Malcolm Rivera
Political campaigns in America are financed through a combination of public and private funds, with candidates raising money from individuals, political parties, and political action committees (PACs). The Federal Election Campaign Act, passed in 1971, sets limits on campaign fundraising and spending, and establishes disclosure requirements. However, court rulings such as Citizens United v. FEC have weakened campaign finance regulations, allowing for increased influence from wealthy special interests and corporations. The role of money in politics has been a subject of debate, with some arguing that it is a necessary tool for promoting free speech and others criticizing it as a source of corruption that unfairly advantages certain candidates and special interests.
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What You'll Learn
Campaign finance laws
The Federal Election Campaign Act of 1971 (FECA) is the primary federal legislation regulating campaign finance. FECA, enforced by the Federal Election Commission (FEC), sets limits on campaign contributions and spending by individuals and political organisations. It also established disclosure requirements for contributions and permitted corporations, labour unions, and membership groups to form political action committees (PACs) to contribute to campaigns.
PACs are a common vehicle for campaign contributions. Traditional PACs can receive donations from members and associates to support a campaign but cannot directly contribute to or coordinate with specific candidates. Super PACs, on the other hand, can raise unlimited funds to influence federal elections through advertising but are prohibited from directly donating to or coordinating with campaigns.
While FECA sets contribution limits for individuals and groups, candidates can spend unlimited personal funds on their campaigns. They must, however, disclose the amount spent to the FEC. Additionally, presidential candidates can receive public funding through the Presidential Election Campaign Fund, which is sourced from taxpayers who voluntarily direct $3 of their taxes to the fund. To be eligible for these funds, candidates must agree to spending and fundraising restrictions.
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Political action committees (PACs)
At the federal level, an organization becomes a PAC when it receives or spends more than $1,000 to influence a federal election and registers with the Federal Election Commission (FEC). There are two main types of PACs: connected PACs and non-connected PACs. Connected PACs, also known as corporate PACs, are established by businesses, non-profits, labor unions, trade groups, or health organizations. They receive and raise money from a restricted class, such as managers and shareholders in a corporation or members of a non-profit organization. Non-connected PACs are formed by groups with ideological missions, single-issue groups, and members of Congress or other political leaders.
Super PACs, or independent expenditure-only political committees, are a third type of PAC that can raise unlimited amounts of money from individuals, corporations, unions, and other groups. However, they are not allowed to coordinate with or contribute directly to candidate campaigns or political parties. Hybrid PACs, a variation of super PACs, can give limited amounts of money directly to campaigns while still making unlimited independent expenditures.
PACs play a significant role in American political campaigns, and their influence has been a topic of debate and reform efforts. The Federal Election Campaign Act of 1971 created rules for disclosure and reporting requirements for PACs. The Bipartisan Campaign Reform Act of 2002, also known as the McCain-Feingold Act, further regulated PACs, but portions of it were overturned by the Supreme Court in 2010, allowing corporations and unions to spend from their general treasuries to promote candidates.
The impact of PACs on political campaigns has been substantial, with an increasing trend in campaign donations from PACs over the years. In 1990, PACs raised $333 million, which grew to $482 million in 2022. The influence of Super PACs, in particular, has been notable, with a small number of wealthy donors contributing significantly to presidential candidate campaigns.
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Presidential Election Campaign Fund
The Presidential Election Campaign Fund (PECF) is a fund that taxpayers can opt into when filing their tax returns. Taxpayers can choose to direct $3 of their taxes to the PECF, and joint filers can contribute $6. Checking the box to contribute to the PECF does not increase the amount of tax owed, nor does it decrease any refund due. The PECF is designed to reduce a candidate's dependence on large contributions from individuals and special interest groups. It aims to encourage public financing of elections and limit the influence of big donors.
To be eligible to receive funds from the PECF, candidates must agree to spending limits and not accept private contributions. They must also agree to use the funds only for legitimate campaign-related expenses, keep financial records, and permit an extensive campaign audit. The PECF will match up to $250 of an individual's total contributions to an eligible candidate.
The PECF is the sole source of funds for the public funding program, and the amount of money in the fund is determined by how many taxpayers choose to contribute. Between 1976 and 2012, the program funded the major parties' presidential nominating conventions and provided partial funding to qualified minor parties. In 2014, legislation was enacted to end public funding of conventions.
The PECF has faced criticism in recent years, with some arguing that its design is failing. The share of filers opting into the program has been declining, and presidential candidates have been unwilling to accept the funds due to the restrictions and lack of a federal cap on individual political donations.
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Large donors and small donors
Political campaigns in the United States are financed by a combination of large and small donors, with large donors often making up a significant proportion of the total funding. Large donors can include wealthy individuals, corporations, labour unions, and other special interest groups. On the other hand, small donors typically refer to individuals making smaller contributions.
Large Donors
Large donors have played a significant role in financing American political campaigns, often contributing large sums of money that can give them outsized influence over the political process. In the past, there have been instances of large donations causing public outrage, such as a $2 million political donation by an insurance magnate to Richard Nixon in 1972, which contributed to post-Watergate reforms in campaign financing. In recent years, there has been growing concern over the influence of large donors, with 74% of Americans surveyed in 2018 believing it was essential for large donors to not have more political influence than other people.
Large donors can contribute to campaigns directly or through Political Action Committees (PACs). While corporations, labour organizations, and membership groups cannot contribute directly to federal campaigns, they can form PACs to influence elections. These committees solicit donations from members and associates and use the funds for campaign contributions or activities like advertising. There are also super PACs, which cannot coordinate directly with campaigns but can raise unlimited funds to influence federal elections. Critics argue that super PACs allow the very wealthy to spend unlimited amounts on campaigns and shield the identities of donors.
Small Donors
Small donors also contribute to political campaigns, and their collective impact can be significant. Small donor contributions are typically considered to be grassroots donations of less than $200, which campaigns may not need to disclose. Small donor public financing is a proposed reform to reduce the influence of large donors and empower average voters. This system uses public funds to match and multiply small donations, incentivizing candidates to seek a broader base of supporters. New York City's multiple match system, for example, turns a $50 donation into $350 for the candidate. Other approaches to encourage small donor participation include voucher systems and tax credits for small campaign donations.
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Campaign fundraising and spending limits
Campaign finance laws dictate who can contribute to a campaign, how much they can contribute, and how those contributions must be reported. These laws vary at the state and federal levels. The primary legal guidance for political donations at the federal level is the Federal Election Campaign Act (FECA), initially passed by Congress in 1971. FECA sets limits on campaign fundraising and spending, establishes disclosure requirements for campaign contributions, and created the FEC, the agency that enforces federal campaign finance law. Under FECA, the maximum amount that an individual may give to a candidate in a federal election is $3,300 for the 2023-2024 period. This figure is adjusted for inflation every two years.
There are other ways individuals can financially support a candidate or party, such as giving $5,000 per year to a political action committee (PAC) or $41,300 per year to a National Party Committee. PACs are committees that solicit donations from members and associates to make campaign contributions or fund campaign activities such as advertising. Funds raised and spent by PACs are subject to federal limits. However, donations to super PACs are not subject to federal limits. Super PACs cannot directly contribute to or coordinate with campaigns and candidates, but they can influence elections through advertising and other political activities.
Some presidential campaigns are funded in part by taxpayers who choose to direct $3 of their taxes to the Presidential Election Campaign Fund. To be eligible for these funds, candidates must agree to spending and fundraising restrictions. Notably, presidential nominees may only receive public funds if they agree not to use private donations. Many major-party candidates decline public funding in favor of private fundraising.
The campaign finance law exempts some expenses from the spending limits. Certain fundraising expenses (up to 20% of the expenditure limit) and legal and accounting expenses incurred to ensure the campaign's compliance with the law do not count against the expenditure limits. Eligible candidates may receive public funds equaling up to half of the national spending limit for the primary campaign. For the 2024 election cycle, the national spending limit is $61.79 million.
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Frequently asked questions
As of 2023-2024, the maximum amount an individual can give to a candidate in a federal election is $3,300. This figure is adjusted for inflation every two years.
A Super PAC , or independent expenditure-only political committee, raises money to influence federal elections through advertising and other political activities. Unlike traditional PACs, Super PACs cannot directly contribute to or coordinate with campaigns and candidates. However, donations to Super PACs are not subject to federal limits.
The Presidential Election Campaign Fund is a public funding program that provides federal government funds to eligible presidential candidates to pay for qualified expenses of their political campaigns in both the primary and general elections. Taxpayers can choose to direct $3 of their taxes to the fund when filing their returns.
There are four main sources of funding for congressional campaigns: political action committees (PACs), large individual contributions of more than $200, small individual contributions of $200 or less, and money from the candidates' own pockets.
