Soft Money

Soft money describes financial contributions that are virtually unregulated by federal election laws, yet are used to influence elections. Originally designed to help local and state parties with party-building activities (such as voter registration or get-out-the-vote drives), soft money later was often used to fund “issue” ads for candidates. While “hard money” (monies regulated by the Federal Election Commission) has strict limits on the amount of contributions, soft money typically had no such limits. Soft money accounts regulated by state law could accept money from individuals, corporations, and labor unions even where federal law did not allow such contributions.

To avoid being regulated by federal law, ads funded by soft money could not expressly ask voters to vote for a specific candidate. However, the parties could address issues from the campaign so long as express advocacy was avoided. In other words, the parties' soft money ads could ask the people to vote, but could not say “vote for” a specific candidate, even though the implication in the ad often was clear.

The Bipartisan Campaign Finance Reform Act (BCRA) banned soft money for national parties, requiring that all party-building activities be paid for with hard money that was regulated by federal law. Legal loopholes in BCRA quickly led to the formation of the so-called 527s, nonprofit political groups that could still legally accept soft money. The Democratic Party is generally credited with the creation of the 527s, but Republicans and Independents quickly participated, and groups such as Swiftboat Veterans and http://MoveOn.org became key 527s in the 2004 presidential race, spending millions of dollars to influence the vote. Named after section 527 of the IRS tax code, these groups are required to file their contribution list with either the Internal Revenue Service or their home state, but there is little restriction on contributions.

Numerous organizations have campaigned both for and against a total ban on soft money. Proponents of a ban argue that soft money allows contributors to contribute more funds than allowed by legal contribution limits. Opponents of a soft money ban argue that such a ban would violate free speech rights in the political process and unnecessarily chill political activity.

In 2006, the U.S. House of Representatives passed a bill called the 527 Reform Act, seeking again to tighten the loopholes on soft money, but the bill has not passed in the U.S. Senate.