Dark, Hard & Soft Money: Political Campaign Financing in USA

Political campaign financing in America refers to raising funds to support candidates, political parties, and ballot initiatives. In the United States, political campaigns can be pretty expensive, and campaign financing plays a significant role in shaping the outcomes of elections.

Campaigns in the United States can be financed through various sources, including 

• Individual contributions, 
• Political action committees (PACs), 
• Super PACs, 
• Political parties, and, 
• In some cases, self-funding by wealthy candidates.

Lobbying in the United States also helps raise funds but in a more indirect manner.  

Here are some terms to keep in mind: 

Federal Election Campaign Act (FECA)

The Federal Election Campaign Act, enacted in 1971 and amended multiple times, is the foundation for federal campaign finance laws. It regulates campaign contributions, expenditures, and disclosures for federal elections.

Federal Election Commission (FEC)

The FEC is the independent regulatory agency responsible for enforcing and implementing federal campaign finance laws. It oversees the reporting and disclosure of campaign contributions and expenditures, as well as the administration of public financing programs.

BCRA

One of the primary objectives of the BCRA was to ban the use of unlimited and unregulated contributions known as “soft money” by national political parties. 

Hard Money

Hard money in political campaign financing refers to the regulated and limited contributions made directly to candidates and their campaigns for federal elections. These contributions are subject to specific rules and restrictions under the Federal Election Campaign Act (FECA) and the Bipartisan Campaign Reform Act (BCRA). These contributions are closely regulated by the Federal Election Commission (FEC) and must comply with specific contribution limits and reporting requirements.

Soft Money

Soft money in political campaign financing refers to a type of political contribution that was prevalent before the passage of the Bipartisan Campaign Reform Act (BCRA) in 2002. It refers to money raised and spent by political parties for activities that were not directly connected to supporting specific candidates in federal elections. 

Dark Money

Dark money in political campaign financing refers to spending money on political activities, such as advertisements and advocacy, without disclosing the funding sources. The Supreme Court’s “Citizens United v. Federal Election Commission” (2010) decision significantly influenced the rise of dark money. The decision allowed corporations, labor unions, and individuals to make unlimited independent expenditures in elections through super PACs and other independent expenditure committees.

PAC

PACs are organizations formed by corporations, labor unions, trade associations, etc., to raise and spend money supporting or opposing certain candidates, political parties, or initiatives. 

Super Pac

Super PACs can raise and spend unlimited amounts of money from individuals, corporations, labor unions, and other entities – as long as they do not hand over that money directly to the candidate or coordinate their spending with the candidate’s campaign.  

FEC

The FEC oversees the reporting and disclosure of campaign finance activities, investigates alleged violations, and takes appropriate enforcement actions.

Pacs vs Super Pacs

Both PACs (Political Action Committees) and Super PACs (Independent Expenditure-Only Committees) finance political campaigns. PACs are subject to contribution limits but can make direct contributions to candidates, while Super PACs can accept unlimited contributions but cannot contribute directly to candidates. 

PACs are organizations formed by corporations, labor unions, trade associations, etc., to raise and spend money supporting or opposing certain candidates, political parties, or initiatives. Federal, state, and local limits exist for both sides of that fundraising. That is, there is a limit to how much one person can donate to a PAC in a calendar year, and there is a limit on how much money that PAC can directly give the candidate they support. 

PACs can also engage in independent expenditures, which are political communications that expressly advocate for the election or defeat of a particular candidate.

PACs are required to disclose their contributions and expenditures to the Federal Election Commission (FEC) regularly, providing transparency about their funding sources and how they spend their money.

Super PACs are similar organizations but can raise and spend unlimited amounts of money from individuals, corporations, labor unions, and other entities – as long as they do not hand over that money directly to the candidate or coordinate their spending with the candidate’s campaign.  

Super PACs are still required to disclose their contributions and expenditures to the FEC. This includes information about their donors and how they use their funds for independent expenditures. They just have no limit on the amounts. 

Super PACs are known for their ability to raise and spend massive amounts of money, often playing a significant role in political campaigns.

As of August 01, 2023, 2,476 groups organized as super PACs have reported total receipts of $2.7 billion and total independent expenditures of $1.36 billion in the 2021-2022 cycle.

Source: Open Secrets

Individual grassroots donations to raise funds

Individual grassroots donations refer to contributions made by regular citizens, often in small amounts, to support a political candidate or cause. Grassroots fundraising involves a large number of individuals coming together to donate money to a campaign, typically in contrast to large donations from wealthy individuals, corporations, or PACs. These grassroots donations are essential to political campaign financing and are often seen as a way to foster broad-based support for a candidate or cause.

The rise of the internet and social media has revolutionized grassroots fundraising. Candidates and campaigns can use online platforms and crowdfunding websites to reach a broader audience and encourage small individual donations. 

Read More: How To Run for Mayor (And Win!)

Small individual contributions (less than $200)

Donations below $200 in political campaigns are often referred to as “small-dollar donations” or “micro-donations.” 

Small-dollar donations play a crucial role in political campaign financing and have become increasingly significant in recent years, especially with the rise of online fundraising platforms and social media.

Read More: What’s the Secret to Successful Online Political Fundraising?

This can be a significant chunk of a popular candidate’s campaign financing. One CalTech study examined Bernie Sanders’ 2016 presidential campaign and discovered that 33.8% of Sanders’ campaign funds came from small donors. 

Large individual contributions above $200

Individual contributions above $200 can be substantial and have the potential to impact a candidate’s fundraising efforts significantly. Unlike small-dollar donations, which are often associated with grassroots fundraising, large individual contributions are typically made by wealthier individuals who can afford to give more substantial amounts to support a candidate, political party, or cause.

As this is the majority of donations given to candidates, these donations enter truly mind-boggling numbers The 2020 US election campaigns crossed all previous numbers – with presidential and congressional candidates spending a total of almost $14 billion. This is more than double the cost of 2016.  

Financier George Soros was the top individual donor, spending more than $128 million to support Democratic campaigns, according to OpenSecrets. Citadel LLC founder Ken Griffin was the third-biggest donor as of Sept. 30, spending more than $68 million to help Republican efforts, according to OpenSecrets. 

Read More: Political Fundraising- definition, strategy, and tools to bring in the $$$

Public Funding to boost finance

Public funding, also known as taxpayer funding or public financing, is a mechanism through which the government provides financial support to political candidates and parties to help support their election campaigns. The primary goal of public funding is to promote a fair and more equitable political process by reducing the influence of private money and special interests in politics. Public funding can take various forms, and its implementation varies from one jurisdiction to another. 

Only two states have offered complete public financing of state legislative campaigns for multiple election cycles: Arizona and Maine. Since the 1970s, more than thirty jurisdictions have adopted some form of public financing, including states like Albuquerque, Arizona, Connecticut, Maine, Michigan, Montgomery County (Maryland), New York City, Seattle, Washington DC.

While many states had robust public funds at the state level, the numbers have been dropping steadily. Massachusetts, California, North Carolina, and Wisconsin have repealed their public funds in the past 20 years. 

‘Outsiders’ like Jimmy Carter and Ronald Reagan (both of whom went on to win the Presidental election) famously got their campaigns off the ground using the Presidential Election Campaign Fund. This was at the federal level, where for years, the fund helped limit campaign costs. But as spending has skyrocketed, few candidates have taken up the fund in recent elections. 

Barack Obama was the last candidate to use the fund in 2008. But even he soon abandoned the fund to battle John McCain. This made the fund de facto defunct. 

Here are some key aspects of public funding in political campaign finance:

Matching Funds

One common form of public funding is matching funds. Under this system, eligible candidates who raise a certain amount of small-dollar contributions from individual donors receive matching funds from the government. For example, if a candidate raises $200 in small-dollar donations from individual supporters, the government may match that amount with additional public funds.

Until the late 1990s, most jurisdictions matched private contributions at a rate of 1-to-1 or 2-to-1. More recently, jurisdictions are opting for larger match rates. For example, New York City now matches private contributions 6-to-1. 

Grants

Public funding can be provided to qualifying candidates in the form of direct grants. These grants are given to candidates who meet specific criteria, such as demonstrating a certain level of public support or meeting participation thresholds.

Since these grants require candidates not to raise funds privately after they take the grant, this grant is mostly considered non-functional at the federal level for presidential elections. 

Vouchers or Tax Credits

Some jurisdictions have experimented with providing voters with vouchers or tax credits that they can use to donate to political campaigns. These vouchers allow individuals to allocate a certain amount of public funds to the candidates or parties of their choice.

Corporate political contributions

Corporate political contributions in America refer to financial contributions made by corporations and their affiliated entities to support political candidates, political parties, ballot initiatives, and PACs. These contributions can take various forms and can be made at the federal, state, and local levels of government. Corporate political contributions have been a subject of debate and scrutiny, as they raise concerns about the influence of big money in politics and potential conflicts of interest.

Corporations are generally prohibited from making direct contributions to federal candidates’ campaigns. Federal law prohibits corporate contributions to federal candidates, political parties, and traditional PACs. Corporate political contributions are regulated at the state and local levels as well. State laws and regulations may vary, with some states imposing stricter limits on corporate contributions or prohibiting them altogether.

Corporations can establish PACs to collect and distribute contributions from their employees, shareholders, or members to support political candidates and causes. PACs are subject to strict regulation and contribution limits.

The Supreme Court’s “Citizens United v. Federal Election Commission” (2010) decision allowed corporations, unions, and individuals to make unlimited contributions to super PACs. 

It’s important to note that the regulation of corporate political contributions can vary significantly based on different laws and court decisions at the federal, state, and local levels. Efforts to reform campaign finance laws and increase transparency in political contributions continue to be subjects of ongoing debate and legislative action.

Self-financing a political campaign

Candidates who self-finance their campaigns use their personal wealth, savings, or assets to contribute funds to the campaign. Some candidates are successful businesspeople, entrepreneurs, or individuals with substantial financial means, allowing them to invest significant amounts of money into their campaigns.

By self-financing, candidates can bypass the contribution limits that apply to traditional campaign donors, such as individual contributors, PACs, and political parties. This allows them to inject more money into their campaigns than would be permissible through regular donations.

Self-financing candidates are subject to campaign finance regulations and must disclose their contributions and other campaign expenses to the appropriate regulatory authorities.

In 2018, 41 major self-funded candidates spent a combined total of $240,250,850 of their own money, an average of approximately $5,860,000 per candidate.

Self-financing does bring out some strange loopholes. For example, Federal campaign finance law prohibits individuals from donating more than $35,500 per year to national political party committees. But in March 2020, Michael Bloomberg gave $18 million to the Democratic National Convention. He did this because, as a presidential candidate, he is allowed to transfer the funds he raised for his campaign to the committee. However, this rule assumes this money is raised among individual donors, who are restricted by various other rules. 

But, since Bloomberg’s campaign was entirely self-funded, he had no restrictions. He was basically making a $18 million donation to the Democrats with no limit. Incidentally, the $18 million was but a drop in the pool since Bloomberg spent an estimated $500 million on his failed campaign. 

New contribution limits for 2023-2024 federal elections

Individual donors can now give $3,300 per candidate per election, a $400 increase from $2,900 during the 2022 election cycle. A donor can now give a candidate up to $6,600 between the primary and general elections — or $9,900 if a race advances to a runoff.

PAC contributions to candidates and groups remain $5,000 per election – stagnant since 2008.

The election cycle can consist of primaries, general, a runoff, even a special election, or any combination of these. Each one of these is considered a separate election, with its own accounting, and has a separate limit for each.  

However, since a presidential election requires primaries in each state, every primary contested by the candidate in one calendar year is considered the same election – for contribution limits. 

Parties also conduct internal primaries or conventions. The limits and regulations only apply to such events if that primary or convention is held (under state law) to choose a candidate for a federal office.  

For example, such conventions are held by both parties for offices in Connecticut, Utah, and Virginia. 

If a candidate accepts contributions for the general election before the primary is held and loses the primaries (or does not otherwise participate in the general election), the candidate must give the money back to donors or reassign the funds for a different election or give the amount to the party committee in 60 days. This is critical since candidate committees must maintain these funds on hand to make refunds. 

These are broad details. For an in-depth understanding of the rules, please visit the Federal Election Commission website. 

Campaign financing laws

Federal campaign financing laws in America refer to the set of regulations and statutes that govern the financing of federal elections, including presidential, congressional, and some local races. These laws are designed to ensure transparency, fairness, and accountability in the electoral campaigns and prevent corruption and undue influence from large donors and special interest groups. 

Federal and state campaign finance laws often address similar political activities.

Consequently, when organizations and individuals choose to support both federal and

nonfederal candidates, they may have to determine whether federal or state laws govern a

particular election activity. 

The Federal Election Campaign Act 

The Federal Election Campaign Act (FECA) compels all candidates for the US president, US Senate, and US House of Representatives to report: 

• Where they raised the money for the campaign, and how much 
• How they spent that money, and how much of it they spent.

FECA limits how individuals, political action committees (PACs), and party committees can contribute to federal candidates and party committees. Contribution limits are subject to adjustments for inflation.

The Federal Election Commission (FEC) enforces and administers FECA’s provisions. The FEC oversees the reporting and disclosure of campaign finance activities, investigates alleged violations, and takes appropriate enforcement actions.

FECA has been amended several times since its enactment, and some of its provisions have been subject to legal challenges, including landmark Supreme Court decisions such as “Buckley v. Valeo” (1976) and “Citizens United v. FEC” (2010).

With respect to the financing of federal elections, this federal law specifically supersedes

state law in the following areas:

• The organization and registration of political committees supporting federal candidates
• The disclosure of expenditures in connection with federal elections by federal candidates and political committees
• The limits on contributions and expenditures that apply to federal candidates and

political committees. 11 CFR 108.7(b). 

Examples of Federal Preemption include: 

• The FECA Act preempts a Minnesota law under which candidates for the House and Senate received state funding if they agreed to abide by spending limits. 
• The Act preempts a New Hampshire law restricting party spending on federal candidates’ behalf.
• FECA preempts Minnesota, Wisconsin, and California laws that prohibit or restrict contributions from lobbyists to the federal campaign committees of state and local officials running for federal office. 
• The Act preempts state and local laws that require campaign ads to disclose information not required under federal law.

The Bipartisan Campaign Reform Act 

The Bipartisan Campaign Reform Act (BCRA) is a significant piece of campaign finance reform legislation passed in the United States in 2002. One of the primary objectives of the BCRA was to ban the use of unlimited and unregulated contributions known as “soft money” by national political parties. Soft money was money raised by parties for activities such as voter mobilization and issue advocacy that were not directly tied to specific federal candidates. The BCRA prohibited parties from raising or spending soft money in federal elections. 

However, it faced legal challenges, and some of its provisions were later affected by court decisions, including the “Citizens United v. FEC” (2010) Supreme Court decision, which ruled that restrictions on corporate and union spending on electioneering communications were unconstitutional. 

An interesting provision of BCRA is that it requires candidates to ‘stand by’ their advertising. This is why political ads in America come with the now-famous “I am so and so, and I approve this message.” 
It’s essential to note that campaign finance laws can be complex and may change over time due to court decisions, legislative actions, and evolving practices in political fundraising. The landscape of political campaign finances is dynamic, and debates about its impact on the democratic process continue to shape discussions about electoral integrity and the role of money in American politics.