Soft Money

“Soft money” is the term used to describe money raised and spent outside the limits and prohibitions of federal campaign finance law. Its skyrocketing [Page p448]growth in the 1990s produced a major scandal and triggered legislative action to ban it.

Laws adopted in the twentieth century had barred corporations and unions from contributing to federal campaigns and set an annual ceiling of $25,000 on an individual's aggregate contributions to federal candidates and the national party committees. The laws, however, did not prevent them from giving unlimited sums of money to political parties for “party-building” activities supposedly unrelated to federal candidates. This money was called “soft” to distinguish it from the tightly regulated hard money (money that was “hard” to raise within the limitations) that could go straight to candidates, parties, and political action committees (PACs) for direct use in federal campaigns.

Political party officials welcomed soft money contributions, saying they kept party organizations relevant and strong. But for others, soft money represented a return to the Watergate era when “fat cat” contributors won special access with six-figure donations.

Ironically, soft money was an outgrowth of the tough post-Watergate reforms that sought to clamp down on flagrant campaign finance abuses. Parties and candidates complained that the campaign finance law passed in 1974 was so strict it was stifling volunteer and grassroots party activity. To remedy the situation, the Federal Election Commission (FEC) in 1978 issued a controversial ruling allowing state parties to use money from unions and corporations to pay part of the cost of grass-roots and generic party activities, such as get-out-the-vote and voter registration drives, even if they indirectly aided federal candidates.

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In the following year Congress amended the campaign finance law to allow state and local parties to spend as much hard money as they wanted on campaign materials for volunteer activities to promote any federal candidate. Those parties were also permitted to spend an unlimited amount on certain kinds of voter drives on behalf of presidential candidates.

The 1978 FEC ruling and the 1979 amendments gave rise to the soft money phenomenon. The FEC had sanctioned the use of both federal and nonfederal money for election activities as long as it was kept in separate accounts, and the 1979 law allowed state parties to spend unlimited amounts of hard dollars for activities that would aid their entire slate of candidates, including federal [Page p449]candidates. With traditional funding sources restricted by contribution limits, parties started looking around for other sources of money so they could take advantage of the new avenues opened to them. The more soft money the parties took in to cover administrative and generic party expenses, the more of their hard money they could free up to spend on federal candidates.

Soft money quickly became a major source of revenue for the parties and a giant loophole in the laws. The rapid growth of soft money led to new regulations in 1991 requiring that the money be reported to the FEC and the reports be made public.

Aggressive pursuit of soft money, particularly by President Bill Clinton's 1996 reelection campaign, prompted congressional investigations and calls for changes in the campaign finance system.

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