The Consequences of Raising Federal Contribution Limits

U.S. PIRG, March 2001 

The last two decades have witnessed an unparalleled boom in political spending at all levels of government. The amount spent for any particular office has commonly increased ten-to-twenty fold, or double the rate of inflation, since the 1970s. Most of the explosion in funds has been in so-called “hard money,” which is limited in amount and given directly to candidates. Also in recent years, exploitation of a loophole in campaign finance law has allowed unlimited contributions to flow into the nonfederal accounts of political parties. This money is called “soft money.” Yet, for the millions now raised and spent in elections, few would argue that voters are more informed about issues and candidates, or that elected officials are more accountable. The opposite seems true. American elections are increasingly in the hands and pockets of a wealthy few.  

This year, Congress has the opportunity to take an important first step towards getting big money out of politics by banning the unlimited and unregulated soft money contributions to political parties. Senators McCain (R-Ariz.), Feingold (D-Wis.) and Cochran (R-Miss.) have introduced a bill to do just that. Soft money contributions to national party committees totaled $500 million in the last election cycle and accounted for approximately 20 percent of the money in campaigns.  

Unfortunately, many politicians are tempted by the idea of passing something that looks like reform, but would let them raise even more money for their own campaigns. A number of Senators have suggested amending the McCain-Feingold bill to include an increase in the $1,000 individual contribution limit. This paper outlines a number of different reasons why raising the individual limits is bad policy. As history has proven, these limits have not contained the growth of big money in politics or given “ordinary citizens” a voice in the process. Raising them would not only diminish the value of a soft money ban, but would increase the importance of big money in winning elections and reduce the role of small donors. Finally, raising the $1,000 limit would move us away from the fundamental long-term reform goal of making political participation affordable to all citizens.

The History of Reform Efforts

Big money has always had an insidious influence on American politics. As early as 1907 Congress banned corporate contributions to candidates. In 1947, contributions from labor unions were also prohibited. Yet, despite the corporate and labor bans, money in politics continued to grow. In the early 1970s, the situation was so out of hand that Common Cause, a newly formed citizen lobby, called for $100 contribution limits for House candidates and mandatory limits on campaign spending. In 1974, Congress responded by passing a law that set $1,000 limits on contributions to all federal candidates and mandatory spending limits. Individual contributions to all candidates, PACs (Political Action Committees), and parties were limited to a total of $25,000 a year. However, in a highly politicized and controversial 1976 decision, Buckley v. Valeo, the Supreme Court gutted the spending limits from the law and left only the fairly high contribution limits.  

Without the mandatory spending limit provisions, the Federal Election Campaign Act of 1974 was not enough to control spiraling campaign fundraising. Two years after the act was passed, the average cost of a House race rose above the $70,000 spending limit that Congress had intended to set for primary and general elections. In the 1980s, congressional reformers sought to overturn the Buckley decision through constitutional amendments that would allow for limits on personal wealth, campaign spending, and out-of-state contributions. Also debated were bills for voluntary spending limits in return for public financing and free TV time. In 1992, a reform bill with many of these provisions passed both Houses of Congress, yet was vetoed by former President George Bush. Four years later in 1996, Senators John McCain (R-Ariz.) and Russ Feingold (D-Wis.) teamed up to introduce a modest reform bill that focused primarily on closing the soft money loophole. Soft money was originally intended to be used only for “party-building” activities. In the early 1990s, corporations, labor unions, and wealthy individuals began channeling millions of dollars into the nonfederal accounts of political parties. Parties were able to use this money to run ads that helped candidates, avoiding federal law by not using the magic words “vote for” or “vote against.” As shown in the chart, soft money currently accounts for approximately one-fifth of all money in campaigns. 

While the McCain-Feingold bill of 1996 contained provisions that would ban soft money contributions to political parties, provide free TV time to qualifying candidates, require limits on out-of-state contributions, and voluntary limit campaign spending, the bill lacked any public financing measures. Since 1996, most of these provisions have been stripped from the bill. McCain-Feingold 2001 is a barebones bill that would simply ban soft money contributions to political parties and prevent corporate and labor dollars from being spent on electioneering issue ads. These so-called “sham” issue ads are similar to soft money ads run by parties. They often refer to a candidate by name and the candidate’s positions on issues without explicitly saying vote for or against that candidate. The issue ad provision in the McCain-Feingold bill is much weaker than the language in the companion House bill and would still allow individuals and ideological groups to spend unlimited funds on sham issue ads. The bill also increases the amount individual donors can give to candidates, PACs, and parties combined from $25,000 to $30,000 and it doubles the amount that individuals can give to state parties. 

Despite the unnecessary increases in individual limits already included in the bill, President George W. Bush and some Senators have proposed an additional increase in the amount that individuals can give to candidates. Senators Hagel (R-Neb.) and Landrieu (D-La.) have introduced a bill with eight cosponsors that would, among other things, triple the current $1,000 individual contribution limit. Senator Thompson (R-Tenn.), a cosponsor of the McCain-Feingold bill, has also stated his intention to offer an amendment to the bill that would raise the individual limits. Among those Senators who have previously introduced bills to increase contribution limits are Senators Feinstein (D-Cal.), Hutchison (R-Texas), and McConell (R-Ky).

Reformers Should Hold the Line on Contribution Limits and Eventually Reduce Them

Some reformers feel that sacrificing contribution limits is worth ridding the system of the unlimited soft money checks from corporate and labor union treasuries. When considering this trade off, several factors should be weighed. First, raising contribution limits, even when combined with other positive reforms, is bad policy. It’s bad for average citizens, bad for grassroots candidates, and bad for democracy. Higher limits will not curb campaign spending or increase participation in politics. Instead, the beneficiaries of this “reform” are a small group of wealthy individuals who already have undue influence over election outcomes. Good reform policy would reduce contribution limits to levels that the majority of citizens can afford, not raise them further beyond their reach. 

Second, amending an increase in contribution limits to the McCain-Feingold bill will likely kill the legislation. As both Senators McCain and Feingold have indicated, they already have 60 votes in the Senate to pass a soft money ban this year without increasing contribution limits. A small increase in the current limit is unlikely to garner any additional Republican votes, while large increases will not pass muster with many Democrats. Even if a bill with higher limits passes the Senate, the House has overwhelmingly opposed increases in the past and would be reluctant to support a bill that includes any increase.  

Third, banning soft money and increasing contribution limits could bring more large-donor money into the system than it takes out. Regardless of whether or not limits are raised, it is highly unlikely that the McCain-Feingold bill will eliminate the $500 million in soft money that large donors gave to parties in the last election.  Much of this money would simply shift to candidates, to party hard money accounts, and to issue groups. Higher limits would make the soft money/hard money transformation that much easier. If a “reform” bill with increased limits is enacted and four years down the road there is more money in politics than there is now, supporters of the bill could easily lose credibility with citizens who are already skeptical about Congress’ willingness to clean up their own act.  

Finally, raising contribution limits would increase the availability of the most valuable money around – hard dollars. Hard money is often called the mother’s milk of campaigns for good reason. Large hard money contributors have a substantial influence over which candidates run for office and win elections. The candidates who can effectively round up large hard money contributions have a good shot at winning. Those who can’t, often drop out of the race before a single vote is cast. On the other hand, soft money is given to parties, not candidates, and only comes into play in a handful of high-profile races. It has little to no role in primary elections, which is the place where many grassroots candidates lose or are forced out of the race by opponents backed by large hard money donors. Banning soft money and raising contribution limits might decrease the access and influence granted to some special interests, but it would intensify corruption of the electoral process by putting more gold directly into the campaign coffers of candidates backed by special interests. 

The following paragraphs address many of the problems with our current campaign finance system and the arguments against increasing contribution limits.

a)      Current Limits Have Not Curtailed Candidate Fundraising

Candidate fundraising has been steadily increasing since Congress passed the Federal Election Campaign Act of 1974. At that time, only about 6 percent of the donors were giving amounts greater than $1,000.[i] It was the mandatory spending limits – later struck down by the Supreme Court – that were to have the greatest impact on limiting money in politics. If those spending limits were in place today and indexed for inflation as Congress had intended, House candidates in the general election could have spent no more than $524,000 in total for 1999-2000. Instead, the average winning candidate spent $850,000 from January 1, 1999 to December 31, 2000, according to FEC summary reports analyzed by U.S. PIRG. 

In 2000, fundraising by Senate and House candidates reached more than $1 billion, an increase of 425 percent since 1978. Inflation accounted for less than half of this increase. The following chart illustrates the steep rise in campaign fundraising over time.  

Data Source: Federal Election Commission, Bureau of Labor Statistics

b)      Higher Limits Would Give Large Donors Greater Influence Over Election Outcomes

Most candidates for federal office depend upon the support of individuals who can afford to give substantially to their campaign. Exclusive $1,000, $500, or $250 per person fundraisers are commonplace during the election process. The more hard money a candidate can raise, the greater the chance they have of deterring challengers and ultimately winning the election. In the 1999-2000 election cycle, the candidate who raised the most money won 94 percent of House and Senate campaigns.[ii]  In the last election cycle, the Center for Responsive Politics found that 45 percent of all individual money raised by federal candidates came from maximum $1,000 donors.[iii] As money is viewed by many as the major factor in determining the viability of a campaign, potential candidates who do not have significant personal wealth or a network of large donors find themselves at a serious disadvantage. Many of these qualified candidates either elect not to run, drop out, or lose the race because they can’t compete with well-funded opponents.  

In the 2000 elections, candidates who attracted support from the large donor community early in the race had a significant fundraising edge that helped them deter other challengers not backed by big money. Both presidential candidates in the 2000 election cycle benefited greatly from the support of large hard money donors. By the end of 1999, Vice President Al Gore had raised nearly $29 million while Gov. George W. Bush had raised more than $68 million. Three-quarters of both their totals came from maximum $1,000 donors, according to the Center for Responsive Politics[iv]. Candidates like Elizabeth Dole and former Rep. John Kasich (R-Ohio) found it difficult to compete against Bush’s money-laden campaign. They dropped out of the “wealth primary” before a single vote was cast. What happened in the presidential contest was mirrored in House and Senate races across the country.  

Raising the individual hard money limits, even with a soft money ban, would give large campaign contributors even greater influence over which campaigns are deemed viable and which are not. Soft money is almost always used to help campaigns that have already proven themselves by attracting large hard donor money. A soft money ban might affect the outcomes of a handful of high-profile races, but it would have little influence on the “wealth primary.”

c)      Higher Limits Would Further Reduce the Role of Small Donors in Elections

Raising contribution limits could significantly increase the proportion of campaign money from the wealthiest donors. Since more than 99 percent of Americans either make no political contribution or donate in amounts less than the current maximum, only a handful of wealthy individuals would take advantage of increased limits. The flip side of this equation is that smaller donors, giving less than $200, would be even further disadvantaged if contribution limits were raised. The differences in the proportion of funds raised from both large contributions and those under $200 are illustrated in the charts below, comparing the current $1,000 system to a $2,000 system. Source data is from the Center for Responsive Politics and accounts for individual contributions made from January 1, 1999 to November 28, 2000. The right hand chart is a conservative estimate that assumes only half of all maximum $1,000 individual contributions would double under $2,000 limits.  

Note that even under this conservative estimate, the percentage of money from the largest donors increases by almost 10 percent, from 46 to 55 percent. Under a worse case scenario, as discussed in section (h), the percentage of money raised from maximum donors could increase by as much as 14 percentage points or from 46 percent of the total to 63 percent. This estimate assumes that all current maximum donors would increase their contributions to $2,000 (see graph below). The proportion of money raised from donors giving less than $200 would decrease by approximately 5-9 percentage points, from 30 percent to between 21-25 percent of the total money raised by candidates.   

d)      Higher Limits Would Benefit Wealthy Interests

Studies have confirmed that large hard money donors are indeed an elite class. A recent U.S. PIRG report[v] found that individuals giving maximum $1,000 contributions are more likely to live in areas with a high per capita income. In the last election cycle, the largest proportion of maximum donors were concentrated in New York City, Los Angeles (90210), Washington, DC, Palm Beach, FL, Fairfax, VA – areas where the per capita income is 2-5 times that of the national per capita income. A national survey funded by the Joyce Foundation also found that contributors who gave more than $200 to a congressional candidate in the 1995-96 election cycle were wealthier than the population as a whole. The survey found that 81 percent of donors had annual incomes greater than $100,000. At that time, only 4.6 percent of Americans declared an income of more than $100,000 on their tax returns.

e)      Higher Limits Would Advantage Big Business

Increasing contribution limits would also advantage business interests. Business interests already dominate both the hard money and soft money scene. Through October 1 of the 1999-2000 election cycle, the Center for Responsive Politics calculated that business interests gave $593 million in individual and PAC hard money contributions and $248 million in soft money. Labor unions, on the other hand, gave $41 million in hard money and $15 million in soft money during the same period. The labor movement and many ideological groups have been able to impact the political process by forming PACs that pool large numbers of small contributions. These interests would be disadvantaged under higher contribution limits. Narrowing the gap been individual contributions ($1,000) and PAC contributions ($5,000) would increase the relative importance of large individual contributions. While executives from large corporations have the means necessary to make substantial contributions to a candidate and could take advantage of higher limits, the “typical worker” or “ordinary citizen” could not. Preliminary research done by U.S. PIRG in the first 15 months of the 1999-2000 election cycle found that two-thirds of all Fortune 500 CEOs gave at least one maximum $1,000 contribution to a candidate, compared to less than one percent of the general population.[vi]  Raising the individual contribution limits would make it that much easier for corporate interests to influence the electoral process.  

It is also likely that in the absence of soft money and with increased individual limits many corporations and organizations would step up their efforts to bundle employee contributions. Many corporations already urge their employees to donate regularly to candidates who are good for business. It is not uncommon for a company to publicly solicit campaign contributions from its employees. As noted by Clawson, Neustadtl, and Weller in their book Dollars and Votes,[vii] company solicitation of political contributions is often coercive and lacks confidentiality. One company executive interviewed by the researchers said: “The meeting is public, employees commit themselves then and there in the public meeting, the boss recommends that subordinates contribute, and the impression is probably conveyed that the boss will evaluate on the basis of his or her employees’ participation rate.” This happens now and is likely to happen even more with higher limits and a soft money ban. 

U.S. PIRG found that in the first 15 months of the 1999-2000 election cycle, employees from many politically active companies such as Ford Motor Company, Microsoft, Monsanto, and Goldman Sachs had already given hundreds of thousands of dollars in hard money contributions to candidates.[viii] A ban on soft money combined with higher individual limits could actually benefit these and other companies that already organize internal hard money fundraising drives.

f)        The Public Supports Lower, Not Higher, Contribution Limits

The vast majority of Americans do not contribute at the $1,000 level and are opposed to raising the $1,000 contribution limit. Much more than 99 percent of Americans did not give a $1,000 contribution in the last election cycle. According to the Center for Responsive Politics, only 0.11 percent of the voting age population made a political contribution of $1,000 or more in 1999-2000[ix]. 

The public has repeatedly called for lower contribution limits. A 2000 poll by the Mellman group found that 81 percent of voters either support lowering the $1,000 contribution limit or keeping it the same. Citizens have also demonstrated their support for contribution limits much lower than the current federal limits at polling booths across the country. In the past ten years, at least eleven states have moved to lower their contribution limits: Arizona, Alaska, Arkansas, California, Colorado, Maine, Massachusetts, Missouri, Montana, Oregon, and Vermont. In all but three of these states, contribution limits were lowered by direct citizen vote and passed by overwhelming margins, often two or three to one.

g)      The Courts Support Lower Contribution Limits and Reject Arguments to Adjust Current Limits to Inflation

While citizen efforts to lower contribution limits originally met resistance from the lower courts, last year the U.S. Supreme Court issued a ruling in the case Nixon v. Shrink Missouri Government PAC that upheld limits of $275 for state legislative races and $1,075 for statewide races. The Court said that states and Congress could set contribution limits as low as they saw fit, so long as the limits are not “so radical in effect as to render political association ineffective, drive the sound of a candidate’s voice below the level of notice, and render contributions pointless.” The Court also explicitly rejected the argument that inflation had eroded the meaning of the original $1, 000 federal contribution limit, and held that the $1,000 limit was not a constitutional minimum. 

h)      Amending an Increase in Contribution Limits to McCain-Feingold Would Seriously Decrease the Efficacy of the Legislation

Without comprehensive solutions for limiting money in politics, closing one loophole in the campaign finance system will inevitably redirect the money into other avenues of influence. While banning soft money is an essential part of any campaign finance reform platform, it will only take a small bite out of the millions of special interest dollars that flow into the system each month. Any additional increases in the individual contribution limits would make it easier for large soft money donations to reenter politics in an even more valuable form – hard money.  

Large Contributions Would Shift From Parties to Candidates. If soft money were banned and contribution limits increased, large soft money donors and special interests would have a much greater incentive to maximize their contributions in the hard money system. As noted in section (f), maximum donors tend to be wealthier than the average American and could readily take advantage of higher limits. Candidates would also have a greater incentive to seek more money from their largest donors, as one phone call to a $1,000 or $2,000 contributor would yield much more than a similar call to a $100 donor.  

In the 1999-2000 election cycle, soft money contributions to national parties approached $500 million, while hard money contributions to parties and candidates totaled $2 billion. Of the approximately $900 million raised by candidates through the end of November 2000, $390 million came from maximum $1,000 donors, according to the Center for Responsive Politics. If these maximum donors had been able to double their contributions, candidates could have increased their individual fundraising by $195-$390 million. The $195 million figure is a conservative estimate suggested by Public Citizen[x] that assumes if contribution limits were raised, only half of all current $1,000 donors would increase their contributions to the new maximum while the other half would continue to give at their current level. The upper limit represents a worse case scenario and assumes all current $1,000 donors would double their contributions. The actual situation would probably fall closer to the upper limit, as neither estimate accounts for any increases in mid-range contributions. With a higher limit, the price tag for many fundraising events would also go up and many donors who now give $500 would choose to give more just to stay in the same crowd.  

As shown in the chart below, even a doubling of the individual contribution limit would worsen the already exploding problem of big money in campaigns and could negate much of the progress made from banning soft money. The shaded area on the graph indicates the estimated range of increase in hard money that would result from a doubling of current limits. The upper most line represents the worse case scenario as discussed above.

* Predictions for 2001-04 assume that the percentage of funds raised from maximum donors remains constant, and that fundraising will increase linearly. 

Note that in the 2000 election cycle hard money contributions alone were more than all the hard and soft money raised in the 1996 elections. Even if soft money had been banned in 1997, money in politics in this past election cycle would still have increased above 1996 levels. 

A ban on soft money coupled with an increase in contribution limits would also encourage more “bundling” of large hard money contributions. As we saw in the last election cycle, President Bush raised record amounts of hard money contributions by recruiting his friends or “pioneers” to raise $1,000 from 100 of their friends. These large contributions allowed Bush to opt out of the voluntary spending limit system. Higher contribution limits would make bundling much more enticing, while further reducing the incentive for presidential candidates to abide by voluntary spending limits.  

Large Contributions Would Shift from Party Soft Money Accounts to Party Hard Money Accounts. The McCain-Feingold bill would ban contributions to political parties from corporate and labor union treasuries. However, individuals would still be able to give $20,000 per year in hard money to national parties and $10,000 to state parties, for an aggregate total of $30,000 per year or $60,000 per election cycle. (The McCain-Feingold bill would increase the current $25,000 limit to $30,000.) Because of the soft money loophole, many large donors are currently not giving the maximum allowable amount in hard money. In the last election cycle, only 70 individuals gave the aggregate two-year maximum of $50,000 for 1999-2000, according to the Center for Responsive Politics and reported by Public Citizen. However, approximately 900 donors gave $50,000 or more in soft money contributions during these two years. If McCain-Feingold had been in place during the 1999-2000 election cycle, at least 830 individuals (900 minus the 70 donors who “maxed” out) would have still been able to give up to $40,000 each or $33 million to national parties – immediately transforming millions of soft money dollars into hard. The $40,000 in hard money could be even more valuable to national parties and candidates if the Supreme Court rules that parties can coordinate unlimited expenditures with candidates (Federal Election Commission v. Colorado Federal Campaign Committee U.S.). These large donors would also have been able to give a remaining $20,000 per election cycle to candidates, PACs, or state parties of their choice.

Large Contributions Would Shift From Parties to Outside Groups. While the McCain-Feingold bill would stop corporations and labor unions from using soft money for electioneering issue ads, the rules would not apply to individuals or ideological groups. These interests could continue to raise and spend soft money. In the 1999-2000 election cycle, the Center for the Study of Election and Democracy and Brigham Young University estimated that in 17 key races, outside groups spent $95 million on issue advocacy advertising. With a soft money ban to political parties, political insiders could easily set up issue groups that could use soft money to run ads on behalf of candidates.

i)        Increasing the Hard Money Limits Would be a Step Backward for Reformers Focused on Comprehensive Campaign Finance Solutions

While banning soft money is an important incremental step toward comprehensive campaign finance reform, even its most ardent proponents acknowledge that it is only a first step.  Comprehensive reform must include provisions to dramatically lower contribution limits to a level that would make even small $20 contributions meaningful. As long as politicians continue to win office by soliciting contributions from the one in a thousand Americans who can afford to give $1,000, we will have a government that represents a small minority, not a government of the people, by the people, and for the people. Raising this limit would set back the citizens reform movement for decades to come.

Conclusions

The need for campaign finance reform is greater than ever. Big money in politics continues to grow while interest and participation in politics remains abysmally low. Closing the soft money loophole and prohibiting corporate and labor contributions to political parties is an essential reform. However, the McCain-Feingold bill will not cure the system of corruption by wealthy special interests. The largest donors will still have undue influence over what candidates run for office and win elections, and individuals and issue groups will still be able to use unlimited funds to run ads on a candidate’s behalf. Banning soft money is an important part of any campaign finance bill, but it’s only one piece of the puzzle.  

When considering amendments to McCain-Feingold, policy makers should think about whether or not each proposal (a) fosters greater citizen participation in the election process or (b) decreases the amount of big money raised in campaigns. A “reform” measure that does neither of these should be given serous consideration, as it is not likely to improve our campaign finance system or enhance democracy. As we have shown in this paper, increasing the hard money contribution limits would let more big money into politics, could endanger the legislation, and would increase the stronghold that wealthy special interests have over the electoral process.