, super-PACs cannot contribute directly to or coordinate their spending with a candidate, but they can spend unlimited amounts on advertisements and other efforts to support a candidate or attack her opponent. In addition, organizations known as 501(c)(4)s, the IRS code for tax-exempt “social welfare” groups that do work broadly benefiting the community, also spend money to influence elections. Behind both super-PACs, which disclose their donors, and 501(c)4s, which don’t, are billionaires with big stakes in elections. They include Republican casino owner Sheldon Adelson, who has opposed proposals to legalize online gambling, and Democratic investor Tom Steyer, who advocates for clean energy. Some wealthy players, notably industrialists David and Charles Koch, whose company lobbies to loosen regulations on oil and gas, run their own political operations. All this has pushed up the costs of campaigns. The amount spent on the 2016 Senate race in Pennsylvania, at least $139 million, has broken the record $121 million spent by candidates, parties and outside groups during the 2014 North Carolina Senate contest. 

The Background

The core of the campaign finance system was created after the 1972 Watergate scandal, which included revelations that President Richard Nixon took secret corporate donations in exchange for favorable government treatment. The package of laws included a public financing system for campaigns, donor disclosure mandates and contribution limits. By the 1990s, candidates were exploiting loopholes. In the 2000 election, George W. Bush was the first presidential primary candidate to opt out of public financing, which came with spending limits. In 2008, President Barack Obama declined public financing for both his primary and general elections. Two years later, the U.S. Supreme Court sanctioned some unlimited political spending in its Citizens United v. Federal Election Commission ruling, saying it is a form of protected speech under the First Amendment. To keep the national parties competitive in the new environment, Congress in December 2014 lifted the maximum contributions to the Democratic and Republican parties’ campaign committees to $801,600 from about $100,000 each year.

The Argument

Opponents of campaign finance regulations say restrictions violate free speech rights because they limit who can participate in the debate and how much of their own money they can spend on it. They say donation limits tilt the system in favor of incumbents because they’re already in a position of power and can easily attract cash. And, they note, deep-pocketed donors don’t guarantee victory. A super-PAC supporting Republican presidential candidate Jeb Bush, Right to Rise, spent more than $100 million in the 2016 primary contests, but Bush polled in just single digits and pulled out of the race in February. Vermont Senator Bernie Sanders, meanwhile, relied on an army of donors giving $200 or less to raise almost as much money as Clinton did through the Democratic primary season. Sanders, who refused the support of super-PACs, showed that a politician could mount a competitive campaign without the support of billionaires. Reformers are now fighting to strengthen disclosure laws. They are pressuring corporations to report political activity to shareholders, and lobbying the Internal Revenue Service for tighter restrictions on “social welfare” groups, whose spending is sometimes called “dark money.” Refocusing the debate could improve reformers’ legal prospects. While the Supreme Court has overturned spending restraints, it has upheld disclosure requirements. It affirmed that position in the Citizens United case, saying “transparency enables the electorate to make informed decisions and give proper weight to different speakers and messages.”

The Reference Shelf

  • A Bloomberg Politics national poll in September 2015 found that 78 percent of respondents said that the Citizens United ruling was a bad decision.
  • Bloomberg graphic tracking the 2016 money race. 
  • “Shadow Money Magic,” a report by the Center for Responsive Politics, offers “five easy steps that let you play big in politics, keep your donors hidden and game the IRS.”
  • The Citizens United v. Federal Election Commission Supreme Court ruling.
  • Bloomberg news article: “Five Ways the Supreme Court Transformed Campaign Finance.”
  • Ilya Shapiro, a senior fellow at the Cato Institute, says that the Citizens United decision is misunderstood.

Jeanne Cummings contributed to the original version of this article. 

First published May 28, 2015

To contact the writer of this QuickTake:
Bill Allison in Washington at ballison14@bloomberg.net

To contact the editor responsible for this QuickTake:
Anne Cronin at acronin14@bloomberg.net