At the federal level: Much of the funding for campaigns comes from individuals who donate money. At the federal level, these contributrions are subject to limits, enacted in 1974 in the aftermath of Watergate.
An individual may give a candidate no more than $1,000 per election. The law also caps individual donations to a political party at $20,000.
However, corporate contributions to candidates for President and Congress have been outlawed since 1907; contributions from labor unions have been outlawed since 1943.
Political action committees (PACs) may contribute up to $5,000 to a candidate per election. These.are organizations set up by businesses, labor unions or other groups to solicit donations from their employees or members, who may give up to $5,000 per year to the PAC.
Corporations and labor unions are unable to give money to candidates, and individuals may contribute no more than $5,000 per election. But there are no such restrictions on contributions to political parties. There is also no cap on such contributions under federal law, as long as the money is used for "party-building" activities. These include administrative expenses, bumper stickers that say ”vote Democratic” or ”vote Republican,” voter registration and get-out-the-vote drives.
The only rule on the source of soft money is that it must come from people who live in the United States or companies that at least have a subsidiary here.
These funds are not supposed to be used in support of a specific campaign, so parties often use them for issue ads that imply support for a candidate without specifically saying so (see below).
In 1996, the two major parties collected approximately $250 billion of this kind of money, divided evenly between Democrats and Republicans.
Another pool of funds described as "soft money" is the money that pays for so-called issue ads, which are often campaign commercials in disguise. Such ads will promote or attack a candidate around a particular issue, stopping short of saying to vote for or against them. Sponsors of these ads don’t have to disclose the sources of their funding. This opens the door for sponsorship by those who are prohibited from making direct campaign contributions (i.e. corporations, labor unions and foreign nationals). Political parties often use their own "soft money" donations to sponsor such ads.
The public also supports presidential campaigns through the Presidential Election Campaign Fund, which receives donations from taxpayers who check off a box on their income tax forms. A 1974 amendment to FECA allows candidates who can prove they have widespread support to get money from this fund to match the amount they’ve raised through private donations.
During the Preisdential primaries, candidates get federal money matching the amount they’ve raised. In the general election they receive a specific lump sum. To receive these grants candidates must agree not to exceed specific spending limits.
The 1971 Federal Election Campaign Act required candidates to file reports disclosing the amount of money they raise and spend. Candidates must identify the people who donate more than $ 200 to their campaign in a year.
At the state level
For a state-by-state listing of campaign contribution limits, see the FEC’s Campaign Finance Law 2000 charts.
Federal campaign finance laws do not affect campaign contributions to state-level politicians. States have their own rules and many of these are even more permissive than federal law. Twenty-seven states allow corporate contributions to candidates while the federal government does not.
Thirty-five states allow individual contributions to campaigns higher than the $1,000 federal limit. In fifteen of these states, there is no contribution cap whatsoever.
Meanwhile, fifteen states allow PAC contributions for state offices higher than the $5,000 federal limit.
State campaign finance reforms
However, state laws were even more lax before the mid-90s, when several states began overhauling their campaign finance laws, in particular by imposing stricter contribution limits and prohibitions on corporations. Most of these changes were effected through ballot initiatives.
In 1996, for instance, four states passed such ballot initiatives. They include Initiated Act 1 in Arkansas, Proposition 208 in California, Initiative 15 in Colorado, and Proposition 9 in Oregon. Prior to the initiatives, California, Colorado and Oregon did not have any limits or prohibitions on contributions. Corporations, individuals, political action committees (PACs), and unions could spend millions buying legislators without even bending the rules. All four of the initiatives banned corporate contributions and established restrictive limits on individual contributions.
California’s initiative created a $500 limit for statewide candidates and a $250 limit for State House candidates. Colorado and Oregon also created a $500 limit for statewide candidates but they limited contributions to State Senate and House candidates to only $100. The Arkansas initiative reduced contribution limits from $1,000 to $300 for statewide candidates and $100 for any other state office.
But before the ink was dry on these and other campaign finance reforms, lawsuits were brought challenging the new restrictions. In separate cases, courts held the initiatives in California, Colorado, Oregon and Arkansas to be unconstitutional and threw them out. In all the cases, federal courts deemed the limits established by the initiatives to be too low for a candidate to wage an effective campaign, and therefore a violation of candidates’ and contributors’ First Amendment rights. (See explanation of the Supreme Court’s landmark ruling in Buckley v. Valeo 1976.)
Some states have retained their restrictive (below $1000) campaign contribution caps, but many of these are currently being challenged in federal court. For instance, Maine’s individual contribution limit of $500 per gubernatorial candidate and $250 per other candidate is currently under challenge.
Clean election reforms
Probably the most far-reaching state reform that has thus far withstood Constitutional challenge are the Clean Election Campaign laws enacted in Maine, Vermont, Massachusetts and Arizona.