Making Sense of McCain-Feingold and Campaign-Finance Reform

Democrats knew that campaign-finance reform would cripple their fundraising ability—but they backed the idea anyway, largely on principle. Republicans knew that it would give their party an even bigger edge than it already had—but they staunchly opposed it, also largely on principle. The fate of McCain-Feingold ultimately rests with the Supreme Court. But principle has already cost the Democrats plenty
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Terry McAuliffe, the chairman of the Democratic National Committee, is nothing if not a confident man. His confidence comes from his success in the many fields he has tackled over the years. During the 1990s he became the Democratic Party's most productive fundraiser while founding businesses of his own, chief among them a real-estate firm. "Don't forget, I did start two dozen companies," he told me when I visited him a few months ago. "I started my first business when I was fourteen years old. I was chairman of a bank when I was twenty-seven. Fundraising is like any other business."

But although he doesn't show it, McAuliffe has undoubtedly been feeling less confident about the business of fundraising since November 6, 2002, when the Bipartisan Campaign Reform Act of 2002 took effect. Commonly known as the McCain-Feingold Act, for its sponsors in the Senate (John McCain, a Republican from Arizona, and Russ Feingold, a Democrat from Wisconsin), the law bans what had become a key source of financing for both parties: federal "soft money," or donations to a political party for general "party-building" activities such as get-out-the-vote efforts. Because such contributions were in theory not used to support specific federal candidates, they could be made in unlimited amounts, and their use was only loosely regulated by the Federal Election Commission. Under the provisions of McCain-Feingold all donations to national candidates or parties must come in the form of "hard money," which is subject to annual contribution limits and other strict regulations. (State parties are still allowed to accept soft money in accordance with individual state laws. So are certain interest and issue-advocacy groups that have no official connection to a party.)

McCain-Feingold, which passed after years of argument over soft money, was immediately challenged, and in early May a federal district court struck down some key provisions of the law. The court was neither unanimous nor clear in its thinking and philosophy, and it issued a stay of the ruling later in the month, reinstating the law in its entirety until the Supreme Court decides whether it is constitutional. The decision will almost certainly come by early next year.

The law has already created wide ripples in the world of political fundraising, in some cases keeping political figures away from their usual rounds lest they be accused of soliciting soft money, which federal officeholders are not supposed to do under its provisions. A few days before our conversation McAuliffe was scheduled to speak at an awards dinner given by a prominent Hispanic interest group. Democratic officials have traditionally attended the dinner, an annual Washington event. But that evening, as McAuliffe was preparing to make his way across town, lawyers for the party advised him not to go. Because the interest group may have attempted to raise soft money for Hispanic get-out-the-vote efforts—a perfectly legal activity under McCain-Feingold so long as it is not done in concert with federal or party officials—it was unclear whether McAuliffe's presence was permissible (the FEC and party lawyers are still working out the conditions under which such officials can attend this kind of event). McAuliffe stayed home.

For his party, troubles like McAuliffe's are only the beginning. Contrary to a widespread impression, the Democratic Party has relied much more heavily on soft money in recent years than has the Republican Party; it has depended disproportionately on large contributions from wealthy donors to fill its coffers. The Republicans, for their part, have had a hard-money advantage since 1980, when party officials decided to emphasize direct-mail fundraising aimed at a large number of relatively modest donors. The reform bill could hardly be more devastating to the Democrats if it had been drafted by the right-wing talk-show host Rush Limbaugh and the House majority leader, Tom DeLay, expressly to undermine Democratic election prospects for the foreseeable future. But the wound was largely self-inflicted; what's more, the Democrats knew in advance that it would be painful. Similarly, the advantage gained by the Republicans comes in spite of their own actions, actions that were taken with an understanding that they were contrary to practical party interests. When the bill passed in the House, by 240 to 189, the vast majority of its supporters—198 representatives—were Democrats. Its opponents included 177 Republicans. The numbers in the Senate, where the bill passed by 60 to 40, are even more striking: forty-eight of the Senate's fifty Democrats voted for the measure, while thirty-eight of its forty-nine Republicans voted against.

What impelled so many members of Congress to act against their party's own good? There is, of course, no single answer to the question. But a surprisingly important one has to do with a quality that politicians are often said to lack: principle. The passing of McCain-Feingold, and the ways in which the fight over the bill took shape, provide a rare example of politics working the way civics textbooks would have it—with legislators voting largely on the basis of conviction, not calculation.

The Birth of Soft Money

The background for the McCain-Feingold bill begins with the last major change to the laws governing the financing of political campaigns: the Federal Election Campaign Act Amendments of 1974. The amendments greatly expanded reforms made three years earlier and established the first meaningful caps on individual contributions to candidates—$1,000. (Caps on individual contributions to parties were set subsequently.) An FEC ruling four years later allowed political parties to accept donations exceeding those caps, as long as they spent the extra money on party-building activities, rather than on the campaigns of any particular federal candidates (it reasoned that such activities were, for legal purposes, non-federal, and thus were outside the scope of federal scrutiny). With that ruling the commission effectively created the category that would come to be known as soft money.

It was almost inevitable that the money would eventually be spent on other political activities as well. Over time the parties came to consider an increasingly wide range of spending as falling under the party-building umbrella, and soft money was also funneled into uses that critics claimed could not be connected to party building at all. The notion that soft money did not fund particular candidates or their campaigns became a charade: candidates appeared at soft-money fundraisers and benefited directly from them. By 1996 the DNC was using soft money to air television ads—overseen by Bill Clinton, among others—that attacked Bob Dole for certain positions and praised Clinton for others. Although the ads were never found illegal, they drew criticism from Republicans and even some Democrats for the source of their funding—and, as the former Secretary of Labor Robert Reich wrote, they "opened the door wide" to soft-money abuses in the 2000 campaign.

In 1978, when the FEC issued its crucial ruling, the Democrats' fundraising generally lagged behind the Republicans'. They desperately needed a means of competing more effectively for dollars. Still, it took them a decade to begin to realize the potential of soft money. Robert Farmer, the treasurer of Michael Dukakis's 1988 presidential campaign, can take much of the credit for their finally doing so. Farmer crafted a fundraising strategy that made the Massachusetts governor easily the best financed of the Democratic presidential candidates. Early on he took notice of the Republican National Committee's Eagle program, under which wealthy Republicans were asked for donations of $10,000 each. Farmer, knowing that Massachusetts had a solid number of wealthy Democrats, created a counterpart to the Eagles—the Trustees. But he asked donors to give $100,000 each. And during the course of the campaign about 130 did. (The funds went to voter-registration drives and other activities for which soft money was clearly permitted.) At first the Republicans criticized Farmer's program as excessive. Then they tried to follow suit. By 1992 both parties were soliciting even higher amounts.

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