The End of Soft Money and Issue Advertising

Stephen Ansolabehere and Shanto Iyengar

The BiPartisan Campaign Reform Act – BCRA – changed two important aspects of federal campaign finance laws. First, the act eliminated “soft money” – funds raised by the parties, without limits on the size of contributions, and directly from the treasuries of corporations and organizations. Second, the act regulated “issue ads” – advertisements aired by corporations, union and other organizations that may feature a federal candidate but do not expressly advocate election of that candidate. BCRA prohibits airing of such ads within thirty days of a primary election and sixty days of a general election.

Neither one of these reforms, we feel, will be of much consequence for the overall levels of political spending and advertising or the general tenor of political campaigns in the United States. However, they will restrict the scope of campaigns to the candidates contesting an election.

In a pair of administrative rulings in 1978 and 1979, the Federal Election Commission legalized unlimited fundraising for the purposes of state party building. These funds are also called “non-federal party accounts.” Soft money was an attempt at political social-engineering. The concern at the time, captured by observers such as David Broder with his aptly titled book The Party’s Over, was that candidate-centered politics had driven out strong, responsible political parties who could efficiently transfer resources to areas of the country where the party most needed campaign funds.

The parties did resurface in the 1980s, but not with the help of soft money. During the 1980s, parties’ hard money accounts expanded substantially.1 Party non-federal accounts handled only a trace amount of campaign spending, perhaps only as much as $20 million, in the 1980, 1984, and 1988 presidential elections. In the 1990s, the rejuvenated party organizations exploited the soft money loophole. The parties’ non-federal accounts totaled just under $100 million in 1992, and they grew to approximately $300 million, by the 2000 presidential election.

For many, these accounts raised the spectre of corruption. The Federal Election Campaign Act of 1976 limits the amount that an individual may give to a candidate during an election to $1,000 and that an organization may give to a candidate to $5,000. The objective was simple: with a low enough limit, corruption does not pay. Dozens of academic studies of corporate direct contributions have looked for a direct effect of contributions on legislators’ behavior. The effects are, at best, small and probably nil.2 The likely conclusion is that contribution limits make it impossible for any individual donor or group of donors to amass sufficient funds to influence public policy-making.

But, soft money is unlimited. Some corporations, such as AT&T and Phillip-Morris, made donations in excess of $1 million to party non-federal committees in 1996 and 2000. Meanwhile, Congress and the executive branch weighed regulation of telecommunications and tobacco.

How much benefit did corporations gain from their unlimited party contributions? Indirect evidence suggests the gain was not appreciable. Two recent studies consider the events surrounding the passage of BCRA and the stock market valuations of Fortune 500 firms that gave large amounts of soft money and Fortune 500 firms that gave no soft money. If firms can buy highly valuable public policies through million-dollar soft money donations, then the passage of BCRA should affect the market’s valuation of the firms that give large amounts of soft money, such as the telecommunication and tobacco firms. There were five key moments in the legislative history of BCRA – the passage by the House, the passage by the Senate, the president’s announcement that he would sign the law, the Supreme Court’s oral arguments, and the Supreme Court’s final decision upholding the law. All five involve a substantial element of surprise, especially the Court’s decision to uphold the core elements of the law. None of these events, however, affected the stock market returns of firms that gave large amounts of soft money compared to the stock market returns of firms that gave little or no soft money.3 This is not to say that soft money donors did not benefit, but that the benefits to particular firms, if any, were small.

BCRA also targeted issue advertising. Issue ads have a similarly puzzling story. The Supreme Court in Buckley v. Valeo gave independent political expenditures the cloak of free speech, protecting interest groups’ political campaigning from regulation. Commentaries at the time saw independent spending as the undoing of the Federal Election Campaign Act. It wasn’t. Independent spending in the 1970s and 1980s accounted for a tiny percentage of total campaign spending.

Issue advertisements changed that, somewhat. By some estimates, groups and parties spent about $167 million in 2000 on issue advertising, and these ads were disproportionately negative.4 Groups and parties could conduct hit-and-run campaigns against vulnerable incumbents. A well-placed ad by a group interested in specific policy might have the same effect as a well-placed contribution. The archetypal issue advertisements were the “Harry and Louise” series aired by the health insurance industry in opposition to President Clinton’s proposed national health insurance program in 1993. Second, groups airing the ads could spend unlimited amounts. By the late 1990s, then, independent expenditures seemed to have finally found a vehicle.

A hard look at the numbers reveals that this vehicle was a Honda Civic not a Hummer. Total advertising in federal elections equaled approximately $680 million, and four out of every 5 dollars spent on advertising were candidate advertisements or non-issue party advertisements.5 Issue advertising has indeed contributed to the negative tone of campaigns, but this was only a minor fraction of television advertising and more a reflection of the overall tenor of campaigns, rather than a driving force.

Total campaign spending amounted to just over $3 billion in the 2000 election, split evenly between the presidential campaigns, the congressional campaigns and the parties. Issue advertising and soft money were obvious loopholes that corporations, unions, and parties could easily exploit. However, issue advertising itself accounted for only 5 percent of total campaign spending; soft money accounted for only 10 percent of total fund raising. It is hard to imagine how such a small share of total campaign funds and expenditures could lead to the wholesale corruption of politics or fundamentally change campaign discourse.

What, then, was BCRA about? At least in its effects, BCRA was about limiting the scope of political campaigns, to use E. E. Schattschneider’s term. Incumbent politicians in both parties were vulnerable not only to the campaign mounted by their immediate challengers, but to attacks from opposing groups and parties. Representatives Constance Morella (R-Maryland), Peter Torkildson (R-Massachusetts), and others fell, not just to the opposition mounted by the candidates within their districts, but also to the campaigns mounted by those outside of their districts. BCRA effectively puts an end to such threats to incumbents. It limits the ability of national party organizations and organized groups to join the political battles in specific districts and states. For good or ill, like past attempts at campaign reform, BCRA protects incumbents and weakens party organizations.

Stephen Ansolabehere is the Elting R. Morison Professor of Political Science at MIT. Shanto Iyengar is the Henry and Norman Chandler Professor in Communication at Stanford University.

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1. This transformation is described eloquently by Frank Sorauf in his book Inside Campaign Finance, New Haven: Yale University Press, 1992. [return]

2. For a survey of these studies, see Stephen Ansolabehere, John deFigueriedo, and James M. Snyder, Jr., "Why Is There So Little Money in US Elections?" Journal of Economic Perspectives (Winter 2003). [return]

3. Michael G. Hertzel, J. Spencer Martin, and Felix Meschke. 2002. "Corporate Soft Money and Firm Performance." Unpublished manuscript, Arizona State University; Stephen Ansolabehere, James M. Snyder, Jr., and Michiko Ueda, "Did Corporations Profit from Soft Money?" Election Law Journal volume 3, no. 2, 2004. [return]

4. Brennan Center for Justice, Buying Time 2000, Chapter 4. New York: Brennan Center for Justice, 2001. [return]

5. Brennan Center for Justice, Buying Time 2000, Chapter 6. New York: Brennan Center for Justice, 2001. [return]