investinginthe people’s...

Investing in thePeople’s Business:A Business Proposal forCampaign Finance Reform

A Statement by theResearch and PolicyCommittee of theCommittee for Economic Development

Investing in the People’s Business:A Business Proposal forCampaign Finance Reform

A Statement by theResearch and PolicyCommittee of theCommittee for Economic Development

Library of Congress Cataloging-in-Publication Data

Committee for Economic Development. Research and Policy Committee.Investing in the people’s business : a business proposal for

campaign finance reform : a statement on national policy / by theResearch and Policy Committee of the Committee for EconomicDevelopment.

p. cm.At head of title: Draft policy statement.Includes bibliographical referencesISBN 0-87186-133-X1. Campaign funds — United States. I. Title.

JK1991.C6516 1999324.7'8' 0973 — dc21 99-19942

CIP

First printing in bound-book form: 1999Paperback: $18.00Printed in the United States of AmericaDesign: Rowe & Ballantine

COMMITTEE FOR ECONOMIC DEVELOPMENT477 Madison Avenue, New York, N.Y. 10022(212) 688-2063

2000 L Street, N.W., Suite 700, Washington, D.C. 20036(202) 296-5860

http://www.ced.org

iii

CONTENTS

RESPONSIBILITY FOR CED STATEMENTS ON NATIONAL POLICY iv

PURPOSE OF THIS STATEMENT vii

I. INTRODUCTION AND EXECUTIVE SUMMARY 1Findings 2The Complexity of Reform 3Summary of Recommendations 4

II. FINANCING FEDERAL ELECTIONS 8Campaign Spending 8Sources of Funding 10Trends in Financing and Their Effects on the Political System 13

III. RECENT INNOVATIONS IN POLITICAL FINANCE: SOFT MONEY AND ISSUE ADVOCACY 22

Soft Money 22Issue Advocacy 28

IV. RECOMMENDATIONS FOR REFORM 32Basic Principles for Reform 32Recommendation #1: Eliminate Soft Money 33Recommendation #2: Improve Candidate Access to Resources 35Recommendation #3: Reduce the Fundraising “Arms Race” with Congressional

Campaign Spending Limits 37Recommendation #4: Reform Issue Advocacy 39Conclusion 40

ENDNOTES 41

MEMORANDA OF COMMENT, RESERVATION, OR DISSENT 43

OBJECTIVES OF THE COMMITTEE FOR ECONOMIC DEVELOPMENT 45

The Committee for Economic Developmentis an independent research and policy organi-zation of some 250 business leaders and educa-tors. CED is nonprofit, nonpartisan, and non-political. Its purpose is to propose policies thatbring about steady economic growth at highemployment and reasonably stable prices, in-creased productivity and living standards,greater and more equal opportunity for everycitizen, and an improved quality of life for all.

All CED policy recommendations must havethe approval of trustees on the Research andPolicy Committee. This committee is directedunder the bylaws, which emphasize that “allresearch is to be thoroughly objective in char-acter, and the approach in each instance is tobe from the standpoint of the general welfareand not from that of any special political oreconomic group.” The committee is aided by aResearch Advisory Board of leading social sci-entists and by a small permanent professionalstaff.

The Research and Policy Committee doesnot attempt to pass judgment on any pending

specific legislative proposals; its purpose is tourge careful consideration of the objectives setforth in this statement and of the best means ofaccomplishing those objectives.

Each statement is preceded by extensive dis-cussions, meetings, and exchange of memo-randa. The research is undertaken by a sub-committee, assisted by advisors chosen for theircompetence in the field under study.

The full Research and Policy Committeeparticipates in the drafting of recommenda-tions. Likewise, the trustees on the draftingsubcommittee vote to approve or disapprove apolicy statement, and they share with theResearch and Policy Committee the privilegeof submitting individual comments for publica-tion.

Except for the members of the Research andPolicy Committee and the responsible subcommit-tee, the recommendations presented herein are notnecessarily endorsed by other trustees or by theadvisors, contributors, staff members, or othersassociated with CED.

RESPONSIBILITY FOR CED STATEMENTS ON NATIONAL POLICY

iv

RESEARCH AND POLICY COMMITTEE

REX D. ADAMSDeanThe Fuqua School of BusinessDuke UniversityALAN BELZERRetired President and Chief

Operating OfficerAlliedSignal Inc.PETER A. BENOLIELChairman, Executive CommitteeQuaker Chemical CorporationGORDON F. BRUNNERSenior Vice President and DirectorThe Procter & Gamble CompanyFLETCHER L. BYROMPresident and Chief Executive OfficerMICASU CorporationDONALD R. CALDWELLChief Executive OfficerNorth Atlantic Technology FundROBERT B. CATELLChairman and Chief Executive OfficerKeySpan Energy CorporationJOHN B. CAVEPrincipalAvenir Group, Inc.CAROLYN CHINChief Executive OfficerThe Chin CompanyA. W. CLAUSENRetired Chairman and Chief

Executive OfficerBankAmerica CorporationJOHN L. CLENDENINRetired ChairmanBellSouth CorporationGEORGE H. CONRADESPartnerPolaris Venture Partners

ChairmanJOSH S. WESTONHonorary ChairmanAutomatic Data Processing, Inc.

Vice ChairmenIAN ARNOFChairmanBank One, Louisiana, N.A.ROY J. BOSTOCKChairman and Chief Executive OfficerThe MacManus GroupBRUCE K. MACLAURYPresident EmeritusThe Brookings InstitutionCLIFTON R. WHARTON, JR.Former Chairman and Chief Executive

OfficerTIAA-CREF

KATHLEEN B. COOPERChief EconomistExxon CorporationRONALD R. DAVENPORTChairman of the BoardSheridan Broadcasting CorporationFRANK P. DOYLERetired Executive Vice PresidentGET.J. DERMOT DUNPHYChairman and Chief Executive OfficerSealed Air CorporationCHRISTOPHER D. EARLSenior Vice PresidentPerseus Capital LLCW. D. EBERLEChairmanManchester Associates, Ltd.WILLIAM S. EDGERLYChairmanFoundation for PartnershipsWALTER Y. ELISHARetired Chairman and Chief Executive

OfficerSprings Industries, Inc.EDMUND B. FITZGERALDManaging DirectorWoodmont AssociatesHARRY L. FREEMANPresidentThe Freeman CompanyRAYMOND V. GILMARTINChairman, President and Chief

Executive OfficerMerck & Co., Inc.BARBARA B. GROGANPresidentWestern Industrial ContractorsPATRICK W. GROSSFounder and Chairman, Executive

CommitteeAmerican Management Systems, Inc.RICHARD W. HANSELMANRetired ChairmanGenesco Inc.RODERICK M. HILLSChairmanHills Enterprises, Ltd.MATINA S. HORNERExecutive Vice PresidentTIAA-CREFGEORGE B. JAMESRetired Senior Vice President and Chief

Financial OfficerLevi Strauss & Co.JOSEPH E. KASPUTYSChairman, President and Chief

Executive OfficerPrimark Corporation

CHARLES E.M. KOLBPresidentCommittee for Economic DevelopmentALLEN J. KROWERetired Vice ChairmanTexaco Inc.CHARLES R. LEEChairman and Chief Executive OfficerGTE CorporationA. V. LIVENTALSVice President, Strategic PlanningMobil CorporationALONZO L. MCDONALDChairman and Chief Executive OfficerAvenir Group, Inc.HENRY A. MCKINNELLExecutive Vice PresidentPfizer Inc.JOSEPH NEUBAUERChairman and Chief Executive OfficerARAMARK CorporationJOHN D. ONGChairman EmeritusThe BF Goodrich CompanyJAMES F. ORR IIIChairman and Chief Executive OfficerUNUM CorporationSTEFFEN E. PALKOVice Chairman and PresidentCross Timbers Oil CompanyVICTOR A. PELSONSenior AdvisorSBC Warburg Dillon Read Inc.PETER G. PETERSONChairmanThe Blackstone GroupNED REGANThe Jerome Levy Economics InstituteJAMES Q. RIORDANStuart, FloridaMICHAEL I. ROTHChairman and Chief Executive OfficerThe MONY Group Inc.GEORGE RUPPPresidentColumbia UniversityHENRY B. SCHACHTDirector and Senior AdvisorLucent Technologies Inc.ROCCO C. SICILIANOBeverly Hills, CaliforniaMATTHEW J. STOVERGroup President, Bell Atlantic

Directory GroupBell Atlantic CorporationARNOLD R. WEBERChancellorNorthwestern UniversityMARTIN B. ZIMMERMANVice President, Governmental AffairsFord Motor Company

*Voted to approve the policy statement but submitted memoranda of comment, reservation, or dissent. See page 43.

*

*

v

SUBCOMMITTEE ON CAMPAIGN FINANCE REFORM

vi

*Voted to approve the policy statement but submitted memoranda of comment, reservation, or dissent. See page 43.

Co-ChairmenEDWARD A. KANGASGlobal Chairman and Chief ExecutiveDeloitte Touche TohmatsuGEORGE RUPPPresidentColumbia University

ALAN BELZERRetired President and Chief

Operating OfficerAlliedSignal Inc.JOHN BRADEMASPresident EmeritusNew York UniversityJOHN B. CAVEPrincipalAvenir Group, Inc.W. D. EBERLEChairmanManchester Associates, Ltd.PATRICIA O’DONNELL EWERSPresidentPace UniversityEDMUND B. FITZGERALDManaging DirectorWoodmont AssociatesROSEMARIE GRECOGreco VenturesWILLIAM F. HECHTChairman, President and Chief

Executive OfficerPP&L Resources, Inc.ROBERT J. HURSTVice ChairmanGoldman, Sachs & Co.EAMON M. KELLYRetired PresidentTulane University

THOMAS J. KLUTZNICKPresidentThomas J. Klutznick CompanyVICTOR A. PELSONSenior AdvisorSBC Warburg Dillon Read Inc.PETER G. PETERSONChairmanThe Blackstone GroupNED REGANThe Jerome Levy Economics InstituteE.B. ROBINSON, JR.Chairman and Chief Executive OfficerDeposit Guaranty National BankDANIEL ROSEVice ChairmanRose Associates, Inc.HOWARD M. ROSENKRANTZChief Executive OfficerGrey Flannel AuctionsJOHN C. SAWHILLPresident and Chief Executive OfficerThe Nature ConservancyROCCO C. SICILIANOBeverly Hills, CaliforniaALAN G. SPOONPresidentThe Washington Post CompanySTEPHEN STAMASChairmanThe American AssemblyPAULA STERNPresidentThe Stern Group, Inc.JAMES A. THOMSONPresident and Chief Executive OfficerRAND

Ex-Officio MembersFRANK P. DOYLERetired Executive Vice PresidentGECHARLES E.M. KOLBPresidentCommittee for Economic DevelopmentJOSH S. WESTONHonorary ChairmanAutomatic Data Processing, Inc.

Special GuestsKATHY STANWICKKohlberg & Co.MARK SCHMITTDirector of Governance and Public PolicyThe Open Society Institute

PROJECTDIRECTORANTHONY CORRADOAssociate Professor of GovernmentColby College

ADVISORSMICHAEL S. BERMANPresidentThe Duberstein Group, Inc.KENNETH GROSSSkadden, Arps, Slate, Meagher & FlomTREVOR POTTERWiley, Rein & Fielding

*

*

vii

Effective political campaigns have alwaysbeen fueled by money as well as ideas. But inrecent years, the cost of running for Congress orthe Presidency has soared to record heights. Formany candidates, raising money is no longerone important issue; it is the only issue.

For incumbents and challengers, the systemhas evolved (or devolved) into an eternal questfor campaign funds. Good people with limitedresources are discouraged from seeking office.Broad popular participation in campaigns hasbeen muscled aside by deep-pocket organiza-tions and individuals. Vast sums of unregu-lated “soft” money have poured into politicalparties and issue-oriented advertising. Mostimportant, disparities in campaign resourceshave reduced electoral competition. Over halfthe House races in 1998 were so one-sided as tonot be truly competitive.

In this policy statement, the Trustees of CEDmake a strong case for sweeping reforms thatwill restore trust and balance to the campaignfinance system, while protecting the first amend-ment rights of candidates and contributors. Wecall for a broad package of changes in federalelection financing rules that we believe will im-prove competition, increase citizen participa-tion, and staunch the flow of unregulatedmoney.

Campaign finance reform does not rank highon most Americans’ lists of national problems.We think it should. We urge the Americanpeople — especially our colleagues in business— to take a more active role in supportingchanges that will restore public confidence inthe electoral process and encourage moreAmericans to actively participate in federal elec-tions.

ACKNOWLEDGMENTSThis policy statement was developed by an

outstanding group of business, academic, andpolitical leaders (see page vi). We are very grate-ful for the time, effort, and care that each putinto the development of this report. We alsowish to cite CED’s previous policy statementFinancing a Better Election System (1968). It tack-led many of the same concerns addressed inthis statement, including the need for greatertransparency and increasing voter participa-tion in the political process.

Special thanks go to subcommittee co-chair-men Edward A. Kangas, Global Chairman andChief Executive of Deloitte Touche Tohmatsu,and Columbia University President GeorgeRupp for their leadership and intelligence.

We are also indebted to nationally-knowncampaign finance expert Professor AnthonyCorrado of Colby College, who served as projectdirector, and to Van Doorn Ooms, CED’sSenior Vice President and Director of Research,for his important contributions.

We gratefully acknowledge The Pew Chari-table Trusts for its generous support for thisproject and for CED’s ongoing work in thisarea.

Josh S. Weston, ChairmanCED Research and Policy CommitteeHonorary ChairmanAutomatic Data Processing, Inc.

Purpose of This Statement

1

I.Introduction andExecutive Summary

The American public believes that our cam-paign finance system is broken. The vast major-ity of citizens feel that money threatens thebasic fairness and integrity of our political sys-tem.1 Two out of three Americans think thatmoney has an “excessive influence” on elec-tions and government policy.2 Substantial ma-jorities in poll after poll agree that “Congress islargely owned by the special interest groups,”or that special interests have “too much influ-ence over elected officials.”3 Fully two-thirds ofthe public think that “their own representativein Congress would listen to the views of outsid-ers who made large political contributions be-fore a constituent’s views.”4

These findings, typical of the results of pub-lic opinion surveys conducted in recent years,indicate a deep cynicism regarding the role ofmoney in politics. Many citizens have lost faithin the political process and doubt their abilityas individuals to make a difference in ournation’s political life. Americans see rising cam-paign expenditures, highly publicized scandalsand allegations regarding fundraising practices,and a dramatic growth in unregulated moneyflowing into elections. It is therefore not sur-prising that voter cynicism and disillusionmenthave increased along with campaign spending.One symptom of the public’s growing alien-ation is our declining level of voter turnout,which dropped to 36 percent in 1998, the low-est turnout in a midterm election since 1942.5

In 1996, only 49 percent of voters went to thepolls, a 70-year low for a presidential election.6

Another symptom is the distressingly low level

of trust in government, notwithstanding someimprovement in recent years.7

CED is deeply concerned about these nega-tive public attitudes toward government andthe role of money in the political process. Theseattitudes highlight the importance the publicplaces on campaign funding in forming its opin-ions of government. They also indicate thedetrimental effects of the changes that havetaken place in the political finance system sincethe adoption of the 1974 Federal Election Cam-paign Act (FECA), which was passed in thewake of the Watergate scandal to resolve theproblems of our campaign finance system.

As business leaders, we are also concernedabout the effects of the campaign finance sys-tem on the economy and business. Americansidentify “special interests” principally with cor-porations. A vibrant economy and well func-tioning business system will not remain viablein an environment of real or perceived corrup-tion, which will corrode confidence in govern-ment and business. If public policy decisionsare made—or appear to be made—on thebasis of political contributions, not only willpolicy be suspect, but its uncertain and arbi-trary character will make business planningless effective and the economy less productive.In addition, the pressures on businesses to con-tribute to campaigns because their competi-tors do so will increase. We wish to compete inthe marketplace, not in the political arena.

Free and fair elections are an essential com-ponent of democratic government—and theycannot be conducted without money. Candi-

2

Investing in the People’s Business

dates must have a reasonable opportunity toobtain the resources needed to wage effectivecampaigns. Well-funded campaigns strengthenelectoral competition and can increase the in-formation available to voters, which in turncan invigorate citizen participation in electionsand government. A well-designed campaign fi-nance system would encourage citizens to ful-fill their public responsibility by participatingactively in the process as candidates, donors,and voters.

Our present system often does not providethese benefits. Instead, the insatiable demandfor election money raises concerns about thequality of political representation and the in-tegrity of the political process. As campaignexpenditures increase and larger sums are spentto win elective office, money becomes a barrierto entry into the political arena and providesundue advantage to those with access to largeamounts of it. Because our system of privatecongressional campaign funding is based onthe voluntary participation of individual citi-zens and organized groups, questions also ariseabout the interests that accompany campaigncontributions. The solicitation and donationof private contributions can promote healthyinteractions between politicians and their sup-porters. This process can inform governmentdecision making and improve the responsive-ness of the political system to constituents’ in-terests. But it can also lead to improper rela-tionships between donors and policymakers orproduce perceptions of influence that fuel pub-lic disaffection.

We therefore believe we must reconsiderthe laws and regulations governing our systemof political finance. We have conducted a dis-passionate review of our current system andthe major patterns of financial activity in re-cent elections. We have analyzed the many criti-cisms advanced against the current system andidentified the major issues and objectives thatwe believe should serve as guidelines in thedesign of regulation. This report presents ouranalysis and conclusions and sets forth ourrecommendations for reform.

FINDINGSWe have identified four fundamental prob-

lems in the current system that challenge basicprinciples of democratic government:

(1) Money and fundraising have becometoo important and demanding in our politicallife. Rising campaign costs and the pressureson candidates to outspend their opponentshave driven the campaign expenditures of theaverage House candidate over $500,000, whilethe average Senate contender spends nearly$3.8 million.8 Candidates must spend enormoustime and energy soliciting contributions, whichdetracts from the quality of representation theyprovide their constituents and the amount oftime they have available to discuss their viewswith them.

(2) The high cost of campaigns and theburdens of fundraising have reduced competi-tion and the pool of qualified candidates infederal elections. The financial demands of atypical federal race are pricing potential candi-dates out of the competition and discouragingsome well qualified candidates from seekingoffice. Personal wealth is becoming a moreimportant requirement for effective candidacy.Those who do decide to run against incum-bents very often find it difficult to raise thesums needed to wage a viable campaign and, inalmost every case, are outspent by substantialmargins. Challengers, especially in House races,are increasingly underfunded, and the num-ber of competitive races has declined. Whencompetition is weak, voter choice is limited.Too many contests for our nation’s highestoffices fail to generate public participation orinspire citizens to vote.

(3) The role of the small donor has de-clined. Incumbents and challengers alike havesought to meet the financial demands of cam-paigns by concentrating on large gifts fromtheir most generous supporters. In 1998, 61percent of the money received by congressionalcandidates from individual donors was raised

3

Introduction and Executive Summary

in contributions of $500 or more—a muchhigher proportion than the 38 percent only 14years earlier. Incumbents have also emphasizedpolitical action committee (PAC) contributions,since these committees, especially those spon-sored by corporate and trade associations, areprimarily concerned with gaining access tolegislators and rely on their contributions toobtain this access. The growth of PACs has ledmany voters to conclude that these committeesand other organized interests have so muchpolitical influence that small contributions byindividuals have little effect. Their disaffectionhas reduced participation in elections and weak-ened public faith in the legitimacy of electionresults.

(4) Unregulated funds raised and spent infederal elections have increased dramatically.We are especially troubled by the growth ofparty “soft money” financing and candidate-specific “issue” advertising. Instead of encour-aging financial activity within the rules of FECA,the current system encourages financial activi-ties beyond the law’s authority. Parties andorganized groups, including committees spon-sored by corporations and labor unions, havestrong incentives to solicit and spend money inunregulated ways and to engage in transac-tions hidden from public disclosure.

In the 1996 election cycle, national partycommittees raised and spent over $250 millionin “soft money” exempt from federal contribu-tion limits. In 1998 they raised $201 million, arecord for a midterm election; the Republi-cans raised 112 percent more than in 1994,and the Democrats 89 percent. The partiesused this money for such activities as party-building, candidate-specific issue ads, and voterregistration and turnout drives. Much of thismoney was raised through contributions of$100,000 or more from individuals, PACs, cor-porations, and labor unions, often with theovert assistance of federal officeholders. In ad-dition, millions of dollars were spent on candi-date-specific issue ads by organized groups thatdid not report their financial activity, since

these ads are not subject to FECA. These un-limited funding devices give a relatively smallgroup of donors great influence in the elec-toral process. They facilitate relationships be-tween monied interests and candidates thatincrease the possibility of corruption and un-dermine the accountability and transparencythat safeguard against it. And they threaten toplace candidates and their campaign issues inthe shadow of intervening interest groups,whose unregulated expenditures drive theirown political agendas.

THE COMPLEXITY OF REFORMThese four problems are not easily solved.

Regulating political behavior is always difficult,but especially so when financing innovationsare changing the landscape. No one or twochanges will achieve the diverse, and some-times competing, objectives of a well-function-ing system. We need a comprehensive reformprogram that honestly acknowledges compet-ing values and provides the necessary trade-offs between them.

Successful reform must balance the needfor regulation with the protection of FirstAmendment liberties. It must permit the fund-ing needed for full and robust political debateand competition while limiting the undue in-fluence of money. Reform must also pay dueregard to the effects of specific changes onpolitical parties and particular types of candi-dates or sources of funding.

We have considered a full range of reformproposals, from deregulation and simple dis-closure to the leading proposals for public fi-nancing. We have carefully weighed the poten-tial effects and consequences of each. Ourdeliberations have led us to recommend thefollowing program of major changes. Whentaken as a whole, we believe this program canprovide the balance needed to strengthen ourdemocracy.* **

*See memorandum by HARRY L. FREEMAN (page 43).

**See memorandum by NED REGAN (page 43).

4

The four sets of recommendations that aresummarized below are described in more de-tail in Chapter IV of this report.

Recommendation #1:ELIMINATE SOFT MONEY

As a general principle, funds used to pro-mote political candidacies should be subject tothe requirements and restrictions of federalcampaign finance law. Soft money is the mostegregious example of campaign financing thatviolates this principle. No reform is more urgentlyneeded than a ban on national party “soft money”financing. Some business leaders have alreadymoved in this direction by refusing to makesoft money contributions. We urge other mem-bers of the business community, labor unions,and individual citizens to follow this lead andvoluntarily work to reduce the supply of softmoney funds.

CED also recommends that Congress pro-hibit national party committees and federalofficeholders and candidates from raising orspending soft money. As a complementary mea-sure, we urge state legislatures to pass any leg-islation needed to ensure that state party com-mittees cannot finance their activities fromunlimited or undisclosed sources of funding.This change will reduce the role of large indi-vidual contributors in the political process andprohibit parties from raising contributions fromcorporations or labor unions.

Party committees play a valuable role in thepolitical process. They are important sourcesof funding for challengers and for efforts toimprove voter participation. We realize thateliminating soft money will significantly reducethe resources available to party organizations.To partially compensate for this loss, we rec-ommend a change in the rules limiting indi-vidual contributions to federal candidates andpolitical committees. Under current law, indi-viduals are limited to an annual total of $25,000for all contributions made to federal candi-

dates, PACs, and party committees. We pro-pose that Congress establish two separate ag-gregate limits for individuals. The first wouldlimit the total amount contributed by an indi-vidual to federal candidates and PACs to$25,000 annually. The second, separate ceilingwould limit the total amount contributed by anindividual to national party committees to$25,000 annually. This change will allow par-ties to raise more regulated money from indi-viduals than is permissible under current fed-eral law.

Recommendation #2:IMPROVE CANDIDATE ACCESSTO RESOURCES

Candidates should have the opportunity toraise the money they need to communicateeffectively with voters and mount competitivecampaigns without having to spend an inordi-nate amount of time and resources onfundraising. We therefore recommend thatCongress raise the limit on individual contribu-tions to federal candidates from $1,000 to$3,000 per candidate per election and thereaf-ter adjust this limit for inflation. This increasewill restore the purchasing power of a maxi-mum individual contribution that has beenlost since FECA was adopted 25 years ago. How-ever, an individual’s total contributions to fed-eral candidates and PACs should remain sub-ject to the annual limit of $25,000 noted above.*Only a small proportion of donors are able orwilling to contribute at the maximum level,and this limit will help reduce the politicalinfluence of these wealthy donors.

We believe it is essential to enhance the roleof small individual contributors in campaignsand to reduce the amount of time candidateshave to spend raising money. Therefore, westrongly recommend that Congress establish avoluntary program of public funding for con-gressional candidates. This program would pro-vide eligible House and Senate candidates with

SUMMARY OF RECOMMENDATIONS


*See memorandum by WILLIAM F. HECHT, (page 44).

5


two dollars in public money for every dollarreceived from an individual donor, up to amaximum of $400 for each individual contri-bution of $200.

Candidates who choose to participate inthis program would be required to abide byspending limits, as described below. Each par-ticipating candidate would also be required tolimit any personal contribution to his or herown campaign to $25,000. This reform willgive candidates a strong incentive to solicitsmall individual contributions and small con-tributors an incentive to make them. It willsignificantly reduce the emphasis on fundrais-ing in federal campaigns because, with thisamount of matching funds, candidates will havean option of receiving a majority of their cam-paign money from small contributions and thematching public funds. Indeed, total individualcontributions plus the matching funds wouldbe sufficient to fully finance congressional cam-paign spending at current levels. Finally, thischange will increase competition in federalelections by substantially increasing the re-sources available to challengers.

Recommendation #3:REDUCE THE FUNDRAISING “ARMSRACE” WITH CONGRESSIONALSPENDING LIMITS

Improving candidates’ access to resourceswill not reduce the demand for campaign fundsor the amount of time candidates spend rais-ing money if the additional funds simply feed afunding “arms race.” It is therefore essentialthat Congress also enact a system of spendinglimits on House and Senate candidates whoaccept public funding, as we now do in presi-dential elections. These limits should be gener-ous enough to induce candidates to accept pub-lic financing, but stringent enough to reducethe growth of campaign spending. Accordingly,we call for limits (detailed on page 38) higherthan those proposed in recent reform bills pre-sented to the Congress. The application ofsuch limits must be flexible enough to ensure

that candidates who agree to restrict spendingare not materially disadvantaged if they faceopponents who do not comply with the limitsor if they are opposed by “independent” ex-penditures by the opposing party or outsidegroups.

We recognize that spending limits will notnecessarily increase electoral competition, es-pecially if candidates are unable to raise fundscommensurate with those available to their op-ponents. We therefore recommend that partycommittees be allowed to supplement acandidate’s resources and finance the differ-ence between the amount he or she raises andthe relevant spending limit. Spending limitswould be adjusted for candidates facing oppo-nents who have not agreed to limits.†

The benefits of these recommendations canbe realized only if these spending limits andother requirements are effectively monitoredand enforced. We are concerned that the Fed-eral Election Commission (FEC), the agencyresponsible for overseeing the law, is under-funded and understaffed. It currently lacks theresources needed to administer a program ofcongressional campaigns with public financingand expenditure limits. We therefore urge Con-gress to review the staffing, structure, and cur-rent funding of the FEC and provide it with theresources and authority needed to ensure accu-rate and timely monitoring and compliance withthe law.

Recommendation #4:REFORM ISSUE ADVOCACY

Greater regulation of candidate-specificissue advertising is needed to ensure a mean-ingful regulatory system. The current legal stan-dard used to define “express advocacy” (thetype of speech subject to regulation under fed-

†This recommendation would allow party committees, in mostinstances, to provide greater assistance to federal candidatesthan that allowed under current law. We recognize that coordi-nated spending limits are presently being reviewed by the courts.In general, we support the principle of expanded party financ-ing of elections, since it is a means of encouraging more fullyfunded and competitive elections.

6

eral campaign finance law) is too narrow. Weprefer a broader standard that will make itharder to by-pass our federal election laws. Weurge Congress to adopt a standard that setsforth clear criteria for identifying public com-munications that constitute express advocacy,to require that such communications be whollyfinanced from funds raised under federal con-tribution limits, and to require that the sourcesof funding and amounts spent on such commu-nications be publicly disclosed. We suggest thatexpress advocacy include communications that:(1) refer to, or feature the image or likenessof, a clearly identified federal candidate; (2)occur within 30 days of a primary election andare targeted at the state in which the primary isoccurring, or within 60 days of a general elec-tion; and (3) would be understood by a reason-able person to be encouraging others to sup-port or oppose that candidate.

If such a broader standard for determiningexpress advocacy is not upheld by the courts,we believe that, at a minimum, prompt publicdisclosure of the financial activity associatedwith these communications should be required.We recommend requirements for full publicdisclosure of the sources of funding andamounts spent on such communication. Suchdisclosure will ensure that the public can knowwho is attempting to influence its voting deci-sions and will thus promote informed decision-making in the electoral process.

Table 1 compares the major features ofCED’s proposed reforms with the currentsystem:

SOFT MONEY • Allows soft money; allowsnational party committees toraise and spend unlimitedamounts of money receivedfrom individuals, labor unions,corporations, and other donors.

• Allows federal electedofficials and candidates toraise soft money for nationalparty committees.

• Limits individual contributionsto federal candidates to $1,000per candidate per election.

• Limits the annual aggregateamount contributed by an individ-ual to federal candidates, PACs,and party committees to $25,000.

INDIVIDUALCONTRIBUTIONS

PUBLICFUNDING

• No provision for public fundingin congressional elections.

EXPENDITURELIMITS

• No expenditure limits forcongressional candidates.

PARTYEXPENDITURES

• Allows party committees to spenda limited amount in coordinationwith federal candidates.

• Communications that do notexpressly advocate the election ordefeat of a federal candidate arenot subject to the provisions offederal campaign finance law.There are no public disclosurerequirements or restrictions ontheir sources of funding.

• “Express advocacy” is definednarrowly, requiring the use ofspecific words in the text of amessage indicating such advocacy.

ISSUEADVOCACY

SUBJECT CURRENT SYSTEM

TABLE 1

Comparison of Major Features of CEDReform Proposal with Current System


7


• Eliminate soft money by prohibiting national party committees from soliciting, receiving, spending, directing ortransferring any funds that are not subject to the restrictions of federal law.

• Prohibit federal elected officials and candidates from raising funds for national party committees that are notsubject to federal contribution limits.

• Prohibit federal elected officials and candidates from sponsoring PACs that receive money not subject to federalcontribution limits.

• Encourage state legislatures to adopt legislation or regulations to ensure that state party committees cannot financetheir activities with unlimited or undisclosed funds.

• Limit individual contributions to federal candidates to $3,000 per candidate per election, with adjustment forinflation.

• Limit the annual aggregate amount contributed by an individual to federal candidates and PACs to $25,000.

• Establish a separate annual aggregate limit of $25,000 for individual contributions to party committees.

• Establish a voluntary program of public matching funds in congressional elections. Eligible candidates wouldreceive $2 in public funding for every $1 raised from an individual contributor, up to a maximum of $400 for anindividual contribution of $200. To be eligible, candidates must agree to limit personal contributions to their owncampaigns and agree to spending limits.

• Require congressional candidates who accept public funding to abide by spending limits. The ceilings would be setat $500,000 per election in House races (with $200,000 for a runoff election) and a base of $1 million plus 50 centstimes the voting-age population of a state in Senate races (with an additional 20 percent for a runoff election).These ceilings will be adjusted for inflation and for candidates facing opponents who have not agreed to limits.

• Allow party committees to spend money in coordination with federal candidates up to the spending limit. That is,parties can make up any difference between a candidate’s total spending and the amount of the spending ceiling.

• Expand the definition of “express advocacy” communications to include public communications that are broadcastor distributed within a certain time period prior to an election and meet specific criteria. Communications thatmeet these criteria would be considered express advocacy and be subject to full public disclosure and limits on theirsources of funding.

• Should the courts not accept a broader definition of express advocacy, would require full public disclosure of theamounts spent and sources of funding for issue advocacy communications broadcast or distributed within a certaintime period prior to an election.

CED RECOMMENDATIONS

8

II.Financing FederalElections

Money is essential to political campaigns. Itis the means by which candidates acquire thegoods, services, and skills needed to share theirviews with the electorate and mobilize publicsupport. Without adequate funding, a candi-date has little chance of becoming known tothe electorate and waging a viable campaign.Money therefore plays a key role in determin-ing the choices available to voters and the com-petitiveness of elections.

In recent decades, the role of money inelection campaigns has become more promi-nent—and more controversial. The costs ofseeking office have grown, as candidates haveengaged in increasingly sophisticated methodsof campaigning and turned more to broadcastadvertising as their principal means of commu-nicating with voters. These rising costs requirecandidates to spend increasing amounts of theirtime and resources fundraising.

CED believes that the increasing financialrequirements of recent elections and the grow-ing emphasis on fundraising raise serious ques-tions about the health of our campaign financesystem. Our main concern is that an increas-ingly burdensome system may be reducing elec-toral competition and discouraging qualifiedcandidates from seeking office. We are alsoconcerned that current financial practices mayprovide some candidates with an unfair com-petitive advantage and some donors with un-due political influence.

In this chapter we explain these concernsby analyzing the growth of campaign spend-ing, the sources of funding, and the financial

patterns of recent elections. We conclude thatsignificant increases in the amounts spent oncampaigns and changes in the sources of fund-ing have created a need to make resourcesmore easily available to candidates, especiallythose challenging established incumbents.

CAMPAIGN SPENDINGOne of the central questions in the cam-

paign finance debate is whether too muchmoney is being spent on political campaigns.Many observers contend that election spend-ing is too high and must be reduced. We thusbegin by reviewing the amounts spent in re-cent elections and the major factors that havecontributed to the rising expenditures.

During the 1996 election cycle, candidates,political committees, and other organizationsand individuals spent over $4 billion on politi-cal campaigns.9 This spending covered not onlythe races for the White House and seats inCongress, but also contests for state and localoffices, efforts by political parties and otherorganizations to register and turn out voters,costs incurred by party organizations at all lev-els of government, and the spending of nu-merous political committees sponsored by in-terest groups and other associations.

This $4 billion was almost 25 percent largerthan the amount spent in 1992. The 1996 elec-tion thus continued a long rise in campaignspending, which has increased more thantwelve-fold in three decades, about three timesthe rate of general inflation.10 This growth in

9

Financing Federal Elections

campaign spending has been led by the in-creasing sums spent on campaigns for federaloffice.11

In 1998, this rise in campaign expendituresabated slightly—unfortunately, for reasons thatincrease rather than diminish our concern. Byyear end, Congressional candidates reportedlyspent $644 million, slightly less than duringthe comparable period in 1995–1996. Whilespending in Senate races appears to have risensomewhat, to $249 million, that by House can-didates declined from over $400 million in1996 to $395 million. This drop in Housespending, however, reflects declining politicalcompetition, which we address below. Therewere fewer open seat races, which tend to bemore competitive and expensive, and moreuncompetitive challengers and correspond-ingly safe incumbents.

No single factor explains the growth in cam-paign expenditures. Changes in the size ofelectoral districts, innovations in campaignstrategies, new technologies and polling tech-niques, shifting levels of competition, and thediverse behavior and tactics of political groupsall contribute. However, much of the growth isthe result of changes in the ways in whichcandidates communicate with voters. Candi-dates are making greater and greater use ofbroadcast media and direct mail appeals toshare their views with ever larger electorates,and these broad-based types of communica-tion raise the costs of campaigning.

The primary factor driving higher campaignspending has been the cost of television andother forms of paid broadcast advertising. TheTelevision Bureau of Advertising estimates thatall primary and general election candidatesfor federal, state, and local offices spent a totalof $50.8 million on television advertising in1976. By 1996, candidate spending on televi-sion had reached $400 million—an inflation-adjusted increase of more than 200 percentover the last five presidential election cycles.12

However, these television advertising expendi-tures represent only about 10 percent of thetotal spent on all campaigns for elective office.

Most state and local candidates do not makeextensive use of paid broadcast advertising, buttelevision is important in most campaigns forfederal office.

As might be expected, television advertisinghas had the greatest effect on spending in presi-dential races, where candidates must commu-nicate with a national electorate. In 1996, forexample, President Bill Clinton and SenatorRobert Dole allocated 52 and 46 percent oftheir respective campaign funds to media ad-vertising.13 In the general election campaign,both candidates spent over 60 percent of theircampaign funds in this manner.14

Broadcast advertising represents a smallershare of the budget in congressional campaignsbut is still the major expense in most of theseraces, especially in the Senate. Major-party Sen-ate and House candidates in 1992 spent 42 and27 percent of their respective funds on elec-tronic media advertising, including paymentsto media consultants, direct radio and televi-sion air time purchases, and advertising pro-duction costs. House candidates make less useof television and radio advertising because it isnot a cost-effective means of campaigning inmany districts, especially those in major metro-politan areas where media markets are muchlarger than a single House district. These can-didates make greater use of more targeted com-munications, such as direct mail, and a signifi-cant proportion spend no money at all onbroadcast advertising.15

Another major expense in most federal cam-paigns is the cost of raising funds. As expendi-tures have risen, candidates have had to devotelarger sums to fundraising. The costs vary de-pending on the office being sought, the finan-cial needs of a campaign, and the fundraisingmethods. In general, fundraising expenses rep-resent 10-20 percent of the costs of campaigns,with the average higher for incumbents (whoraise more money) than for challengers.16 Ris-ing expenditures on other campaign staplessuch as mailings and travel have also contrib-uted to the growth in campaign spending. Inaddition, modern campaigns rely on an array

10

of consultants and sophisticated new technolo-gies, including polling, computerized directmail, and teleconferencing services, all of whichhave increased costs.

We do not consider increased spending oncandidate communications per se to be a majorcause for concern. Indeed, effective communi-cations are an essential component of a mean-ingful campaign and are necessary to have aninformed electorate. Thirty-second televisionspots may not be the best means of presentingvoters with detailed information on acandidate’s positions or public policy propos-als, but these ads are the most accessible andcost-effective means available to candidates tocommunicate with large segments of the popu-lation.

Nevertheless, we are concerned about theburdens that rising expenditures place on in-dividual candidates as they face the rising fi-nancial requirements of communicating withincreasingly large electorates. Increased cam-paign spending is not simply a consequence ofnew technology, changing campaign practices,and higher costs of communication. Spendingis also driven by candidate behavior. Most can-didates fear being outspent by an opponentand worry about not spending enough on acampaign. Since no politician can know withcertainty how much spending is “enough,” orwhich campaign activities are most effective ingarnering support, candidates tend to spendas much money as they can raise. This attitudecontributes to an “arms race mentality” amongcandidates that, in turn, intensifies the pursuitof campaign dollars.

SOURCES OF FUNDINGFederal candidates are required by federal

law to finance their campaigns by solicitingcontributions from limited, publicly-disclosedsources. In addition, FECA sets limits on theamounts individuals, PACs, and parties maydonate to candidates and prohibits corpora-tions, national banks, labor unions, and for-

eign nationals17 from making any contribu-tions to federal campaigns. If a business orlabor union wants to participate in the financ-ing of a candidate’s campaign, it must estab-lish a PAC and make donations only from rev-enues raised through voluntary contributionsreceived by the PAC. (The current contribu-tion limits on individuals, PACs, and politicalparty organizations in federal elections areshown in Table 2.)

In recent elections, most of the money infederal races has come from the voluntary con-tributions of individual citizens, who on aver-age have provided about 50–60 percent of themonies received by candidates in House andSenate campaigns. PACs, the next largestsource, provided an average 34 percent of thefunding in House races and approximately 18percent in the Senate. Party committees haveprovided about 5 and 9 percent of the moneyin House and Senate races respectively, whilepersonal contributions by the candidates them-selves have accounted for about 8 percent offinancing in the House and 9 percent in theSenate. The sources of funding for House andSenate candidates in 1996 are shown in Figure1 (see page 12).

In presidential races, the pattern is verydifferent, largely due to the option of publicfunding. In presidential primary elections, mostof the money raised by candidates comes fromindividual donors and the public funds gener-ated by small individual donations. On aver-age, more than 95 percent of the total fundsreceived by recent presidential candidates hascome from individuals and public funding,with individual donations providing about two-thirds of total receipts and public matchingfunds about one-third.

PACs play little role in the financing ofpresidential campaigns. Even candidates whospecifically target PAC donations as a source offunding rarely receive more than 5 percent oftheir total funds from this source. BecausePAC contributions are not eligible for publicmatching funds, candidates have less incentive


11


STATE ORLOCALPOLITICALPARTY(party committee)

Candidate(or candidatecommittee)

PoliticalActionCommittee(multi-candidatePAC1)

State or LocalPolitical Party(partycommittee)

NationalPolitical Party(partycommittee)

INDIVIDUAL(or partnership)

$5,000per election2

1. Most business, labor, and ideological/issue PACs are “multi-candidate” committees under federal law, which means they havebeen registered for at least six months, have at least 50 contributors, and have made contributions to at least five federal candidates.Non-multi-candidate committees are subject to the same contribution limits as individuals.

2. Each primary and general election counts as a separate election.

3. This limit only applies to money used to support or oppose federal candidates. There are no federal limits on money thatindividuals and PACs can give to political parties for non-candidate-specific “party building” activities such as issue development,voter registration, and get-out-the-vote drives. Money used for these non-federally-regulated purposes is called “soft money.”

4. Some states impose their own limits on contributions to state and local parties, regardless of how the money is used.

5. Includes U.S. Senate and House of Representatives campaign committees, as well as parties’ national committees, each of whichmay contribute $5,000 to a candidate or PAC.

SOURCE: Center for Responsive Politics, Money in Politics: Reform Principles, Problems and Proposals (Washington, D.C. 1996).

NATIONALPOLITICALPARTY5

(party committee)

$1,000per election2

CORPORATIONSAND LABORUNIONS

SPECIAL LIMITS

$5,000per calendar year

$5,000per calendar year3

(combined limiton contributionsto all state andlocal parties)

$20,000per calendaryear3

$25,000per calendar year(combined limiton contributionsto all candidates,PACs, andparties)

POLITICALACTIONCOMMITTEE(multi-candidatePAC1)


$15,000per calendaryear3

$5,000per calendar year3

(combined limiton contributionsto all state andlocal parties)

unlimited by federal lawprovided money used for non-candidate-specific activities4

(see also footnote 3 below)

prohibited

_______

prohibited

$5,000per election(combined limiton contributionsto all candidates)

unlimited “transfers”to other party committees

$5,000per calendar year(combined limiton contributionsto all PACs)

_______

_______

$5,000per election2

$17,500to a U.S. Senatecandidate percampaign


unlimited “transfers”to other party committees

TABLE 2

Federal Contribution Limits

DONORS RECIPIENTS

12

to solicit these sources. In addition, most PACschoose to concentrate their resources on con-gressional campaigns, and some have a policyof not participating in presidential races.18

However, public subsidies, financed througha checkoff on federal individual income taxforms, have been an important source of fundsin presidential campaigns. This system givespresidential aspirants a strong incentive to so-licit small individual contributions of $250 orless, since these are matched on a dollar-for-dollar basis with public funds. To qualify forthe matching funds, a candidate need onlyraise $5,000 per state in 20 states in small con-tributions and agree to observe aggregate andstate legal spending limits. Candidates who par-ticipate in the program must also limit anypersonal contributions to their own campaignsto $50,000.

Almost all those who have sought a majorparty’s presidential nomination have acceptedpublic financing. The only exceptions havebeen Republicans John Connally in 1980 andMalcolm “Steve” Forbes and Maurice Taylor in1996; the two latter candidates financed theircampaigns largely from their personal wealth.The availability of public funding has encour-aged many candidates, especially lesser-knownchallengers, to pursue financial strategies thatemphasize the solicitation of small gifts. Thisapproach has allowed such candidates, includ-ing such diverse challengers as RepublicansRonald Reagan and Patrick Buchanan andDemocrats Jesse Jackson and Jerry Brown, toraise 40 percent or more of their total revenuesfrom public funds. Under the law, no candi-date can receive more than half of the amountallowed by the spending limit in public mon-ies.

In presidential general election contests,public funding has become the principal meansof financing a campaign. Major-party candi-dates receive a full subsidy of the total amountof allowable spending. (The law also sets forthguidelines under which minor-party challeng-ers or the nominee of a new party may qualifyfor a proportionate subsidy.) When the law was


1. Average of the four elections, 1990-1996.

SOURCE: Ornstein, N., Mann, T., and Malbin, M.,Vital Statistics on Congress, 1997-1998 (Washington, D.C.:Congressional Quarterly, 1998).

Figure 1

Sources of Congressional CampaignFunding, 1990–19961

HOUSE

SENATE

PAC34%

Other5%

Party5%

Candidate8%

Individual48%

PAC18%

Other5%

Party9%

Candidate9%

Individual59%

13

adopted in 1974, this spending ceiling was setat $20 million, with adjustments for inflation;by 1996 it had increased to $61.8 million. Toqualify for this subsidy, a candidate must abideby the spending limit and agree to raise andspend no additional private monies except forcosts incurred to comply with the law.

Since the law’s adoption, every major-partypresidential candidate has accepted public fi-nancing in the general election. And, althoughH. Ross Perot financed his independent bidfor the presidency in 1992 largely out of hisown personal wealth, as the Reform Party nomi-nee in 1996 he accepted the partial publicsubsidy for which he qualified by virtue of hisshare of the vote in 1992.

The overall pattern of the sources of cam-paign funding has not changed markedly overthe past decade, as the relative shares of totalreceipts from individuals, PACs, public subsi-dies, and other sources have remained fairlystable. The most noteworthy change in recentelection cycles has been the increase in theshare of funds that has come from the candi-dates’ own pockets. This change is best ex-plained by exploring the general trends in po-litical finance in more detail and in a broadercontext.

TRENDS IN FINANCING ANDTHEIR EFFECTS ON THEPOLITICAL SYSTEM

Aspiring candidates now face the prospectof extremely costly campaigns. The averagecost of races during 1976–1998 rose from ap-proximately $73,000 to over $500,000 for theHouse and from $596,000 to $3.8 million forthe Senate. In 1976, no House campaign costmore than $500,000; in 1998, 309 did so. Mil-lion-dollar House campaigns, which numbered22 as recently as 1988, nearly quintupled to104 by 1998. In this last election, 15 of thecandidates seeking election to the Senate spentat least $5 million. In general, House andSenate candidates now must raise six or seven

times as much money as did their counterparts20 years ago. The collision of these rising costswith fixed contribution limits has made thefundraising problem particularly acute.

The pressure to raise money is especiallystrong for members of the House, most ofwhom begin to seek contributions as soon asthey are sworn into office. Some legislatorshave reported spending hours every day seek-ing contributions.19 The time candidates haveto devote to fundraising on average is notknown, but one former senator has estimatedthat at campaign time he and his staff spent upto 80 percent of their time seeking contribu-tions.20

Reducing the Quality of Governanceand the Pool of Qualified Candidates

This emphasis on fundraising underminesthe quality of our governance. We recognizethat fundraising can be a valuable part of ademocratic political process. A candidateshould spend time seeking the support of indi-viduals and encouraging them to participatefinancially in a campaign. Indeed, anindividual’s willingness to make a contributionis an important expression of political sup-port. But too many candidates now must spendtoo much time raising too much money. In-cumbents then spend less time serving con-stituents, working on policy matters, engagingin legislative debate, or performing other offi-cial duties. Similarly, candidates seeking officehave less time available to meet with voters,gain an understanding of voters’ concerns, anddevelop views on the policy questions they mayhave to address if elected.

The burden of fundraising also affects thechoices available to voters, since it discouragessome individuals from continuing in office orfrom seeking office altogether. In recent years,a growing number of retiring senators andrepresentatives have cited the demands offundraising as one of the factors in their deci-sion to leave office. They have noted thatfundraising has become too arduous and de-meaning, has taken too much time and energy


14

away from the work they were elected to do,and has diminished the quality of their repre-sentation.

Such pronouncements by experienced leg-islators highlight the difficulties that prospec-tive candidates face in deciding whether toseek office. Incumbent legislators, with an es-tablished capacity for raising money, have arelatively easy time compared with those whoconsider challenging them. For many poten-tial challengers, the prospect of attracting hun-dreds of thousands, if not millions, of dollarsfrom thousands of contributors appears a daunt-ing and perhaps impossible task.

CED is therefore deeply concerned that theburdens of fundraising may be limiting thepool of qualified candidates for public office.While many factors determine a candidacy, in-cluding the national political environment, thestrength of a prospective opponent, and thepotential for public disclosure of an individual’sprivate life, the ability to raise money is now acentral issue. Escalating campaign costs havebecome a stronger barrier to entry for thosewithout access to money or to a broad base ofdonors, while personal wealth has become amore important qualification for effective can-didacy. Even those with access to resourcesmay choose not to run rather than endure theprocess. A campaign finance system should en-courage individuals to compete for our nation’shighest offices, not discourage them. It shouldincrease, not diminish, potential candidacies.Our current system does not do so.

The Diminishing Role of the SmallContributor

A central objective of FECA was to expandpublic participation in the financing of elec-tions by encouraging candidates to solicit mod-est contributions from a broad base of donors.This goal acknowledged the beneficial value ofsmall donors in a private system of campaignfinance. Small contributions from many indi-vidual donors diminish the potential for cor-ruption, since such contributions do not pro-vide donors with excessive access to or influence

on legislators. The active involvement of smalldonors also can diminish the relative influenceof large donors and organized interest groupsby stimulating broad public participation inelections. This shift in relative influence wouldpromote public confidence in the political pro-cess and encourage new donors to contribute.The result would be a dynamic system of politi-cal finance in which individuals see their owncontributions, however small, as a meaningfuland important form of political expression.

Our present system has not developed inthis way. It has neither led candidates to em-phasize small contributions nor encouragedsmall contributors to make them. While moreindividuals contribute to federal candidatesthan did so 20 years ago, there has been a cleartrend towards larger individual gifts, especiallyin congressional campaigns.

This is hardly surprising. Candidates mustraise money as efficiently as possible to copewith the rising financial demands of their cam-paigns. Since public matching funds are notavailable for small contributions to congres-sional races, Senate and House candidates canraise meaningful sums most efficiently by tar-geting large donations. Building a broad baseof small donors is more time consuming andexpensive, since it requires the use of extensivesolicitation methods such as direct mail andtelemarketing.

In recent elections, congressional candidateshave increasingly relied on large individual con-tributions. (See Figure 2). In 1984, Senate can-didates in all elections raised about 41 percentof their total individual contributions in dona-tions of $500 or more. By 1998, this figure hadgrown to 68 percent. The large-donor propor-tion for House candidates rose from 34 to 56percent over the same period.

Large contributions have become impor-tant for both incumbents and challengers. In1998, Senate incumbents raised almost 69 per-cent of their individual contributions inamounts of $500 or more and challengers 67percent. In House races, large gifts made up 56percent of individual receipts for both incum-


15

bents and challengers. Conversely, the portionof candidate funding derived from small con-tributions of less than $200 is declining. Al-though comparable data are not available forearlier elections, the change since 1992 is note-worthy. Senate candidates received 36 percentof their individual funding from such smalldonations in 1992, but by 1998 only about 23percent. For House candidates the proportiondeclined similarly, from about 39 to 29 per-cent.21

Moreover, these data overstate the role ofsmall contributors in congressional campaigns,since they are based on individual contributions,not the aggregate amount given by an indi-vidual contributor. We can safely assume thatsome of these donors made more than onecontribution to a candidate and thus gave morethan $200. Similarly, some multiple donors cer-

tainly made contributions totaling more than$500 that are not reflected in the large-contri-butions data.

The Growing Influence and Concen-tration of Political Action Committees

A more prominent change in the campaignfinance system since the adoption of FECA hasbeen the emergence of PACs as a major sourceof funding in congressional elections. In thetwo decades after FECA was adopted, the num-ber of PACs grew from approximately 990 in1976 to almost 4,600 in 1998. The greatestgrowth has come in the number of corporatePACs, which rose from 433 in 1976 to almost1,800 in 1998, and in the number of PACsorganized by ideological groups, known as“non-connected” PACs, which increased fromabout 100 to approximately 1,400. During thesame period, the number of trade associationPACs rose from 489 to 900, while PACs orga-nized by labor unions grew from slightly morethan 200 to 348.

While PACs are commonly cast in publicdiscussions as single-interest organizations or“special interests,” they collectively representthousands of different interests and tens ofthousands of individual contributors. All PACmonies contributed to candidates must comefrom voluntary donations; a committee canrequest, but not require, such donations fromthe members of a corporation or group withwhich it is associated. PACs thus provide smalldonors with a means of participating in thefinancing of campaigns through a broadergroup that represents their concerns. In thisway, they have increased public participationin the financing of elections and offered indi-viduals a valuable means of exercising theirrights of free speech and political association.

Over the past two decades, the amount ofmoney donated by PACs to House and Senatecandidates has increased significantly, risingfrom about $23 million in 1976 to about $216million in 1998. PACs have now become a ma-jor source of funding for federal candidates.Candidates have a strong incentive to pursue


Figure 2

Contributions of $500 or More as aShare of All Individual Contributions,1984–1998*

80

60

40

20

0 1984 1988 1992 1994 1996 1998

*Contributions to candidates in special, primary and generalelections.

SOURCE: FEC data. 1998 contributions data as available onFebruary 15, 1999 in “cansum” files at <www.fec.gov>. Thesedata cover different time periods for different campaigns.Comparable data for off-year campaigns prior to 1994 are notavailable.

Percent

Year

HouseSenate

1984 1988 1992 1994 1996 1998

16

this funding, since PACs may give five times asmuch as individuals to a federal campaign.Most PACs, however, give less than the maxi-mum permissible contribution of $5,000 perelection to the candidates they support.

A substantial share of PAC funding is associ-ated with corporations. In 1998, PACs relatedto publicly and privately held corporations do-nated $76 million to federal candidates com-pared with $61 million donated by trade asso-ciation PACs, $44 million by labor PACs, and$28 million by non-connected PACs.22 Theaverage total contributed by the many corpo-rate PACs was $42,800, as compared with anaverage of approximately $126,000 by laborPACs and $20,000 by non-connected PACs.

These aggregate statistics, however, maskthe great diversity in resources among PACs.In 1998, 55 percent of the more than 4,500PACs active in the cycle made contributionstotaling less than $5,000, with 35 percent mak-ing no contributions at all. (See Table 3). Infact, less than four percent of all PACs madetotal contributions of more than $250,000. Thissmall group of 179 PACs was responsible for 56percent of all federal PAC contributions in the1998 cycle. This disproportionate role of a rela-tively small group of well-financed PACs is typi-cal of recent experience.

PACs are pragmatic participants in the po-litical process. Approximately 70 percent oftheir contributions goes to incumbents, whilethe remaining 30 percent is distributed amongopen seat candidates and challengers.23 WhilePACs do not support only incumbents, and thePAC community is too diverse to be strictlycategorized, their donations are a major sourceof the resource advantage held by incumbents.24

In 1998, PACs gave incumbents in House raceson average almost $8 for every $1 contributedto challengers; in Senate contests the ratio wasover $5 to $1. Corporate and trade associationPACs especially favor incumbents, in large partbecause they seek access to legislators who willdecide issues that may affect their interests.

The growth in PACs has been a cause foralarm among many advocates of reform, lead-

ing to charges that PAC donations are a majorfactor in determining legislators’ votes and thatPACs therefore exert undue influence in thepolitical process. We have not found the directinfluence of PACs on legislative voting to be assignificant as many claim. The charges of “votebuying” by PACs are not well supported. In-deed, most studies that have examined thematter have found little relationship betweenPAC contributions and voting behavior, whichis best explained by a legislator’s ideology, partyaffiliation, and constituency interests.25

However, because a small proportion ofPACs is responsible for most of the moneydonated to federal candidates, this concentra-tion of financial influence does provide privi-leged access that raises serious questions aboutthe role of PACs in the political process. Evenif PAC contributions do not directly affect leg-islators’ votes, they undoubtedly provide im-portant influence. Indeed, committee or floorvotes are but one indicator of the influencePACs may exert. Access can influence legisla-


None 1,620 35.2 0.0 0.0

Less than 5 927 20.2 1.9 0.9

5-50 1,257 27.3 25.0 11.6

50-100 330 7.2 23.5 10.9

100-250 285 6.2 44.2 20.4

250-500 94 2.0 33.2 15.3

500-1,000 51 1.1 35.7 16.5

More than 1,000 34 0.7 52.6 24.3

Total 4,598 100 216.1 100

TABLE 3

PACs Classified by the Size of TheirTotal Contributions, 1997–1998

Amount of aPAC’s TotalContributions($ thousands)

Numberof PACs

Percentof AllPACs

TotalContribu-

tions($ millions)

Percentof AllPAC

Spending

Percentages may not total 100% due to rounding.

SOURCE: Based on data through November 23, 1998 reportedby the Federal Election Commission.

17

tive decisions in a variety of ways that take placewell before any committee or floor votes aretaken. For example, a PAC may seek to ensurethat a particular bill never makes it onto asubcommittee or committee agenda; it may beasked for its view on a particular bill or begranted an opportunity to testify at a commit-tee hearing; or it may be allowed to help de-velop detailed and obscure legislative provi-sions designed to benefit a specific industry,business, group, or cause. Such influence isdifficult to quantify, but it highlights our con-cern about the rise in PAC contributions andthe disproportionate influence of the smallgroup of PACs that contribute most of themoney.

Diminished Competition:Underfunded Challengers

Election results demonstrate the powers ofcongressional incumbency. Challengers faceformidable obstacles and usually lose, espe-cially in the House. Money, of course, plays amajor role in these outcomes. Incumbents nor-mally enjoy a very large advantage in campaignfundraising and are therefore capable, in mostinstances, of outspending their opponents bysubstantial margins.

However, money isn’t everything. Evenhighly competitive challengers characteristicallyspend significantly less than their incumbentopponents. House challengers who earned atleast 40 percent of the two-party vote in 1998spent an average of $639,000 on their cam-paigns, as compared with almost $1 million forthe incumbents they opposed. Of the nine chal-lengers who beat House and Senate incum-bents in 1998, seven spent less than their oppo-nents. This is consistent with long historicalexperience. A survey of the 1,540 House racesfrom 1976 to 1990 in which an incumbentfaced a major party challenger in successiveelections concluded that, while money is essen-tial, challengers do not as a rule have to spendas much as incumbents to win.26

Thus, while incumbent spending clearly af-fects election outcomes, the most important

consideration is whether a challenger can raiseenough money to finance a viable campaign.Money means more to a challenger than anincumbent because a challenger is less well-known. A challenger has a more pressing needto generate awareness of his or her candidacyamong voters, to be seen as a viable candidate,and to communicate positions effectively.

Nevertheless, it is troubling that the resourcedisparity between incumbents and challengershas increased greatly in both absolute size andproportion in recent years. (Both are arguablyimportant to the competitiveness of elections.)In 1976, the average House challenger spentabout $51,000, or 65 percent as much as the$79,000 spent by the average incumbent. By1998, the discrepancy had grown to roughly$265,000 versus $657,000, or 40 percent. (SeeTable 4, page 18.) In Senate races, the ratio ofincumbent to challenger spending has not in-creased significantly, since Senate challengerstend to be higher-profile candidates who oftenhave held elective office and have begun can-didacies with more established financial sup-port. However, the absolute advantage of Sen-ate incumbents also has widened. In 1976,Senate incumbents spent on average $172,000more than challengers; by 1998, the gap hadgrown to $1.6 million.

In this context, recent financing trends, es-pecially in House elections, reveal an alarmingproblem—challengers who simply are not fi-nancially competitive. The majority of Housechallengers now raise and spend so little thatthey cannot wage a viable campaign. In 1998,just under half of the House challengers raised$100,000, and only about one-third raised$200,000. As a result, most House electionswere financially uncompetitive. Average spend-ing by Democratic challengers was $270,000,compared with $718,000 by their incumbentopponents; Republican challengers on aver-age spent $260,000, while their opponents spent$588,000. In fact, 60 percent of House incum-bents either had no significant opposition oroutspent their opponents by a margin of 10-to-1 or more.27 Figure 3 (page 19) shows the


18

of the two-party vote. Second, challengers withvery little funding benefit greatly from addi-tional resources, on average, but such gainsdiminish sharply as they pass a threshold in therange of $200,000. Finally, to move well intothe competitive range of 40 percent or more ofthe two-party vote, challengers typically needroughly $300,000 or more in resources.28

The Growing Reliance onPersonal Wealth

In its Buckley v. Valeo decision in 1976, theSupreme Court ruled that candidates who arenot receiving public subsidies may contributeas much money as they desire to their owncampaigns. In recent elections, an increasingnumber of affluent candidates have taken ad-vantage of this option to meet the fundraisingrequirements facing their campaigns.

As indicated by Figure 4, page 20, theamounts contributed by congressional candi-dates to their own general election campaignshave increased significantly, especially in themore costly Senate contests. Self-financing inSenate contests has risen from 5 percent in1988 to 11 percent in 1998, and the totalamount contributed has roughly tripled fromabout $10 million to $28 million.29 In Houseraces the share of self-funding has been morestable, but the amount contributed neverthe-less has more than doubled over the same de-cade, from $12.5 million to nearly $26 million.This growth is not due simply to larger amountsspent by a few individuals. Many more candi-dates are now helping to finance their owncampaigns. In all primary and general electioncampaigns in 1998, 18 Senate candidates and69 House candidates put $100,000 or more oftheir own money into their campaigns, eitherthrough direct contributions or loans.

Almost all self-contributions are made bychallengers or individuals contesting open seats.In campaigns from 1988 to 1998, only 1.6 per-cent of the funds raised by congressional in-cumbents has come from their own funds—2.6percent in the Senate and 1 percent in theHouse. In 1998, only one Senate and two House

relationship between campaign spending byindividual challengers and their share of thetwo-party vote in the 1998 House elections.The relationship between spending and votesis not tight, of course, because of the manyother factors that affect elections. Neverthe-less, several points are clear from the graph.First, a very large proportion of the challengersspent less than $200,000 and were simplyuncompetitive, receiving less than 40 percent


TABLE 4

Congressional Candidates:Average Expenditures, 1976–1998

HOUSE

SENATE

SOURCE: Norman J. Ornstein, et al., Vital Statistics on Congress,1984-1985 (Washington, D.C.: American Enterprise Institue,1984), pp. 65-66, 69-70, and Vital Statistics on Congress, 1997-1998 (Washington, D.C.: Congressional Quarterly, 1998),pp 81-83, 84-85. 1998 data are preliminary FEC data.

Thousands of Dollars

Millions of Dollars

1976 73 79 51 125 65

1980 153 165 122 202 74

1984 241 279 162 362 58

1988 273 379 120 465 32

1992 408 595 167 436 28

1996 517 679 287 654 42

1998 512 657 265 777 40

1976 0.6 0.6 0.5 0.8 72

1980 1.1 1.3 0.8 1.1 65

1984 2.3 2.5 1.2 5.0 49

1988 2.8 3.7 1.8 2.9 49

1992 2.9 3.9 1.8 2.9 47

1996 3.6 4.2 3.1 3.3 74

1998 3.8 4.7 3.1 2.7 66

All Open Challenger/Year Candidates Incumbents Challengers Seats Incumbent

(percent)

All Open Challenger/Year Candidates Incumbents Challengers Seats Incumbent

(percent)

19


Figure 3Campaign Spending and Election Results: Major Party House Challengers, 1998*

Average Relationship of Challenger’s Vote and Spending

60

50

40

30

20

10

0

Challenger’s Vote (percent of two-party vote)

*Includes all major party challengers with reported expenditures in 1998 House races.

SOURCE: FEC 1998 election data as available on February 15, 1999 at <www.fec.gov>. Most spending records cover the periodthrough December 31, 1998.

0 200 400 600 800 1,000 1,200 1,400 1,600

Campaign Spending by Challenger (thousands of dollars)

incumbents gave $100,000 or more to theircampaigns. In contrast, personal funds ac-counted for 23 and 17 percent of the moneyraised by challengers and open-seat candidatesin the Senate and House respectively in thislast election.

Self-financed candidates have also becomea feature of the presidential race. The best-known example is H. Ross Perot, who spentclose to $64 million from his personal wealthto finance his bid for the presidency in 1992;he spent an additional $8.2 million in 1996 insupport of his Reform Party, under whose ban-ner he once again ran for president. Two othercandidates also spent large sums of their ownmoney seeking the 1996 Republican nomina-tion. Malcolm “Steve” Forbes catapulted intothe top tier of contenders on the strength ofthe $37 million he spent on his campaign.Another contender, Maurice Taylor, president

of Titan Wheel International, spent $6.5 mil-lion, but was less successful in launching hiscandidacy.30

Self-financing helps resolve the basic prob-lem most challengers face—raising enoughmoney quickly to mount a competitive cam-paign. A candidate who can afford to contrib-ute or loan $100,000 to $250,000 or even morewill have the “seed money” needed to launch acampaign and perhaps gain the credibilityneeded to be recognized as a serious candidateby political insiders and even members of thepublic at large. In addition, such candidates donot have to incur the substantial costs requiredto start a fundraising effort and therefore willhave more money available to spend on othercampaign activities. Finally, and most impor-tant, a candidate who relies exclusively or largelyon personal funds is not constrained by FECAcontribution and spending limits. The only

20

constraint is the amount of personal resourcesthe candidate is willing to commit.

This financial advantage, of course, doesnot always translate into victory at the polls. Ofthe 87 Senate and House candidates who con-tributed $100,000 or more to their electioncampaigns in 1998, only 11 were successful—providing further evidence that money alonedoes not win elections.

We believe that, while individuals shouldbe free to use their own resources in cam-paigns, the growing role of personal wealthraises serious issues with respect to the futurehealth of our federal electoral process. It di-minishes the role of individual citizens anddiscourages broader public participation incampaign funding, since individual donors areless likely to consider a contribution meaning-ful when a candidate assumes primary financ-ing responsibility. The increasing reliance onself-financing also makes personal wealth amore important qualification for seeking pub-lic office. National party leaders naturally seek

out wealthy candidates to run against better-known, better-financed incumbents. This trendfurther discourages less-affluent individualsfrom becoming candidates, since they wouldnow face two major financial hurdles—a pri-mary opponent with a substantial financial ad-vantage and a well-financed incumbent. Indeed,the prospect of challengers with large personalresources may also discourage some incum-bents from seeking reelection.

Supporting Challengers:The Role of Political Parties

The other major source of campaign moneythat primarily benefits challengers is partymoney. In allocating their campaign resources,party organizations have one overriding goal:to maximize the number of seats their partyholds in Congress. While it might be assumedthat party leaders would favor incumbents indistributing their resources, the reality is justthe opposite. Instead, party committees focuson candidates in close contests or marginal


Figure 4

Self-Financing of Congressional Candidates, 1988–1998

60

50

40

30

20

10

0

15

10

5

0

HOUSESENATE

1988 1990 1992 1994 1996 1998 1988 1990 1992 1994 1996 1998

Millions of Dollars Millions of Dollars Percent of Candidate Funding

SOURCE: Based on data reported by the FEC.

40

30

20

10

0

25

20

15

10

5

25

20

60

50

0

Percent of Candidate Funding

Amount ofCandidateSelf-Financing

Percentof TotalCandidateFunding

Amount ofCandidateSelf-Financing

Percentof TotalCandidateFunding

▼

▼

▼

▼

21


districts where party assistance might make adifference in the outcome. They also concen-trate on challengers who can wage competitivecampaigns against an entrenched incumbentof the opposite party.

Like other sources of campaign funding,party committees are limited in the amount ofdirect assistance they may provide to their can-didates. But the law acknowledges the uniquerelationship between parties and their candi-dates by allowing party committees also to spendmoney in coordination with their candidates. This“coordinated spending” is also subject to FECAlimits; the general ceiling is set at 2 cents timesthe voting-age population, adjusted for infla-tion. In 1996, national party committees wereallowed to spend $12.3 million on behalf of apresidential candidate; the 1998 congressionallimits were $32,550 for House candidates($65,100 in a single-district state) and from$65,100 in the smallest states to $1.5 million inCalifornia for Senate candidates.

While the Supreme Court in Buckley struckdown most other limits on spending in federalelections, these party limits were not specifi-cally challenged in that landmark case andhave remained in effect. However, these re-strictions are now being challenged in the caseof Colorado Republican Federal Campaign Commit-tee v. Federal Election Commission.31In June 1996,the Supreme Court ruled in this case that partycommittees may make unlimited independentexpenditures in connection with federal elec-tions, but it did not render an opinion on theconstitutionality of the limits on coordinated ex-penditures. This constitutional challenge wasremanded to the District Court, which struckdown such limits in February, 1999. At thistime it is uncertain whether this decision willbe appealed by the FEC.

However, the limits on coordinated spend-ing have significantly constrained the directassistance parties can provide to candidates.The ceilings are so low that a party committeecannot legally pay the postage costs to sendone letter to each eligible voter in a district orstate. In fact, they are so low that a party com-

mittee could not even cover the costs of a lettermailed to each registered party supporter.

Despite these constraints, parties place greatemphasis on assisting their candidates, espe-cially those in the most competitive contests.Since 1990, the Democratic and Republicanparties have each spent at least $20 million to$30 million per election cycle on coordinatedexpenditures. This represents a substantial in-crease from the levels of the early 1980s, whenthe Democrats typically spent $3-5 million andthe Republicans $10-15 million. By contrast,the major parties spend only 1 to 2 percent oftheir federal funds on direct contributions tocandidates, or an average recently of $2-3.5million per election.32

Most of the coordinated expenditures byboth parties are made on behalf of non-incum-bents. In 1996, the Democrats gave non-in-cumbents 85 percent of their total coordinatedexpenditures in Senate races and 80 percent inHouse races, with much of the largest sharegoing to open-seat candidates. Almost all ofthe remaining money spent on behalf of in-cumbents went to those in jeopardy of losingtheir seats. The Republicans’ coordinatedspending also favored non-incumbents, al-though more was spent defending incumbentsbecause of the unusually large number of in-cumbents involved in close races. (Most of thelarge freshman class in the House won in 1994with 55 percent of the vote or less.) Even so,the Senate and House Republican committeeseach disbursed close to two-thirds of their co-ordinated funds to assist non-incumbents.These 1996 allocations are similar to the pat-terns that characterized previous cycles.33

Because party committees direct their coor-dinated expenditures to help the maximumnumber of candidates win election, party fund-ing helps to make elections more competitive.It enhances the ability of non-incumbents toincrease their name recognition and make theirviews known to the electorate. In this way, par-ties improve the choices available to the elec-torate and enhance the competitiveness of theelectoral process.

22

III.Recent Innovations inPolitical Finance: SoftMoney and Issue Advocacy

Efforts to regulate the flow of campaignmoney often produce unintended and unfore-seen consequences. Candidates and their staffs,as well as party committees and interest groups,have responded to regulation with imaginativeinnovations, producing new financial practicesunanticipated by lawmakers. The law has alsobeen interpreted by the courts and administra-tive agencies in unexpected ways, producingnew directives that also have encouraged newfinancial strategies. Both these developmentshave dramatically increased the flow of moneyin federal elections and significantly under-mined the effectiveness of our federal cam-paign finance laws.

SOFT MONEYFaced with rising campaign costs and an

increased demand for money, yet constrainedby contribution limits and, in some cases,spending limits, politicians and organizedgroups have sought additional ways outsidethe scope of FECA to finance political activity.Party committees, in particular, have pursuednew methods of assisting candidates.

The most controversial of these activitieshas been the development of “non-federal”funding, or “soft money” — funds raised bynational party committees to finance party-building activities and other expenditures.These committees rely in large part on the

access they can provide to federal officials, oron the more direct influence of federal office-holders and candidates, to solicit the large sumsfrom corporations, labor unions, and otherdonors that provide most of their soft money.They then distribute a share of these monies tostate party committees, who usually spend thesefunds in accordance with national party direc-tives. Soft money fundraising is therefore pri-marily a “top-down” system, with the nationalparty organizations playing the central role.

Because these funds are not supposed to beused for activities related to federal elections,they are not subject to the contribution andexpenditure limits imposed on parties by FECA.National party committees may thus raise andspend unlimited amounts of soft money. Theymay also solicit unlimited soft money contribu-tions from sources that are banned from mak-ing contributions in federal elections, espe-cially corporations and labor unions.

The Origins of Soft MoneySoft money was not recognized as a form of

party finance under the original provisions ofFECA. In fact, FECA contained only one nar-row exception to the party contribution limits.Parties could receive contributions in unlim-ited amounts from unlimited sources for “build-ing funds” established to pay for new buildingsor headquarters structures. Outside of this“bricks and mortar” provision, all monies re-ceived by parties were subject to federal limits.

23

By 1980, the year of the second presidentialelection conducted under FECA, these toughprohibitions on party receipts and expendi-tures had begun to erode, and the door hadbeen opened to unregulated party financialactivity. This occurred as a result of problemsexperienced in the 1976 election and adminis-trative decisions of the Federal Election Com-mission (FEC) that altered the kinds of moneyparties could raise.34

In the 1976 election, party leaders quicklyrecognized that the activities they traditionallyfinanced in conjunction with national electionswere significantly hindered by the new systemof public financing and spending limits forpresidential campaigns. Under the new law,expenditures by a party to help the presiden-tial ticket might be considered in-kind contri-butions to the candidate or election-relatedexpenditures that were no longer allowed. Par-ties therefore looked to the presidential cam-paigns to fund much of the paraphernalia usedin traditional volunteer activities, such as signs,bumper stickers, and buttons, as well as voterregistration and turnout activities. But the presi-dential campaigns, now faced with limited fundsand wanting to maximize the resources avail-able for television advertising, did not allocatesubstantial amounts to these other activitiesthat parties considered important. As a result,party leaders appealed to Congress after theelection to change the law so that they couldfinance volunteer and party-building activitieswithout risking a violation of the law.

Congress responded to these concerns andin 1979 amended FECA to exempt very spe-cific, narrowly defined party activities from thedefinitions of “expenditure” and “contribution”contained in the Act. Thus, parties were al-lowed to spend unlimited amounts on grass-roots, party-building activities and generic partyactivities such as voter registration and turnoutdrives. They were also permitted to spend un-limited amounts on such traditional campaignmaterials as bumper stickers, buttons, and slatecards. But the Congress did not change the

rules on party fundraising: the monies spenton these activities had to come from “hardmoney” donations subject to federal contribu-tion limits. Congress also specified that noneof these unlimited expenditures could pay formass public communications, such as directmail or television advertising.

At the same time that Congress was makingthese changes in the law, party officials wereasking the FEC to decide another set of issuesrelated to general party activities. The partiesargued that their organizations were involvednot only in federal but also in non-federal elec-tion activity, such as supporting candidates instate-level races and building party support atthe state and local level. Furthermore, manygeneric party activities, such as voter registra-tion and turnout drives, are conducted to helpboth federal and non-federal candidates. Theparties therefore contended that the financerules should recognize the non-federal role ofparty organizations and allow parties to par-tially finance their political activity with moniessubject only to state laws.

The FEC responded to these questions witha series of rulings that recognized the non-federal role of state and national party organi-zations. These rulings allowed parties to financea share of their activities with money raisedunder state law if they maintained separateaccounts for federal and non-federal funds.Subsequent rules established complex alloca-tion formulas that determined the shares ofparticular expenditures that had to be allo-cated to federal and non-federal accounts.

Thus was born the distinction between“hard” and “soft” money. Hard (federal) moneyis subject to federal contribution limits and isthe only type of funding that can be used tosupport federal candidates directly. All contri-butions to federal candidates, coordinated ex-penditures, or independent expenditures madein federal contests must use hard money. Soft(non-federal) money is exempt from federallimits and can be used to finance general partyactivities, including such activities as voter reg-

Recent Innovations in Political Finance

24

istration drives, even though these activitiesmay indirectly influence federal elections, forexample, by encouraging more party membersto vote.

The FEC’s decisions essentially freed par-ties to engage in unlimited fundraising as longas they abided by the technical requirementsof the law. They could now raise (and spend)monies obtained from sources that were bannedfrom participating in federal elections or fromindividuals and PACs that had already donatedthe legal maximum. These changes in the rulesthus gave parties a strong incentive to raise softmoney.

The Growth of Soft MoneyParties quickly adapted to the new regula-

tory environment. At first, soft money was pri-marily raised in presidential election years foruse on voter registration and turnout opera-tions. But the parties soon expanded the roleof soft money by expanding the range of activi-ties that could be paid for with these funds.They also began to raise soft money more ag-gressively, soliciting ever larger sums.

Since 1980, soft money has grown rapidly.In 1980, the Republican and Democratic na-tional party committees spent a total of about$19 million in soft money, with the Republi-cans disbursing $15 million and the Democrats$4 million. Much the same pattern existed in1984. By 1988, however, the amount of softmoney had more than doubled to $45 million,shared about equally between the two majorparties. By 1992, soft money had almost doubledagain to $80 million, with the Republicansspending $47 million to the Democrats’ $33million.35

Yet the soft money raised in those electionspales in comparison to that raised in 1996 and1998. In the Presidential election cycle of 1996the two major parties raised $262 million insoft money, more than three times the amountgarnered only four years earlier. (See Figure5.) The Republican committees solicited morethan $138 million and the Democratic com-

mittees $124 million. In contrast, hard moneyincreased much more slowly. Democratic hardmoney increased by 59 percent over 1992, andRepublican funds by 71 percent.

Similarly, soft money fundraising in 1998was up dramatically over the previous off-yearelection cycle of 1994. As of 20 days after theelection, the national party committees hadraised $201 million in soft money, close totwice the $107 million they had raised in theentire 1994 election cycle. The Republicanshad raised $111.3 million, compared with $52.5million in 1994, an increase of 112 percent; theDemocrats had raised $89.4 million, 82 per-cent more than the $49.1 million four yearsearlier.36

Figure 5

Political Party Spending, 1976–1996

1000

900

800

700

600

500

400

300

200

100

01976 1980 1984 1988 1992 1996

SOURCE: Data for 1976 through 1988 based on Herbert E.Alexander, “Financing the 1976 Election” (Washington, D.C.:Congressional Quarterly, 1979), p.190, and Anthony Corrado,“Paying for Presidents” (New York: Twentieth Century Fund,1993), p. 67. Other data based on reports filed with the FederalElection Commission.

Federal (Hard Money)

Non-Federal (Soft Money)

Total

Millions of Dollars

Year


25

The share of total party funds representedby soft money has also increased substantially.In 1992, for example, soft money constituted26 percent of the receipts of all three Demo-cratic national party committees. By 1998 thesoft-money share had risen to 37 percent. Forthe three Republican national party commit-tees, the proportion rose from 20 percent to 29percent during the same six years.

The Sources of Soft MoneySoft money has grown rapidly because both

parties have been increasingly successful in so-liciting large soft money gifts. Since at least1988, both parties have had organized pro-grams to recruit large donors. In 1992, forexample, the DNC and RNC raised a total of$63 million in soft money, about 30 percent ofwhich came from contributors of $100,000 ormore.37 The parties have also been successfulin soliciting major contributions from corpora-tions and, primarily in the Democratic Party,labor unions. The parties have thus succeededin gaining access to contributions from sourcesand in amounts that were prohibited by thecampaign finance reforms of the 1970s.

According to an analysis by the FEC, theparties have raised an increasingly large num-ber of contributions in this manner. Duringthe 1992 election cycle, the national party com-mittees’ soft money accounts accepted at least381 individual contributions in excess of$20,000 (the annual federal party contributionlimit) and about 11,000 contributions fromsources that are prohibited from giving in fed-eral elections, particularly corporations and la-bor unions. By the 1996 election cycle, thesefigures had more than doubled. The nationalparty committees received nearly 1,000 indi-vidual contributions of more than $20,000 andapproximately 27,000 contributions fromsources prohibited from giving hard money.38

The business community is by far the mostimportant source of soft money, as shown inTable 5 (page 26). According to one indepen-dent analysis, businesses provided $55.9 mil-


lion of the $102.2 million in soft money re-ceived by national party committees duringthe 1994 election cycle. In 1998, these organi-zations had donated more than $105 millionof the more than $200 million received throughOctober. The vast majority of this money camefrom corporations rather than trade associa-tions or other incorporated organizations.These figures do not, of course, include indi-vidual contributions made by members of thebusiness community.

A substantial share of this money came fromlarge contributions. In 1998 at least 218 corpo-rations donated more than $100,000, comparedwith 96 that gave this amount in 1994. Sixteencorporations gave $500,000 or more, whereasonly four gave at this level four years earlier.39

Further evidence of the role of businesscontributions in the growth of soft money isfound in a 1997 analysis conducted by the LosAngeles Times, which found that soft moneydonations made by the 544 largest public andprivate U.S. companies had more than tripledbetween 1992 and 1996, growing from $16million to $51 million. In comparison, the con-tributions made by PACs maintained by thesecompanies rose only from $43 million to $52million.40

The largest soft money donors tend to becompanies or industries that are heavily regu-lated by the federal government or those whoseprofits can be dramatically affected by govern-ment policy. For example, according to theCenter for Responsive Politics’ analysis of 1996donors:41

Tobacco companies and their executives,who have faced concerted federal efforts tostrengthen the regulations governing to-bacco sales and advertising, as well as thepossibility of congressional action to settleongoing lawsuits, gave a total of $6.83 mil-lion in 1996, with $5.77 million donated tothe Republicans and $1.06 million to theDemocrats. This group was led by PhilipMorris, which donated the most soft moneyof all contributors in 1996, giving a total of

26

about $3 million, $2.52 million of which wentto the Republicans. RJR Nabisco gave a totalof $1.44 million, with $1.18 million going tothe Republicans. Telecommunications companies, in themidst of deregulation and interested in anarray of proposals that will affect the indus-try, contributed $6.28 million in soft money,almost equally divided between Democrats($3.2 million) and Republicans ($3.1 mil-lion). The leader in this group was the com-munications giant AT&T, which gave about

$552,000 to Republicans and $422,000 toDemocrats, for a total of $974,000; one of itsmajor competitors, MCI Telecommunica-tions, gave $964,000, with almost two-thirdsof that amount, $607,000 going to the Demo-crats. NYNEX, one of the regional telephonecompanies gave $651,000, $411,000 of whichwent to the Republicans. The oil and gas industry, which is affectedby a wide range of federal laws and environ-mental regulations, gave $9.13 million insoft money, $6.59 million of which went to


55.9 58.7 105.7 60.0

(50.1) (52.6) (92.2) (52.3)

(1.0) (1.0) (1.1) (0.6)

(4.9) (5.1) (12.4) (7.0)

20.4 21.4 42.9 24.3

4.7 4.9 7.8 4.4

2.9 3.1 1.6 0.9

0.5 0.5 0.6 0.3

10.8 11.3 17.6 10.0

95.3 100 176.2 100

6.9 44.3

102.2 220.5

TABLE 5

Sources of Soft Money Contributions: 1994 and 1998 Elections

NOTE: Figures based on unadjusted FEC data as reported by the Campaign Reform Project at http://206.239.183.87/SoftMoneyReport.htm, January 28, 1999. The total is higher than that reported in the text because the latter adjusts for transfersbetween committees.

TYPE OF DONOR 1993-1994 1997-1998

AmountDonated

($ millions)

Business: Total

Corporations

Individual Incorporated Entities

Trade Associations

Individuals

Labor Organizations

Other Organizations and Groups

Political Candidate Committees

Political Parties

Total Itemized Contributions

Unitemized Contributions

Total Contributions

Percent ofItemizedReceipts

AmountDonated

($ millions)

Percent ofItemizedReceipts

27


the Republicans, $2.54 million to the Demo-crats. Atlantic Richfield and its executives,the leading donor in this group, gave a totalof $1.25 million, with $764,000 sent to Re-publican committees and $486,000 to Demo-cratic committees.

These examples, which are not atypical,demonstrate how ineffective the party contri-bution limits established by FECA have becomein practice. Instead of relying solely on contri-butions limited in amount from individualsand PACs, parties now raise funds in amountssubject to no limits, receiving a substantial shareof their funding from donors who give hun-dreds of thousands of dollars in each electioncycle.

The Effects of Soft Money on thePolitical System

The rise of soft money has greatly increasedthe flow of money in national elections and hasturned party fundraising into a frenetic andnever ending chase for large contributions. Asthe range of party activities financed with softmoney has increased, party organizations haveengaged in more aggressive and directed ef-forts to raise soft dollars. The parties thereforehave sought ever larger amounts from softmoney donors and have pursued new sourcesof soft money contributions, especially amongmembers of the business community.

One of the primary ways parties obtain verylarge contributions is by providing donors withaccess to federal elected officials. The mosthighly publicized and controversial example ofthe access and privilege afforded soft moneydonors is the use of the White House duringthe 1996 election cycle as a venue for dinnersand other events with President Clinton. Whilemoney was not raised at these events, they wereclearly designed to reward past soft money do-nors and stimulate future contributions. Pub-lished reports of these sessions sparked a con-troversy that raised serious questions as towhether access to the White House was for sale

and fueled public cynicism about the influ-ence enjoyed by wealthy contributors. Furtherexamination of the Democratic Party’s publicdisclosure reports revealed that the DemocraticNational Committee had deposited at least$3 million in illegal or questionable contribu-tions into their soft money accounts.

The Democratic Party’s 1996 fundraisingactivities, however, are only one example ofthe consequences of unrestricted partyfundraising. In recent years, both major par-ties have offered soft money donors access toelected leaders in exchange for contributions.White House officials and congressional lead-ers have been asked to appear at party softmoney fund-raisers, participate in party-spon-sored policy briefings, attend weekend retreatswith donors, and play a role in other smallgroup meetings. Elected officials have evenbeen recruited by the party committees to so-licit soft money donations from potential con-tributors, especially from their own financialsupporters and others with whom they haverelationships.

Federal officeholders have thus assisted theirparties in raising funds for issue advocacy ad-vertising, voter registration, election day turn-out drives, and other activities that directlybenefit their own campaigns for office. Theyhave also participated in fundraising effortsdirected at donors whose interests are directlyinfluenced by federal policy decisions. Suchactivities place undue pressure on potentialdonors. Businesses, in particular, are inducedto contribute to keep up with their competi-tors or ensure their own access to lawmakers.

Given the size and source of most soft moneycontributions, the public cannot help but be-lieve that these donors enjoy special influenceand receive special favors. The suspicion ofcorruption deepens public cynicism and di-minishes public confidence in government.More important, these activities raise the likeli-hood of actual corruption. Indeed, we believeit is only a matter of time before another majorscandal develops within the soft money system.

28

ISSUE ADVOCACYThroughout the 1980s and early 1990s, soft

money was considered to be the major “loop-hole” that had to be closed in order to ensurean effective system of regulation. In 1996, itwas joined by another innovation in politicalfinance known as “issue advocacy advertising.”

Issue advocacy is the general term used tocover three distinct types of speech: advocacyof policy positions, information about issues,and, most critically, specific information aboutcandidates’ voting records, conduct, and policyviews. It is to be distinguished from “expressadvocacy,” which is speech that directly advo-cates the election or defeat of a particular can-didate. In Buckley, the Supreme Court distin-guished between information about issues andcandidates and the advocacy of election or de-feat of candidates, noting that the latter is theparticular focus of federal campaign financeregulation.42 It decided that Congress has thepower to regulate only political spending that“expressly advocates the election or defeat of aparticular federal candidate.” The court fur-ther noted that express advocacy can be identi-fied by the use of certain words in any speechor communication, such as “vote for,” “elect,”“defeat,” or “support.”

Since Buckley, courts have had to confrontthe question of how best to limit the scope ofcampaign finance regulation in order to pro-tect free speech. In resolving this issue, thecourts have sought a “bright-line” standard todistinguish express advocacy from issue advo-cacy, so that advocates can know what is al-lowed and potential First Amendment prob-lems can be avoided. Most courts haveembraced a narrow test that provides the great-est possible protection to free speech—the“magic words” test that was suggested by theSupreme Court in Buckley. According to theserulings, as long as a message or advertisementdoes not contain the specific words listed inBuckley as indicative of express advocacy, it isnot express advocacy and is not subject to the

restrictions of FECA. In recent years, the First,Second, and Fourth Circuit Courts of Appealshave all adopted this approach.43

The FEC has argued for a broader standardthat recognizes the context of a message. In itsview, a message or advertisement should beconsidered express advocacy, and therefore besubject to federal regulation, if it presents an“electioneering message” that is clearly in-tended to encourage the audience to supportor oppose a particular candidate for federaloffice. This is the general approach that hasbeen adopted in the Ninth Circuit Court ofAppeals. In Furgatch v. FEC, the Ninth CircuitCourt ruled that speech without the “magicwords” could amount to express advocacy if,when “read as a whole, and with limited refer-ence to external events,” a message is suscep-tible to no other reasonable interpretation thanas “an exhortation to vote for or against a spe-cific candidate.”44 The FEC has adopted a simi-lar approach in drafting regulations intendedto govern issue advocacy expenditures. Butthese regulations have been successfully chal-lenged in the First Circuit, where the Courtaffirmed a District Court ruling that the guide-lines were unconstitutional on their face be-cause they moved beyond the “magic words”test established in earlier cases.45

The Rise of Issue Advocacy SpendingThe judicial decisions distinguishing express

advocacy from issue advocacy have providedindividuals, organizations, and party commit-tees with an easy way to circumvent federalcampaign finance restraints. By crafting adver-tisements to avoid the “magic words,” partiesand other organizations can engage in com-munications that are not subject to the provi-sions of FECA, even when those communica-tions are designed to influence the voting infederal elections. The sponsors of such ads cantherefore finance these communications withfunds drawn from any source without any limit.They need disclose neither their spending northe sources of their funding.


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During the 1996 election cycle, a wide arrayof party organizations and other groups seizedon the issue advocacy distinction and spenttens of millions of dollars on advertisementscarefully designed to avoid the restrictions offederal law. Most of these ads featured specificfederal candidates. Issue advocacy advertisingthus became the new strategy for electionspending, especially for organizations not al-lowed to make direct contributions in federalcampaigns.

Party committees were the biggest issue ad-vocacy spenders because they could then fi-nance advertising that directly benefited theircandidates with soft money. Each of the majorparties spent tens of millions of dollars on adsdesigned to support its presidential candidate.Both parties also sponsored issue ads thatsought to influence the voting in marginal con-gressional races.

The parties were not required to count anyof the funds used for issue advocacy againstfederal contribution or spending limits. Theywere, however, required to disclose these ex-penditures, since all national party committeefinancial activity must be reported to the FEC.But, in most instances, the national party com-mittees largely avoided even this requirement.Instead of directly paying for the ads, the na-tional committees transferred large sums tostate party committees, which purchased thebroadcast time. The national party organiza-tions had to disclose only the amounts trans-ferred to state committees. This tactic allowedthe parties to spend a greater share of softmoney on issue ads, since they were legallystate rather than national party expenditures.It also shifted the responsibility for disclosingspecific expenditures to state committees, whichmade it extremely difficult to trace the money.

Most estimates suggest that the party orga-nizations spent at least $100 million on issueadvertising in 1996. The Democrats spent atleast $34 million in soft money during the presi-dential primary season on issue ads designedto benefit President Clinton’s reelection cam-

paign. The Republicans spent at least $20 mil-lion, including about $9 million in soft money,on ads designed to help Senator Dole’s presi-dential bid in the months leading up to theRepublican national convention and another$8 million in the general election on ads de-signed to defend their congressional candi-dates. In addition, the Democratic Congres-sional Campaign Committee spent an estimated$8.4 million on issue ads and the DemocraticSenatorial Campaign Committee spent $10million. Similarly, the Republican senatorialand congressional committees spent at least$20 million on ads aired in markets coveringkey congressional races and five states.46

Party organizations were not the only groupsto engage in issue advertising in 1996. Issue adswere broadcast in markets across the nationand aired in every key congressional race inthe country. At least two dozen organizationssponsored issue ads in 1996. These organiza-tions included labor unions, a coalition of busi-ness groups, non-profit and tax-exempt orga-nizations, and an array of organized interestgroups. Almost all the commercials broadcastby these organizations featured specific federalcandidates, and most were aired in the final sixweeks of the general election campaign.

The total amount spent on issue ads duringthe 1996 election is not known. Because suchspending is not subject to disclosure, there isno public record of these expenditures. Whatis known is based on self-reporting by the orga-nizations or groups involved, and many of theadvertisers chose not to reveal the extent oftheir spending or the sources of their funding.

However, those sums that were reportedsuggest that many tens of millions of dollarswere involved. The most prominent effort wasconducted by the AFL-CIO, which announcedits intention early in 1996 to spend $35 millionon activities designed to influence congres-sional elections, including an estimated $22million for issue ads. All this advertising wasdirected at congressional districts held by first-term Republicans or those with open seats.

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Other examples include the advertising doneby The Coalition, a business group led by theU.S. Chamber of Commerce ($5 million); theSierra Club ($4 million); and Citizens for theRepublic Education Fund, a tax-exempt foun-dation ($4 million). Millions more are esti-mated to have been spent by other such groups,quite apart from the millions of dollars spentby the Christian Coalition and National Rightto Life Committee on voter education infor-mation and pamphlets.47

Most observers believe that even more wasspent in 1998 on issue advocacy advertising inconnection with the congressional electionsthan in 1996, although no accurate estimate ofthe amount spent to influence outcomes isavailable due to lack of disclosure. Accordingto a study by the Annenberg Public Policy Cen-ter, 836 issue ads were broadcast in 30 statesduring the final 60 days before the election, ofwhich an estimated 70 percent were sponsoredby the major parties. The study estimated that77 different organizations engaged in the prac-tice during the 1998 cycle.48 While not all ofthese ads were designed to influence the elec-tion results, the widespread use of this tacticand lack of information about its funding are acause for concern.

Issue Advocacy and CampaignFinance Reform

Issue advocacy spending as practiced in the1996 and 1998 elections highlights the tensionbetween the government’s authority to regu-late campaign finance and the protection ofpolitical speech. This issue is not easily resolved.

The freedom of political speech is a corevalue of our democracy. Robust political de-bate is the essence of a system of free and fairelections. An informed electorate requires dis-cussion of issues and information on policyquestions and candidates. We therefore agreewith the courts that the government’s regula-tory authority should be narrowly limited whenit involves First Amendment rights. Govern-

ment regulation should only be permitted inthis area when a compelling interest is at stake.

But we believe that the health of our politi-cal system is such an interest. The courts, intheir efforts to protect First Amendment liber-ties, have adopted an approach that precludesnecessary and effective restraints on campaignfinance. The current guidelines for distinguish-ing between express advocacy and issue advo-cacy are so narrowly construed that it is nowpossible to conduct unrestricted financial ac-tivity that is, for all intents and purposes,campaign spending.

Our greatest concern here is that issue ad-vocacy spending is not even subject to full andeffective public disclosure. We believe the pub-lic has a right to know who is attempting toinfluence its vote. Currently, organized groupsand political committees other than party com-mittees are not required to disclose their ex-penditures or sources of funding. At best, mem-bers of the public only know that they haveseen an advertisement sponsored by, for in-stance, Citizens for Reform, Citizens for a SoundEconomy, Coalition for Change, or Womenfor Tax Reform—all of which engaged in issueadvocacy spending in connection with the 1996election, and none of which is a publicly regis-tered political committee whose sources offunding are known to the public. Such limitedinformation does not provide the knowledgeneeded by voters to make informed decisionsor by officials to effectively carry out the ad-ministration of campaign finance laws.

We are also troubled that issue advocacyspending raises the demand for campaign fund-ing and therefore for soft money. The primaryreason that national party committees soughtsoft money contributions so aggressively in 1996and 1998 is that they needed these funds tofinance their issue advertising. The emphasison issue advertising thus created an almostinsatiable demand for funds—whateveramounts the party could raise could be imme-diately spent on issue ads. This strategy in-


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creased the value of soft money and encour-aged the parties to expand their efforts to raiseit.

Candidates also face greater pressure to raisefunds as a result of issue advocacy. Those seek-ing office, especially those in marginal contestsor open seats, must now be prepared to wage acampaign that competes not only with an op-ponent but also with outside groups and partycommittees. Candidates must be prepared torespond to questions and accusations promotedby hundreds of thousands of dollars of issueadvertising. This not only compels candidatesto spend more time and resources raisingmoney, but may cause them to lose effectivecontrol of their campaigns.


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IV.Recommendationsfor Reform

Reform of the campaign finance system islong overdue. For at least a decade, it has beenclear to most observers of American politicsthat the regulatory system established by Con-gress in the 1970s is failing to achieve its ends.CED shares this view.

In this chapter we present our recommen-dations for reform. These recommendationsreflect our view that no one or two changes willachieve the diverse, and sometimes compet-ing, objectives of a well-functioning system. Weneed a comprehensive reform program thathonestly acknowledges competing values andprovides the necessary trade-offs between them.Our proposals are therefore designed to betaken as a whole. They present a major alterna-tive to the current regulatory approach, onethat we believe will significantly improve ourcampaign finance system.

In framing these proposals, our thinkinghas been guided by several practical consider-ations that we believe should govern any ef-forts to legislate in this area:

(1) A program of reform should be rela-tively simple and easy to understand. Candi-dates and voters must be able to understandthe rules, and administrators must be able toimplement the law efficiently and effectively.

(2) The campaign finance rules should notprovide an unfair advantage to any particularparty or specific candidates. A feasible and ef-fective regulatory system must ensure fair elec-tions and be capable of obtaining bipartisansupport. It must also treat participants in the

process equitably. In particular, it should en-sure that corporate entities and labor unionsare treated in a comparable manner.

(3) Reforms should not impose unrealisticconstraints on campaign funding that will placean undue burden on those who seek to complywith the law. Such burdens will only encouragecircumvention of the rules.

(4) Reforms must uphold the liberties pro-tected by the First Amendment. Reforms shouldnot impose a burden on political speech unlessthere is a compelling interest to do so, in accor-dance with court rulings. Rather, reformsshould be designed to promote citizen partici-pation in the political process as well as robustpolitical debate.

BASIC PRINCIPLES FOR REFORMOur recommendations are also informed

by our belief in certain basic principles thatshould govern a system of campaign financeregulation. The five principles listed below re-flect the objectives we regard as most impor-tant, which should form the basis for evaluat-ing regulatory reform proposals.

(1) Regulation should protect free speech and pro-mote an informed citizenry.

The First Amendment and the principles itembodies guarantee freedom of speech andexpression and thus protect the cornerstone ofour political system: full and robust politicaldebate. The courts have acknowledged the link

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between political finance and the First Amend-ment in ruling that the financing of politicalexpression is a protected form of politicalspeech under the First Amendment. Campaignfinance laws must recognize these constitutionalconsiderations and uphold the principles offree speech. It is especially important to pro-tect and promote the political speech that takesplace in election campaigns, the purpose ofwhich is to provide American citizens with theknowledge needed to make informed decisionson Election Day.

(2) Regulation should protect the political systemfrom corruption or the appearance of corruption.

The regulations governing campaign fi-nance should promote public confidence inthe political process and ensure that the integ-rity of the electoral system is maintained. It istherefore essential that the system guard againstcorruption or the appearance of corruption inthe financing of political campaigns. A systemof political finance that fulfills this objectivehelps to ensure that elected officials are re-sponsive to broad public interests and the de-sires of their constituencies.

(3) Regulation should ensure public accountability.A goal of the campaign finance system

should be full transparency of the funding ofcampaigns for public office, supported by thepublic’s right to know. Elections allow citizensto hold candidates and elected officials account-able for their views and actions. If the majorparticipants in political campaigns are to beheld accountable, the public must have fulland timely information about their campaigns,including information about how they are fi-nanced. Any system of campaign finance musttherefore ensure full public disclosure of thesources of campaign funding, the activities un-dertaken with it, and the amounts raised andspent. Disclosure not only provides the elector-ate with the information it needs but also helpscurtail excesses and promote full public scru-tiny of financial transactions.

(4) Regulation should encourage public participa-tion in the political system.

The strength of a democracy depends uponthe political participation of its citizens. Citi-zens should be encouraged not only to votebut to participate in the process in other ways.Campaign finance rules should not discouragecitizens from seeking elective office, associat-ing with others, volunteering their skills andtime, or participating in the financing of cam-paigns. Such participation enhances the legiti-macy of the representative process and therebystrengthens popular support for the politicalsystem.

(5) Regulation should promote electoral competition.The essence of democracy lies in competi-

tive elections that offer voters a choice of can-didates. Competition stimulates public interestin election campaigns, induces greater num-bers of citizens to learn about the candidates,gives more meaning to elections, and encour-ages people to vote. It is an essential elementin promoting the vitality and quality of politi-cal life. The regulation of campaign fundingshould therefore promote competitive electionsby ensuring that candidates have an opportu-nity to obtain the resources needed to sharetheir views with voters.

Recommendation #1:ELIMINATE SOFT MONEY

We believe that, as a general principle, fundsused to promote political candidacies shouldbe subject to the requirements and restrictionsof federal law on campaign finance. Soft moneyis the most egregious example of campaignfinancing that violates this principle. No reformis more urgently needed than the elimination of softmoney.

Some business leaders have already takenaction to help remedy this problem by refusingto participate in the soft money system. Mostbusinesses in America do not give unregulatedsoft money funds to the political parties. Oth-ers, including such industry leaders as General

Recommendations for Reform

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Motors, AlliedSignal, and Monsanto, have re-cently declared that they will no longer makesuch contributions. They have been joined bydozens of corporate executives, who recognizethe dangers to our system of government cre-ated by this type of fundraising.49 CED sup-ports these voluntary efforts to reduce softmoney and lauds the leadership shown by thesemembers of the business community. We urgeother business leaders, labor unions, and indi-vidual citizens to follow this lead and voluntar-ily work to reduce the supply of soft moneyfunds.

There are ample opportunities for mem-bers of the business community to express theirsupport for candidates or party organizations,either as individuals or through PACs. We en-courage participation in the process in theseways. But there is no need for members of thebusiness community, labor unions, or others tosupplement these opportunities with soft moneycontributions. Participation in the soft moneypractices of the national party committees fu-els the demand for soft dollars and spurs thearms race mentality that now characterizes partyfundraising at the national level.

Voluntary efforts alone, however, will notsolve the soft money problem. Potential do-nors will still face pressure from elected offi-cials and national party leaders to make softmoney contributions. We therefore believe thata legislative remedy is needed to end softmoney. Specifically, we recommend that Con-gress prohibit national party committees, theirofficers or staff, and any organizations or enti-ties established or controlled by national partycommittees or their personnel, from soliciting,receiving, or directing any contributions, dona-tions, or transfers of funds that are not subjectto the limitations, prohibitions, and public dis-closure requirements of federal law. Thesecommittees and individuals should also be pro-hibited from spending any funds that are notsubject to such restrictions and requirements.Similar prohibitions should be applied to fed-eral officeholders, candidates, and their agents

or staffs. In addition, federal officeholders orcandidates should be prohibited from raisingor spending soft money through personal PACsor so-called “leadership PACs.” (An exemp-tion, however, would be made for federal of-ficeholders running for state or local officewho are raising monies allowable under therelevant state law—e.g., a U.S. senator runningas a candidate in a gubernatorial election.)

In short, national party committees, includ-ing the national congressional campaign com-mittees, and federal politicians would not beallowed to raise and spend monies from unre-stricted sources in unlimited amounts. We be-lieve that this reform will greatly reduce theunregulated party money that is now flowingthrough the system.

This reform also would significantly sim-plify the rules governing party finance. Na-tional party committees would be allowed toraise only hard money. National party commit-tees would no longer be able to raise or usecorporate or labor union treasury funds orunlimited gifts from individuals and PACs.Their revenues would have to come from lim-ited voluntary contributions from individuals,PACs, or other federally registered politicalcommittees, such as candidate campaign com-mittees. There would no longer be a need forseparate types of bank accounts or complexallocation rules for the financing of differenttypes of party activity.

Taking national party committees, federalofficeholders and candidates, and their agentsand staffs out of the business of raising andspending soft money will change the relation-ship between donors and federal politicians. Itwill reduce both the incentive for donors togive in exchange for access and the pressure togive that is created by solicitations from na-tional party leaders or elected officeholders. Itwill also prevent federal candidates from rais-ing unlimited funds that can be used by partycommittees to benefit indirectly their own bidsfor office. We believe that this reform will sub-stantially alter the incentive structure that en-


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courages soft money contributions. As a result,we expect the vast majority of this pool of funds,especially much of the money donated by thebusiness community, to dry up. Most of thismoney came into the system only during thelast two presidential cycles, largely in responseto the aggressive fundraising practices of thenational party committees. These donors areunlikely to aggressively seek out other meansof pouring money into the system.

We recognize, however, that this recommen-dation could be circumvented. Federal office-holders and candidates could still engage insoft money fundraising by shifting their activi-ties to the state level. Federal officials couldhelp their respective state parties raise fundsthat are not subject to federal limits, and thestate parties could in turn use these monies tofinance activities, such as voter registration andturnout drives, that influence federal electionsin their state. Such activities would diminishthe benefits of reforms adopted at the nationallevel.

We have carefully considered the proposalto close this “loophole” by extending federalregulation to any state party activities that mightinfluence the outcome of a federal electionand are financed by contributions not permit-ted by federal law. But we are very troubled bythe prospect of using federal rules to governstate party political finance, especially whenthese committees are acting in conformancewith the laws adopted by the people of theirstates. Such an approach raises troublesomeissues regarding the principle of federalismand the scope of Congress’s authority to legis-late in this area. Accordingly, we conclude thatthis issue is most appropriately handled by thestates. We therefore urge state legislatures topass any legislation necessary to ensure thatstate party committees cannot finance theiractivities from unrestricted or undisclosedsources of funding.

We recognize that a ban on soft money willhave a significant effect on the resources avail-able to national party committees and may

diminish their role in the electoral process.Soft money represents a substantial share ofparty revenues and is used to finance many ofthe costs directly related to the parties’ activi-ties, ranging from staff salaries and overheadexpenses to voter registration and mobiliza-tion efforts. The loss of soft money is likely toreduce such party activities and would requirethat parties pay more of their administrativeand political services costs from funds they raiseunder federal limits. This, in turn, may lead toa reduction in the amounts of money availablefor candidate support or voter turnout efforts.Since parties are the only source of privatefunding (other than personal contributions orloans) that favors challengers, a significant re-duction in party resources is likely to decreasethe resources available to challengers. It is alsolikely to reduce the amounts available for voteridentification and turnout programs. We be-lieve that these party activities play a valuablerole in enhancing the competitiveness of elec-tions and encouraging citizen participation.

To partially compensate for this loss, werecommend a change in the rules limiting indi-vidual contributions to federal candidates andpolitical committees. Under current law, indi-viduals are limited to an annual total of $25,000for all contributions made to federal candi-dates, PACs, and party committees. We pro-pose that Congress establish two separate ag-gregate limits for individuals. The first wouldlimit the total amount contributed by an indi-vidual to federal candidates and PACs to$25,000 annually. The second, separate ceilingwould limit the total amount contributed by anindividual to national party committees to$25,000 annually. This change will allow par-ties to raise more regulated money from indi-viduals than is permissible under current fed-eral law.

Recommendation #2:IMPROVE CANDIDATE ACCESSTO RESOURCES

Reform should ease the burdens of fund-raising by making it easier for candidates to


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raise the funds needed to communicate effec-tively with voters and mount competitive cam-paigns.

Fundraising has become more onerous inpart because contribution limits have remainedfixed. In the 20 years since FECA was adopted,inflation has reduced the value of a $1,000contribution to approximately $350, and thecosts of campaigns have risen much faster thaninflation. Consequently, in each successive elec-tion, candidates have had to raise a signifi-cantly larger number of contributions.

We recommend that Congress raise the limiton individual contributions to federal candi-dates from $1,000 per election to $3,000 andindex this new limit for inflation.

This change in the individual contributionlimits will approximately restore the purchas-ing power of contributions that has been lostsince FECA was adopted. It will encourage can-didates to rely more on individuals for cam-paign funds and allow them to receive moremoney from their most generous supporters.By significantly increasing the potential poolof money available from individuals, it will there-fore enhance the role of the individual donorin the financing of federal campaigns.

We recognize, however, that a relativelysmall number of donors are willing or able togive $3,000 to a federal candidate. In order toensure that such donors do not gain undueinfluence as a result of this change, anindividual’s total contributions to federal can-didates and PACs should remain subject to theannual limit of $25,000 described above.*

We do not believe that this increase in indi-vidual contribution limits materially increasesthe risk of corruption or the appearance ofcorruption in the political process. The amountcontributed by any one individual under thesehigher limits will still represent an insignificantshare of most candidates’ total receipts. Finally,all such donations will continue to be publiclydisclosed, which makes this funding easy totrace.

By expanding the amounts individuals maygive, our proposal should reduce the incentive

for candidates to seek PAC funding. This in-crease in the individual contribution limit to$3,000 will significantly reduce the disparitybetween it and the maximum allowable PACcontribution of $5,000. This reform will there-fore reduce the relative influence of PACs byincreasing the role of individuals. It will makeit easier for candidates to eschew PAC contri-butions, since it will be easier to replace PACmonies with funds raised from individual do-nors.

We are concerned, however, that this in-crease in individual limits alone will have onlya modest effect on public participation in fed-eral campaign funding, since relatively few in-dividual donors are constrained by the currentceilings. Therefore, to broaden public partici-pation and enhance the role of the small do-nor in the financing of campaigns, we favor aprogram of public matching funds for congres-sional candidates similar to the program thatnow exists for presidential candidates.

CED recommends that Congress establish avoluntary program of public funding underwhich individual contributions to congressionalcandidates would be eligible for matching sub-sidies. Candidates who choose to participatewould receive two dollars in public money forevery dollar received from an individual do-nor, up to a maximum of $400 for each indi-vidual contribution of $200. Candidates wouldqualify by raising a threshold amount of moneyin small individual donations of $200 or less.Those who choose to participate in the pro-gram would be required to abide by campaignspending limits, as described below. Each par-ticipating candidate must also limit any per-sonal contribution to his or her own campaignto $25,000. The costs of the program would befinanced through federal budget appropria-tions.

We estimate that the initial cost of this pro-gram of public subsidies will be in the range of$400 million to $600 million for each two-yearelection cycle. The two-for-one match is higherthan the current dollar-for-dollar match usedin presidential primary campaigns. Soliciting


*See memorandum by WILLIAM F. HECHT (page 44).

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small contributions will be far more cost-effective under a two-for-one match program.

Under this proposal, total individual contribu-tions plus the matching funds would be sufficient tofully finance congressional campaign spending atcurrent levels. We make no apology for proposingdirect public financing of this program. The improve-ment of our campaign finance system is a publicbenefit, and it should therefore be publicly funded. Itis an investment in the people’s business.

In deciding to recommend this program,we considered other forms of subsidy such asproviding free television or radio broadcasttime to candidates or reduced-rate postage.But we found these alternatives to be less at-tractive. Free or reduced-rate broadcast timefor candidates and reduced-rate postage areunfunded mandates that would shift the bur-den of payment onto broadcasters or the U.S.Postal Service. But more important, we believethe benefits of a program of public matchingfunds far outweigh the advantages of thesemore limited alternatives:

First, the leveraging effect of matching sub-sidies would encourage individual contributionsby small donors and broaden participation inour political system.

Second, public subsidies would provide can-didates with a strong financial incentive to seekout such small contributions from a large num-ber of donors. In advancing this view, we drawfrom the experience of the matching fund pro-gram in presidential nomination campaigns.The availability of matching funds has inducedpresidential candidates to raise a substantialportion of their campaign funds through smallcontributions. As a result, more than a third ofthe revenues received by most presidential can-didates comes from public funding. Those can-didates who prove particularly successful at gen-erating small gifts often receive 40 percent ormore of their funding from this source.

Third, as is also evident from the experiencein presidential campaigns, the availability ofmatching funds, when combined with expen-diture limits, reduces the burdens offundraising. Every dollar received in public

funding is one less dollar a candidate has tosolicit.

Fourth, public funding diminishes the riskof corruption. Because these funds are notfrom private sources, they are attached to noparticular interest. Because they also encour-age candidates to broaden their base of finan-cial support, they help to diminish the influ-ence of large donors. In particular, publicfunding reduces the relative influence of PACsand may provide candidates with a further in-centive to raise contributions from individualsrather than PACs.

Finally, and most important, public fund-ing, along with higher individual contributionlimits, will promote competition in federal elec-tions. As we noted in Chapter II, the chieffinancial impediment to greater competitionin federal elections is the lack of money on thepart of challengers. Our proposals will improvethe resources available to these candidates, mostof whom currently do not raise sufficient fundsto wage a viable campaign. By making it easierfor challengers to raise funds, these reformswill also make it less likely that candidates willbe discouraged from running by the burdensof fundraising. This, too, should improve thelevel of competition, while expanding thechoices available to voters.

Recommendation #3:REDUCE THE FUNDRAISING “ARMSRACE” WITH CONGRESSIONALCAMPAIGN SPENDING LIMITS

Allowing congressional candidates to raisemoney more easily will not necessarily reducethe emphasis on fundraising in federal cam-paigns. Candidates might respond to these re-forms by simply escalating the open-endedquest for campaign dollars, relying on thehigher contribution limits and availability ofpublic funding to raise and spend even largersums than they do under the current system.After all, it is difficult to legislate political be-havior, and competitive pressures feed an “armsrace” fundraising mentality. Faced with no clearlimit to the amounts that their opponents can


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spend, candidates may continue to believe itnecessary to raise as much money as possible.The absence of spending limits would there-fore undermine the benefits from providingcandidates with easier access to funds.

We therefore recommend that Congress es-tablish a system of voluntary candidate spend-ing ceilings. Candidates who agree to acceptpublic subsidies would be required to abide bythese ceilings.

One advantage of public financing is that itfacilitates ceilings on expenditures. The Su-preme Court has upheld the constitutionalityof spending ceilings for candidates who volun-tarily accept public subsidies.

In calling for limits on expenditures, werecognize that ceilings must be generousenough to induce candidate participation, butnot so generous that they have little practicaleffect on campaign expenditures. In our view,these parameters are best fulfilled by limits setat the following levels. In House elections, acandidate receiving public funds should be al-lowed to spend up to $500,000 in a primaryand $500,000 in a general election. An addi-tional $200,000 would be allowed in the eventof a runoff election. These limits would beadjusted for inflation at the beginning of eachnew election cycle. In Senate elections, a candi-date should be allowed to spend a total amountequal to a base of $1 million plus 50 centstimes the voting-age population of the state.An additional amount equal to 20 percent ofthis limit would be allowed in the event of arunoff election. This ceiling would also be ad-justed for inflation. Any costs incurred by acampaign for legal and accounting services, orother costs incurred to comply with the law,would be exempt from these limits.

These ceilings are set at a higher level thanthose included in most current legislative pro-posals. We feel that more generous limits willencourage candidate participation in the pub-lic funding program and help to ensure com-

pliance. Such ceilings will permit candidates tocommunicate effectively with voters, while elimi-nating the open-ended quest for funding thatnow characterizes federal campaigns. In thenear term, limits set at these levels would notsubstantially reduce the amounts spent in themajority of congressional campaigns, but theywould constrain spending in the most expen-sive House and Senate contests. For example,in 1998, 101 House candidates spent more thanour proposed limit; many of them would havehad to restrict their spending under our pro-posal. Over time, however, ceilings at theselevels should substantially reduce spending infederal elections relative to its rapidly increas-ing trend.

Ceilings should not put candidates at a sig-nificant disadvantage vis-a-vis their competitors.Candidates who agree to accept subsidies andadhere to the limits may be challenged by op-ponents who do not agree to these restrictions.Ceilings on candidate expenditures may alsoencourage PACs and other organizations toengage in independent expenditure or issueadvertising campaigns, which cannot be lim-ited, to support or defeat candidates. To en-sure that candidates who agree to ceilings arenot unfairly disadvantaged, the ceilings shouldbe adjusted in these circumstances. Candidateswho face opponents who are not bound byspending limits, or who are opposed by inde-pendent expenditures, should be allowed tospend additional amounts and receive addi-tional public subsidies equal to the amountsexpended against them.

We realize that limits on spending do notguarantee that candidates will have the re-sources to compete against a better-fundedopponent or well-financed independent spend-ers. Party committees therefore should be al-lowed to assist candidates by providing finan-cial assistance up to the level of the spendinglimit. Party organizations should be allowed tomake coordinated expenditures on behalf of a


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candidate to supplement a candidate’s cam-paign spending, so long as the combinedamount spent by the candidate and the party ina race does not exceed the set limit.†

Finally, spending limits will be effective onlyif they are adequately monitored and enforced.We are concerned that the FEC is currentlyunderfunded and understaffed. At its presentlevels of staff and budget authority, the FECwill not be able to efficiently and effectivelymonitor compliance with spending ceilings,conduct the audits that will be required in aprogram of congressional campaign finance,or determine violations in a timely and respon-sible manner. We therefore urge Congress toreview the staffing, structure, and current fund-ing of the FEC and provide it with the re-sources and authority needed to ensure accu-rate and timely monitoring and compliance withthe law. The FEC should be able to expand itsaudit and compliance staff to the extent neededto ensure vigilant monitoring of candidate com-pliance and timely and efficient audits of thefinancial activities of candidates receiving pub-lic funding and subject to spending limits.

Recommendation #4:REFORM ISSUE ADVOCACY

As noted in Chapter III, any effort to reformissue advocacy spending in connection withfederal elections must strike a regulatory bal-ance between protecting political speech andprotecting the integrity of our electoral pro-cess. The extent of the regulation to be allowedwill ultimately be decided by the courts.

We cannot determine in advance how thecourts will eventually decide this issue. We dobelieve, however, that the current standard used

in the majority of decisions rendered to date,the so-called “magic words” test, is too narrow.Under this standard, campaign finance lawsare easily circumvented; the mere avoidance ofspecific words in the text of a communicationallows the sponsoring organization to operatewholly outside the scope of FECA. Their elec-tion-directed messages are not subject to fed-eral contribution limits or public disclosure.More restraint is needed, and we prefer abroader standard for defining “express advo-cacy.”

We urge Congress to adopt a standard thatsets forth clear criteria for identifying publiccommunications that constitute express advo-cacy, to require that such communications bewholly financed from funds raised under fed-eral contribution limits, and to require that thesources of funding and amounts spent on suchcommunications be publicly disclosed. We sug-gest that express advocacy include communi-cations that: (1) refer to a clearly identifiedfederal candidate, or feature the image or like-ness of a clearly identified federal candidate;(2) occur within 30 days of a primary electionand are targeted at the state in which the pri-mary is occurring, or within 60 days of a gen-eral election; and (3) would be understood by areasonable person to be encouraging others tosupport or oppose that candidate. Communi-cations that meet these criteria would have tobe paid for with funds raised under federalcontribution limits. In addition, the sources offunding and the amounts expended would befully disclosed and reported to the FEC.

In our view, this proposal would strengthenthe integrity of our electoral system withoutoverly restricting political speech. It would safe-guard the system against corruption by ensur-ing that unlimited corporate treasury funds,labor union treasury funds, or other moniesnot permitted in federal elections, as well asundisclosed transactions between unregisteredpolitical committees, are not used to influence


†This recommendation would allow party committees, in mostinstances, to provide greater assistance to federal candidatesthan that allowed under current law. We recognize that coordi-nated spending limits are presently being reviewed by the courts.In general, we support the principle of expanded party financ-ing of elections, since it is a means of encouraging more fullyfunded and competitive elections.

40

federal elections. It would ensure citizens’ rightsto know the identity of the speakers who areattempting to influence their votes. And itwould make publicly available the informationneeded for adequate enforcement. Those whowish to sponsor such messages could still com-municate their views to the electorate, but theywould have to pay for these communicationswith funds raised from voluntary contributionssubject to legal limits.

We recognize that this proposal may notwithstand judicial scrutiny. In that instance, wewould support the most comprehensive regimeof disclosure permitted by the courts. Westrongly support a regulatory approach that atleast ensures disclosure of the amounts spentand the sources of funding for candidate-specific issue ads that occur within a reason-able time period before an election. If neces-sary, subject to the determination of the courts,this proposal could be further narrowed bylimiting the disclosure of sources of funding tothe top donors to an issue advocacy group, orby restricting disclosure to candidate-specific

There is no panacea for the many problemsof our campaign finance system. To some de-gree these problems are an inevitable part ofthe price we pay for democratic elections. Buta program of effective reform can neverthelessimprove the vitality of our politics by reducingthe emphasis on campaign fundraising andincreasing competition in federal contests. Itcan stem the flow of unregulated money andshift political influence more from organizedinterests towards a broad base of individualvoters. These changes will improve the qualityof representation provided by elected officials.They will promote public confidence in elec-tions and encourage more citizens to partici-pate actively in them. Reform can thus en-hance the role of individual citizens in our

ads broadcast on television or radio within areasonable time period before an election.

Disclosure has the advantage of being con-stitutionally permissible. Courts have ruled thatdisclosure is an essential tool in guarding againstpolitical corruption or the appearance of cor-ruption and have upheld disclosure rules forlobbying expenditures as well as campaign fi-nances. While the courts have protected anony-mous speech, this exemption to full disclosurehas usually applied to specific circumstances.The extent to which the courts might allowrequired disclosure of issue ads, or even candi-date-specific messages, is yet to be determined.But given the severe problems created by thecurrent lack of disclosure in issue advocacy, webelieve that requirements for effective disclo-sure and transparency are urgently needed.Then the public will be better able at least toassess the messages distributed through thesecommunications, and regulators andpolicymakers will have a better sense of thescope of this activity and its impact on theeffectiveness of federal election laws and regu-lations.

CONCLUSION

nation’s political life. This is the best way toensure the integrity of our government.

Reform will not come easily. Major changesin the current system are needed, and suchdramatic changes are always difficult to make.This is especially true for a program of reformthat candidly balances deeply felt competingvalues and recognizes and accepts trade-offsbetween diverse goals. However, we do notbelieve that the current trends in campaignfinance are sustainable. They will eventually berejected by the public. Reform will come. Webelieve that these recommendations, whentaken as a whole, provide the foundation foran effective, broad-based, and competitive sys-tem of campaign finance.


41

Endnotes

1. Celinda Lake, “Polls Say Public Has Prescription forReform,” Roll Call, March 23, 1998.

2. Money and Politics: A National Survey of the Public’s Viewson How Money Impacts Our Political System (Washington,D.C.: Center for Responsive Politics, April-May 1997),p. 1. This survey was conducted by Princeton SurveyResearch Associates. Hereafter cited as PSRA.

3. Buckley Stops Here, Report of the Twentieth CenturyFund Working Group on Campaign Finance Litigation(New York: Twentieth Century Fund, 1998), p. 16.

4. PSRA, p. 2.

5. Ann Scales, “Blacks, Especially in South, Answered theDemocrats’ Call,” The Boston Globe, November 5, 1998,page A-34.

6. Buckley Stops Here, p. 17.

7. Nancy Benac, “American Trust in Government Im-proving, But Still Overall Low,” Associated Press NewsRelease, March 9, 1998 (Reporting the findings of a sur-vey conducted by the Pew Research Center for the People& the Press).

8. To the greatest extent possible, data in this reportreflect the 1998 campaigns and elections and are thosereported by the Federal Elections Commission as ofFebruary 15, 1999. For most, but not all, campaigns thedata reflect campaign reports covering the period throughDecember 31, 1998. These data are preliminary, and insome cases incomplete, and will change as later reportsare filed.

9. Herbert E. Alexander, “Financing the 1996 Election,”Regina Dougherty, et al., eds., America at the Polls 1996(Storrs, Conn.: Roper Center for Public Opinion Re-search, 1997), p. 142.

10. There are no satisfactory price indices for the com-posite of goods and services used in campaigns.

11. Herbert E. Alexander and Anthony Corrado, Financ-ing the 1992 Election (Armonk, New York: M. E. Sharpe,1995), p. 21. See also Major Garrett, “Money, Politics andthe First Amendment,” Cato Institute Briefing Papers (Wash-ington, D.C.: Cato Institute, June 19, 1997), p. 2.

12. Data reported in Joseph E. Cantor, Denis StevenRutkus, and Kevin B. Greely, Free and Reduced-Rate Televi-sion Time for Political Candidates (Washington, D.C.:Congressional Research Service, July 7, 1997), p. 5.

13. This total did not include party-sponsored “issue ads,”which included ads specifically designed to supportClinton and Dole.

14. Ira Chinoy, “In Presidential Race, TV Ads Were Big-gest ’96 Cost by Far,” Washington Post, March 31, 1997,p. A19.

15. Sarah Fritz and Dwight Morris, Handbook of CampaignSpending: Money in the 1990 Congressional Races (Washing-ton, D.C.: Congressional Quarterly, 1992), pp. 53-54;Dwight Morris and Murielle E. Gamache, Handbook ofCampaign Spending: Money in the 1992 Congressional Races(Washington, D.C.: Congressional Quarterly, 1994),pp. 6-10; and Dwight Morris and Murielle E. Gamache,Gold-Plated Politics: The 1992 Congressional Races (Washing-ton, D.C.: Congressional Quarterly, 1994), p. 9.

16. See Sara Fritz and Dwight Morris, Gold-Plated Politics:Running for Congress in the 1990s (Washington, D.C.: Con-gressional Quarterly, 1992), pp. 14-26; for 1992, Morrisand Gamache, Gold-Plated Politics: The 1992 CongressionalRaces, pp. 18-29.

17. Foreign citizens who are not lawfully admitted forpermanent residence in the United States.

18. Anthony Corrado, “The Changing Environment ofPresidential Campaign Finance,” in William G. Mayer,ed., In Pursuit of the White House (Chatham, NJ: ChathamHouse, 1995), p. 226.

19. See, for example, the statements of former legislatorsin Martin Schram, Speaking Freely (Washington, D.C.: Cen-ter for Responsive Politics, 1995), Chapter 3.

20. Phillip M. Stern, Still the Best Congress Money Can Buy(Washington, D.C.: Regnery, 1992), p. 119.

21. 1998 data on the size of contributions are from theFederal Election Commission “cansum98.zip” at <http://www.fec.gov/finance/ftpsum.htm.

22. Based on data reported to the Federal Election Com-mission as of November 23, 1998.

23. Federal Election Commission, “PAC Activity Increasesin 1995-96 Election Cycle,” press release, April 22, 1997.

24. Frank J. Sorauf, Inside Campaign Finance (New Haven:Yale University Press, 1992), pp. 104-109.

25. For a summary of this literature and the major find-ings, see John R. Wright, Interest Groups & Congress: Lobby-ing, Contributions, and Influence (Boston: Allyn and Bacon,1996), pp. 136-149.

26. Jonathan S. Krasno and Donald Philip Green, “Stop-ping the Buck Here: The Case for Campaign SpendingLimits,” The Brookings Review, Spring 1993, pp. 17-21.

27. Center for Responsive Politics, “Money and Incum-bency Win Big on Election Day,” press release, November4, 1998.

42

28. In this model, challenger spending and party identifi-cation explain about 55 percent of the variation in votingresults. The graph has been simplified to remove theeffect of party identification. Interestingly, inclusion ofthe incumbent’s spending does not add significantly tothe explanatory power of the model, apparently becauseof the interdependence between challenger and incum-bent spending in an “arms race” effect.

29. The extraordinary spike to $54 million (20 percent)in 1994 resulted principally from Republican MichaelHuffington’s self-financing of more than $28 million inthe California race and the unusual (for an incumbent)self-financing of nearly $7 million in Wisconsin by Sena-tor Herbert Kohl.

30. Alexander, “Financing the 1996 Election,” pp. 143-144, and Makinson, The Big Picture, p. 4.

31. 116 S. Ct. 2309 (1996).

32. The data in this paragraph and in the analysis thatfollows are based on CED computations from data re-ported to the Federal Election Commission. See FederalElection Commission, “FEC Reports Major Increase inParty Activity for 1995-96,” press release, March 19, 1997.

33. Paul S. Herrnson, Congressional Elections (Washington,D.C.: Congressional Quarterly, 1995), p. 86.

34. The following review of the origins of soft money isloosely based on the more detailed legal history found inAnthony Corrado, “Party Soft Money,” in AnthonyCorrado, et al., Campaign Finance Reform: A Sourcebook(Washington, D.C.: Brookings Institution, 1997),Chapter 6.

35. Anthony Corrado, “Hard Facts About Soft Money,”Trends in Political Financing and Campaign Reform, Occa-sional Paper 5 (Los Angeles: Citizens’ Research Founda-tion, 1997), p. 3.

36. Federal Election Commission, “Political Party Fund-raising Continues to Climb,” press release, January 26,1999.

37. Anthony Corrado, “Soft Money: To Reform or Not toReform,” Paper presented at the Annual Meeting of theNew England Political Science Association, Salem, Mass.,April 22, 1994.

38. Federal Election Commission, “Soft Money: DraftNotice of Proposed Rulemaking,” Memorandum to theFederal Election Commission from Lawrence M. Noble,Agenda Document 98-10, January 26, 1998, p. 22.

39. Based on data developed by Public Disclosure, Inc.,for the Campaign Reform Project. These findings arereported at http://206.239.183.87/SoftMoneyReport.htm(January 29, 1999).

40. Ralph Vartabedian, “Corporate Traffic Heavy on U.S.Political Money Trail,” Los Angeles Times, September 21,1997, p. A1.

41. The examples that follow are based on the soft moneycontribution data found in Jennifer Keen and John Daly,Beyond the Limits: Soft Money in the 1996 Elections (Washing-ton, D.C.: Center for Responsive Politics, 1997).

42. 424 U.S. at 42.

43. For a review of the decisions made in this area, seeTrevor Potter, “Issue Advocacy and Express Advocacy,” inCampaign Finance Reform: A Sourcebook, pp. 227-239.

44. Furgatch v. FEC, 807 F.2d 857 (9th Cir. 1987), at 864.

45. Maine Right to Life Committee, Inc. v. FEC, 914F.Supp. 8 (D. Me. 1996), aff’d, 98 F.3d 1 (1st Cir. 1996).

46. Based on data reported in Anthony Corrado, “Financ-ing the 1996 Elections,” in Gerald M. Pomper, ed., TheElection of 1996 (Chatham, NJ: Chatham House, 1997),and Diana Dwyre, “Pushing the Campaign Finance Enve-lope,” Paper delivered at the Annual Meeting of theAmerican Political Science Association, Washington, D.C.,August 28-31, 1997.

47. See Annenberg Public Policy Center, Issue AdvocacyAdvertising During the 1996 Campaign: A Catalog (Philadel-phia, Penn.: Annenberg Public Policy Center, September1997), and Eliza Newlin Carney, “Stealth Bombers,”National Journal, August 16, 1997, p. 1640.

48. The Annenberg Public Policy Center study is avail-able at http://appcpenn.org/issueads/.

49. See, among others, Mary Beth Regan and Amy Borrus,“Business Gets Hard-Nosed About Soft Money,” BusinessWeek, June 23, 1997; David Lightman, “Corporate Execu-tives Jump on Finance Reform Bandwagon,” HartfordCourant, July 8, 1998; and Jerome Kohlberg, “‘Soft Money’is Bad Business,” New York Times, July 5, 1998.

43

Page 3, HARRY L. FREEMAN, with whichTHOMAS J. KLUTZNICK has asked to beassociated

No responsible person can in any way ob-ject to or quarrel with the report and its recom-mendations; we all know that campaign contri-butions—and the cost of campaigns—areincredibly out of line.

Having said that, and with due respect tothe drafters, I do not believe this Congress, oreven the next one, will enact campaign reformlegislation. I have looked at the vote and headcounts and just do not see it. We would have tohave a major turn of events, and this I admit ispossible, to turn the political tide.

We can encourage, and already have en-couraged, U.S. companies to voluntarily stopthe flow, absolutely, of “soft money.” We triedthis around 10 years ago when the averagecorporate soft money contribution was $10,000or $25,000. Now it has skyrocketed beyondprior belief. CED’s efforts should be concen-trated on negotiations and on urging othermajor business organizations to try to convinceall their members to “take the pledge.” In-deed, I think most companies would welcomea way out of this situation. There is no need todrop support for revision of the laws. But Iurge CED to take this opportunity to take apath where some degree of success might beobtained and with relatively little time andexpense.

The nonconforming companies can maketheir soft money contributions, but they wouldbe identified through the FEC. I believe themedia would pick up those who stray from thepractice.

If corporations follow this path, it will bemuch easier to try to contain organized labor’scontributions, and hopefully the cost of cam-paigns.

Page 3, NED REGAN

I am pleased to be associated with this re-port and I support its recommendations. I have,however, one major qualification.

While our present form of raising money isclearly flawed, its impact on the electoral pro-cess and government policy setting is not aspernicious as often portrayed. Consider thefollowing points.

• Paid ads are now a vital source of informa-tion on candidates. As every survey shows,and readers and viewers know, serious newsmedia coverage of candidates for public of-fice has decreased. Even in the last presi-dential election the candidates were rarelygiven much more than “photo-op” cover-age on the six o’clock news. Increasinglycandidates have to resort to paid ads toexplain their position (or criticize their op-ponents’).

• Fundraising activities do not detract frommeeting voters to discuss issues; in fact, it issomewhat the opposite. Fundraising is notall done through frantic phone calls to lob-byists; money is raised through an endlessround of breakfasts, lunches and after-workmeetings (albeit with individuals with theability to write at least a modest check) wherethe issues are always fiercely discussed. Com-munity gatherings, at one time a staple ofurban living, have diminished in suburbansettings, so fund raising events have becomea major way for candidates to interact withvoters.

• Incumbents raise a disproportionate shareof campaign funds, but this is not a newphenomenon. Incumbents are powerful andhave always raised the most money and gar-nered the most support from interestgroups.

Memoranda of Comment, Reservation,or Dissent

44

• There are numerous impediments associ-ated with seeking public office, and raisinglarge amounts of money is certainly one.But the major reason potential candidatesdo not come forward is because of the in-tense media scrutiny their personal liveswould receive.Finally, we appear to be getting fairly good

government these days. It is centerist and prag-matic at the federal level, with fiscal and socialproblems that have bedeviled the country fordecades now resolved. And state governors andcity mayors are widely praised for their pro-gressive and fiscally sound policies. In spite ofthe malevolence attributed to our campaignfinance process, government seems to workquite well.

Pages 4 and 36, WILLIAM F. HECHT

In addition to adjusting the limit on indi-vidual contributions for inflation, it is appro-priate to inflation-adjust the limits of PAC con-tributions. This would restore the purchasingpower of contributions, which has been lostsince Federal Election Campaign Act (FECA)was adopted 25 years ago. As noted on p. 15,PACs “collectively represent thousands of dif-ferent interests and tens of thousands of indi-vidual contributors. All PAC monies contrib-uted to candidates must come from voluntarydonations; a committee can request, but notrequire, such donations from the members ofa corporation or group with which it is associ-ated. PACs thus provide small donors with ameans of participating in the financing of cam-paigns through a broader group that repre-sents their concerns. In this way, they haveincreased public participation in the financingof elections and offered individuals a valuablemeans of exercising their rights of free speechand political association.”

45

For more than 50 years, the Committee forEconomic Development has been a respectedinfluence on the formation of business andpublic policy. CED is devoted to these twoobjectives:

To develop, through objective research andinformed discussion, findings and recommenda-tions for private and public policy that will contributeto preserving and strengthening our free society, achiev-ing steady economic growth at high employment andreasonably stable prices, increasing productivity andliving standards, providing greater and more equalopportunity for every citizen, and improving the qual-ity of life for all.

To bring about increasing understanding bypresent and future leaders in business, government,and education, and among concerned citizens, of theimportance of these objectives and the ways in whichthey can be achieved.

CED’s work is supported by private volun-tary contributions from business and industry,

foundations, and individuals. It is independent,nonprofit, nonpartisan, and nonpolitical.

Through this business-academic partner-ship, CED endeavors to develop policy state-ments and other research materials thatcommend themselves as guides to public andbusiness policy; that can be used as texts incollege economics and political science coursesand in management training courses; thatwill be considered and discussed by newspaperand magazine editors, columnists, and com-mentators; and that are distributed abroad topromote better understanding of the Ameri-can economic system.

CED believes that by enabling businessleaders to demonstrate constructively their con-cern for the general welfare, it is helping busi-ness to earn and maintain the national andcommunity respect essential to the successfulfunctioning of the free enterprise capitalistsystem.

OBJECTIVES OF THE COMMITTEE FOR ECONOMIC DEVELOPMENT

*Life Trustee

ChairmanFRANK P. DOYLE, Retired Executive Vice PresidentGE

Vice ChairmenROY J. BOSTOCK, Chairman and Chief

Executive OfficerThe MacManus GroupJOHN H. BRYAN, Chairman and Chief

Executive OfficerSara Lee CorporationDONALD R. CALDWELL, Chief Executive OfficerNorth Atlantic Technology FundRAYMOND V. GILMARTIN, Chairman, President

and Chief Executive OfficerMerck & Co., Inc.HENRY A. MCKINNELL, Executive Vice PresidentPfizer Inc.JAMES N. SULLIVAN, Vice Chairman of the BoardChevron Corporation

TreasurerREGINA DOLANSenior Vice President, Chief Financial Officer and

Chief Administrative OfficerPaineWebber Group Inc.

ROGER G. ACKERMAN, Chairman and ChiefExecutive Officer

Corning IncorporatedREX D. ADAMS, DeanThe Fuqua School of BusinessDuke UniversityPAUL A. ALLAIRE, Chairman and Chief

Executive OfficerXerox CorporationIAN ARNOF, ChairmanBank One, Louisiana, N.A.HANS W. BECHERER, Chairman and Chief

Executive OfficerDeere & CompanyHENRY P. BECTON, JR., President and

General ManagerWGBH Educational FoundationALAN BELZER, Retired President and Chief

Operating OfficerAlliedSignal Inc.PETER A. BENOLIEL, Chairman, Executive CommitteeQuaker Chemical CorporationMELVYN E. BERGSTEIN, Chairman and Chief

Executive OfficerDiamond Technology PartnersC. ROBERT BLACK, Senior Vice PresidentTexaco Inc.JON A. BOSCIA, President and Chief Executive OfficerLincoln National CorporationROY J. BOSTOCK, Chairman and Chief

Executive OfficerThe MacManus Group

CED BOARD OF TRUSTEES

C. L. BOWERMAN, Executive Vice President,Planning and Corporate Relations & Services

Phillips Petroleum CompanyJOHN BRADEMAS, President EmeritusNew York UniversityWILLIAM E. BROCK, ChairmanThe Brock Group, LTDSTEPHEN L. BROWN, Chairman and Chief

Executive OfficerJohn Hancock Mutual Life Insurance CompanyGORDON F. BRUNNER, Senior Vice President

and DirectorThe Procter & Gamble CompanyJOHN H. BRYAN, Chairman and Chief

Executive OfficerSara Lee CorporationMICHAEL BUNGEY, Chairman and Chief

Executive OfficerBates Worldwide, Inc.J. GARY BURKHEAD, Vice ChairmanFMR CorporationW. VAN BUSSMANN, Corporate EconomistDaimlerChrysler CorporationJEAN B. BUTTNER, Chairman and Chief

Executive OfficerValue Line Inc.FLETCHER L. BYROM, President and Chief

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Executive OfficerState Street CorporationROBERT B. CATELL, Chairman and Chief

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PresidentAetna Inc.ROBERT CHESS, Co-Chief Executive OfficerInhale Therapeutic SystemsCAROLYN CHIN, Chief Executive OfficerThe Chin CompanyA. W. CLAUSEN, Retired Chairman and Chief

Executive OfficerBankAmerica CorporationJOHN L. CLENDENIN, Retired ChairmanBellSouth CorporationNANCY S. COLE, PresidentEducational Testing ServiceFERDINAND COLLOREDO-MANSFELD, Chairman

and Chief Executive OfficerCabot Industrial Trust

*

*

*Life Trustee

GEORGE H. CONRADES, PartnerPolaris Venture PartnersKATHLEEN B. COOPER, Chief EconomistExxon CorporationGARY L. COUNTRYMAN, ChairmanLiberty Mutual Insurance CompanySTEPHEN A. CRANE, President and Chief

Executive OfficerGryphon Holdings, Inc.RONALD R. DAVENPORT, Chairman of the BoardSheridan Broadcasting CorporationROBERT M. DEVLIN, Chairman and Chief

Executive OfficerAmerican General CorporationJOHN DIEBOLD, ChairmanJohn Diebold IncorporatedJOHN T. DILLON, Chairman and Chief

Executive OfficerInternational Paper CompanyREGINA DOLAN, Senior Vice President, Chief

Financial Officer and Chief Administrative OfficerPaineWebber Group Inc.IRWIN DORROS, ChairmanNJ Commission on Science & TechnologyFRANK P. DOYLE, Retired Executive Vice PresidentGEE. LINN DRAPER, JR., Chairman, President and Chief

Executive OfficerAmerican Electric Power CompanyT. J. DERMOT DUNPHY, Chairman and Chief

Executive OfficerSealed Air CorporationCHRISTOPHER D. EARL, Senior Vice PresidentPerseus Capital LLCW. D. EBERLE, ChairmanManchester Associates, Ltd.WILLIAM S. EDGERLY, ChairmanFoundation for PartnershipsWALTER Y. ELISHA, Retired Chairman and Chief

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Executive OfficerThe Northwestern Mutual Life Insurance CompanyWILLIAM T. ESREY, Chairman and Chief

Executive OfficerSprintPATRICIA O’DONNELL EWERS, PresidentPace UniversityKATHLEEN FELDSTEIN, PresidentEconomic Studies, Inc.RONALD E. FERGUSON, Chairman, President and

Chief Executive OfficerGeneral RE CorporationE. JAMES FERLAND, Chairman, President and Chief

Executive OfficerPublic Service Enterprise Group Inc.EDMUND B. FITZGERALD, Managing DirectorWoodmont AssociatesHARRY L. FREEMAN, PresidentThe Freeman CompanyMITCHELL S. FROMSTEIN, Chairman, President and

Chief Executive OfficerManpower Inc.

JOSEPH GANTZGantz FoundationTHOMAS P. GERRITY, DeanThe Wharton SchoolUniversity of PennsylvaniaRAYMOND V. GILMARTIN, Chairman, President and

Chief Executive OfficerMerck & Co., Inc.SUE LING GIN, President and Chief Executive OfficerFlying Food Fare, Inc.FREDERICK W. GLUCKMcKinsey & Company, Inc.CAROL R. GOLDBERG, PresidentThe Avcar Group, Ltd.ALFRED G. GOLDSTEIN, Chief Executive OfficerAG AssociatesELLEN R. GORDON, President and Chief

Operating OfficerTootsie Roll Industries, Inc.JOSEPH T. GORMAN, Chairman and Chief

Executive OfficerTRW Inc.RICHARD A. GRASSO, Chairman and Chief

Executive OfficerNew York Stock Exchange, Inc.EARL G. GRAVES, SR., Publisher and Chief

Executive OfficerBlack Enterprise MagazineWILLIAM H. GRAY, III, President and Chief

Executive OfficerThe College FundROSEMARIE B. GRECOGreco VenturesGERALD GREENWALD, Chairman and Chief

Executive OfficerUAL CorporationBARBARA B. GROGAN, PresidentWestern Industrial ContractorsPATRICK W. GROSS, Founder and Chairman,

Executive CommitteeAmerican Management Systems, Inc.JUDITH H. HAMILTON, Chief Executive OfficerClassroom ConnectRICHARD W. HANSELMAN, Retired ChairmanGenesco Inc.WILLIAM F. HECHT, Chairman, President and Chief

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OfficerMagneTek, Inc.DEBORAH C. HOPKINS, Senior Vice President and

Chief Financial OfficerThe Boeing CompanyMATINA S. HORNER, Executive Vice PresidentTIAA-CREF

*

*Life Trustee

AMOS B. HOSTETTER, ChairmanPilot House Associates, LLCPHILIP K. HOWARDHoward Smith & Levin L.L.P.WILLIAM R. HOWELL, Retired Chairman of the BoardJ. C. Penney Company, Inc.ROBERT J. HURST, Vice ChairmanGoldman, Sachs & Co.ALICE STONE ILCHMAN, Former PresidentSarah Lawrence CollegeGEORGE B. JAMES, Retired Senior Vice President and

Chief Financial OfficerLevi Strauss & Co.JAMES A. JOHNSON, Retired ChairmanFannie MaeROBBIN S. JOHNSON, Corporate Vice President,

Public AffairsCargill, IncorporatedROBERT M. JOHNSON, Chairman and Chief

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COLETTE MAHONEY, RSHM, President EmeritusMarymount Manhattan CollegeELLEN R. MARRAMContinuation Investments Group, Inc.ALONZO L. MCDONALD, Chairman and Chief

Executive OfficerAvenir Group, Inc.EUGENE R. MCGRATH, Chairman, President and

Chief Executive OfficerConsolidated Edison Company of New York, Inc.HENRY A. MCKINNELL, Executive Vice PresidentPfizer Inc.DAVID E. MCKINNEYThomas J. Watson FoundationDEBORAH HICKS MIDANEK, PrincipalJay Alix & AssociatesHARVEY R. MILLER, Senior PartnerWeil, Gotshal & MangesNICHOLAS G. MOORE, ChairmanPricewaterhouseCoopersDIANA S. NATALICIO, PresidentThe University of Texas at El PasoMARILYN CARLSON NELSON, Vice Chair and Chief

Executive OfficerCarlson Holdings, Inc.JOSEPH NEUBAUER, Chairman and Chief

Executive OfficerARAMARK CorporationBARBARA W. NEWELL, Regents ProfessorFlorida State UniversityTHOMAS H. O’BRIEN, Chairman and Chief

Executive OfficerPNC Bank CorporationLEO J. O’DONOVAN, S.J., PresidentGeorgetown UniversityDEAN R. O’HARE , Chairman and Chief

Executive OfficerChubb CorporationJOHN D. ONG, Chairman EmeritusThe BF Goodrich CompanyANTHONY J. F. O'REILLY, ChairmanH.J. Heinz CompanyJAMES F. ORR III, Chairman and Chief

Executive OfficerUNUM CorporationROBERT J. O'TOOLE, Chairman and Chief

Executive OfficerA.O. Smith CorporationSTEFFEN E. PALKO, Vice Chairman and PresidentCross Timbers Oil CompanySANDRA PANEM, PresidentVector Fund Management, L.P.CAROL J. PARRY, Executive Vice PresidentChase Manhattan CorporationVICTOR A. PELSON, Senior AdvisorSBC Warburg Dillon Read Inc.PETER G. PETERSON, ChairmanThe Blackstone GroupDEAN P. PHYPERSNew Canaan, ConnecticutARNOLD B. POLLARD, President and Chief

Executive OfficerThe Chief Executive Group

*Life Trustee

JAMES T. PORTER, Vice President and ChiefAdministrative Officer

Honeywell, Inc.S. LAWRENCE PRENDERGAST, Chairman and Chief

Executive OfficerAT&T Investment Management CorporationHUGH B. PRICE, President and Chief

Executive OfficerNational Urban LeagueROBERT A. PRITZKER, President and Chief

Executive OfficerThe Marmon GroupNED REGANThe Jerome Levy Economics InstituteWILLIAM R. RHODES, Vice ChairmanCitibank, N.A.JAMES Q. RIORDANStuart, FloridaE. B. ROBINSON, JR., Chairman and Chief

Executive OfficerDeposit Guaranty National BankDANIEL ROSE, Vice ChairmanRose Associates, Inc.HOWARD M. ROSENKRANTZ, Chief Executive OfficerGrey Flannel AuctionsJOHN A. ROTH, President and Chief

Executive OfficerNorthern Telecom LimitedMICHAEL I. ROTH, Chairman and Chief

Executive OfficerThe MONY Group Inc.JOHN W. ROWE, Chairman, President and Chief

Executive OfficerUnicom CorporationLANDON H. ROWLAND, Chairman, President and

Chief Executive OfficerKansas City Southern Industries, Inc.NEIL L. RUDENSTINE, PresidentHarvard UniversityGEORGE RUPP, PresidentColumbia UniversityGEORGE F. RUSSELL, JR., ChairmanFrank Russell CompanyARTHUR F. RYAN, Chairman and Chief

Executive OfficerThe Prudential Insurance Company of AmericaSTEPHEN W. SANGER, Chairman and Chief

Executive OfficerGeneral Mills, Inc.JOHN C. SAWHILL, President and Chief

Executive OfficerThe Nature ConservancyHENRY B. SCHACHT, Director and Senior AdvisorLucent Technologies Inc.JONATHAN M. SCHOFIELD, Chairman and Chief

Executive OfficerAirbus Industrie of North America, Inc.DONALD J. SCHUENKE, ChairmanNorthern Telecom LimitedWALTER V. SHIPLEY, Chairman and Chief

Executive OfficerThe Chase Manhattan CorporationWALTER H. SHORENSTEIN, Chairman of the BoardThe Shorenstein Company

GEORGE P. SHULTZ, Distinguished FellowThe Hoover InstitutionStanford UniversityJOHN C. SICILIANO, Managing DirectorPayden & Rygel Investment CounselROCCO C. SICILIANOBeverly Hills, CaliforniaRUTH J. SIMMONS, PresidentSmith CollegeRONALD L. SKATES, President and Chief

Executive OfficerData General CorporationFREDERICK W. SMITH, Chairman, President and

Chief Executive OfficerFederal Express CorporationTIMOTHY P. SMUCKER, ChairmanThe J.M. Smucker CompanyHUGO FREUND SONNENSCHEIN, PresidentThe University of ChicagoALAN G. SPOON, PresidentThe Washington Post CompanyJOHN R. STAFFORD, Chairman, President and

Chief Executive OfficerAmerican Home Products CorporationSTEPHEN STAMAS, ChairmanThe American AssemblyJOHN L. STEFFENS, Vice ChairmanMerrill Lynch & Co., Inc.PAULA STERN, PresidentThe Stern Group, Inc.DONALD M. STEWART, PresidentThe College BoardROGER W. STONE, President and Chief

Executive OfficerSmurfit-Stone Container CorporationMATTHEW J. STOVER, Group President,

Bell Atlantic Directory GroupBell Atlantic CorporationJAMES N. SULLIVAN, Vice Chairman of the BoardChevron CorporationRICHARD J. SWIFT, Chairman, President and

Chief Executive OfficerFoster Wheeler CorporationRICHARD F. SYRON, Chairman and Chief

Executive OfficerAmerican Stock ExchangeALISON TAUNTON-RIGBY, President and Chief

Executive OfficerAquila Biopharmaceuticals, Inc.RICHARD L. THOMAS, Retired ChairmanFirst Chicago NBD CorporationJAMES A. THOMSON, President and Chief

Executive OfficerRANDCHANG-LIN TIEN, NEC Distinguished Professor of

EngineeringUniversity of California, BerkeleyTHOMAS J. TIERNEY, Worldwide Managing DirectorBain & CompanyALAIR A. TOWNSEND, PublisherCrain’s New York BusinessALEXANDER J. TROTMAN, Retired ChairmanFord Motor Company

*

*Life Trustee

JAMES L. VINCENT, Chairman and ChiefExecutive Officer

Biogen, Inc.ROBERT WAGGONER, Chief Executive OfficerBurrelle’s Information ServicesDONALD C. WAITE, III, Managing DirectorMcKinsey & Company, Inc.ARNOLD R. WEBER, ChancellorNorthwestern UniversityROBERT E. WEISSMAN, ChairmanIMS Health Inc.JOHN F. WELCH, JR., Chairman and Chief

Executive OfficerGEJOSH S. WESTON, Honorary ChairmanAutomatic Data Processing, Inc.CLIFTON R. WHARTON, JR., Former Chairman and

Chief Executive OfficerTIAA-CREFDOLORES D. WHARTON, Chairman and Chief

Executive OfficerThe Fund for Corporate Initiatives, Inc.MICHAEL W. WICKHAM, Chairman and Chief

Executive OfficerRoadway Express, Inc.HAROLD M. WILLIAMS, Retired PresidentThe J. Paul Getty TrustJ. KELLEY WILLIAMS, Chairman and Chief

Executive OfficerChemFirst Inc.LINDA SMITH WILSON, PresidentRadcliffe CollegeMARGARET S. WILSON, Chairman and Chief Executive

OfficerScarbroughsHUGH WOOD, ChairmanHugh Wood, Inc.KURT E. YEAGER, President and Chief Executive

OfficerElectric Power Research InstituteMARTIN B. ZIMMERMAN, Vice President,

Governmental AffairsFord Motor Company

RAY C. ADAM, Retired ChairmanNL IndustriesO. KELLEY ANDERSONBoston, MassachusettsROBERT O. ANDERSON, Retired ChairmanHondo Oil & Gas CompanyROY L. ASHLos Angeles, CaliforniaSANFORD S. ATWOOD, President EmeritusEmory UniversityROBERT H. B. BALDWIN, Retired ChairmanMorgan Stanley Group Inc.GEORGE F. BENNETT, Chairman EmeritusState Street Investment TrustHAROLD H. BENNETTSalt Lake City, UtahJACK F. BENNETT, Retired Senior Vice PresidentExxon CorporationHOWARD W. BLAUVELTKeswick, VirginiaMARVIN BOWERDelray Beach, FloridaALAN S. BOYDWashington, D.C.ANDREW F. BRIMMER, PresidentBrimmer & Company, Inc.HARRY G. BUBB, Chairman EmeritusPacific Mutual Life InsuranceTHEODORE A. BURTIS, Retired Chairman

of the BoardSun Company, Inc.PHILIP CALDWELL, Chairman (Retired)Ford Motor CompanyEVERETT N. CASEVan Hornesville, New YorkHUGH M. CHAPMAN, Retired ChairmanNationsBank SouthE. H. CLARK, JR., Chairman and Chief

Executive OfficerThe Friendship GroupDOUGLAS D. DANFORTH, Retired ChairmanWestinghouse Electric CorporationJOHN H. DANIELS, Retired Chairman and

Chief Executive OfficerArcher-Daniels Midland Co.RALPH P. DAVIDSONWashington, D.C.ARCHIE K. DAVIS, Chairman of the

Board (Retired)Wachovia Bank and Trust Company, N.A.ALFRED C. DECRANE, JR., Retired Chairman and

Chief Executive OfficerTexaco, Inc.ROBERT R. DOCKSON, Chairman EmeritusCalFed, Inc.LYLE EVERINGHAM, Retired ChairmanThe Kroger Co.THOMAS J. EYERMAN, Retired PartnerSkidmore, Owings & Merrill

CED HONORARY TRUSTEESJOHN T. FEYPark City, UtahJOHN M. FOXSapphire, North CarolinaDON C. FRISBEE, Chairman EmeritusPacifiCorpRICHARD L. GELB, Chairman EmeritusBristol-Myers Squibb CompanyW. H. KROME GEORGE, Retired ChairmanAluminum Company of AmericaWALTER B. GERKEN, Chairman, Executive CommitteePacific Mutual Life Insurance CompanyPAUL S. GEROTDelray Beach, FloridaLINCOLN GORDON, Guest ScholarThe Brookings InstitutionKATHARINE GRAHAM, Chairman of

the Executive CommitteeThe Washington Post CompanyJOHN D. GRAY, Chairman EmeritusHartmarx CorporationJOHN R. HALL, Retired ChairmanAshland Inc.ROBERT A. HANSON, Retired ChairmanDeere & CompanyROBERT S. HATFIELD, Retired ChairmanThe Continental Group, Inc.ARTHUR HAUSPURG, Member, Board

of DirectorsConsolidated Edison Company of New York, Inc.PHILIP M. HAWLEY, Retired Chairman

of the BoardCarter Hawley Hale Stores, Inc.ROBERT C. HOLLAND, Senior FellowThe Wharton SchoolUniversity of PennsylvaniaLEON C. HOLT, JR., Retired Vice ChairmanAir Products and Chemicals, Inc.SOL HURWITZ, Retired PresidentCommittee for Economic DevelopmentGEORGE F. JAMESPonte Vedra Beach, FloridaGEORGE M. KELLER, Chairman of the

Board, RetiredChevron CorporationJAMES R. KENNEDYKaysville, UtahPHILIP M. KLUTZNICK, Senior PartnerKlutznick InvestmentsFRANKLIN A. LINDSAY, Retired ChairmanItek CorporationROY G. LUCKSSan Francisco, CaliforniaROBERT W. LUNDEEN, Retired ChairmanThe Dow Chemical CompanyIAN MACGREGOR, Retired ChairmanAMAX Inc.RICHARD B. MADDEN, Retired Chairman

and Chief Executive OfficerPotlatch Corporation

JAMES J. RENIERRenier & AssociatesIAN M. ROLLAND, Former Chairman and Chief

Executive OfficerLincoln National CorporationAXEL G. ROSIN, Retired ChairmanBook-of-the-Month Club, Inc.WILLIAM M. ROTHPrinceton, New JerseyJOHN SAGAN, PresidentJohn Sagan AssociatesRALPH S. SAUL, Former Chairman of the BoardCIGNA CompaniesGEORGE A. SCHAEFER, Retired Chairman

of the BoardCaterpillar, Inc.ROBERT G. SCHWARTZNew York, New YorkMARK SHEPHERD, JR., Retired ChairmanTexas Instruments, Inc.RICHARD R. SHINN, Retired Chairman

and Chief Executive OfficerMetropolitan Life Insurance CompanyDAVIDSON SOMMERSWashington, D.C.ELMER B. STAATS, Former Controller

General of the United StatesFRANK STANTON, Former PresidentCBS, Inc.EDGAR B. STERN, JR., Chairman of the BoardRoyal Street CorporationALEXANDER L. STOTTFairfield, ConnecticutWAYNE E. THOMPSON, Past ChairmanMerritt Peralta Medical CenterCHARLES C. TILLINGHAST, JR.Providence, Rhode IslandHOWARD S. TURNER, Retired ChairmanTurner Construction CompanyL. S. TURNER, JR.Dallas, TexasTHOMAS A. VANDERSLICETAV AssociatesJAMES E. WEBBWashington, D.C.SIDNEY J. WEINBERG, JR., Limited PartnerThe Goldman Sachs Group, L.P.ROBERT C. WINTERS, Chairman EmeritusPrudential Insurance Company of AmericaARTHUR M. WOODChicago, IllinoisRICHARD D. WOOD, DirectorEli Lilly and CompanyWILLIAM S. WOODSIDE, ChairmanLSG Sky ChefsCHARLES J. ZWICKCoral Gables, Florida

FRANK L. MAGEEStahlstown, PennsylvaniaSTANLEY MARCUS, ConsultantStanley Marcus ConsultancyAUGUSTINE R. MARUSILake Wales, FloridaWILLIAM F. MAY, Chairman and Chief

Executive OfficerStatue of Liberty-Ellis Island Foundation, Inc.OSCAR G. MAYER, Retired ChairmanOscar Mayer & Co.GEORGE C. MCGHEE, Former U.S. Ambassador

and Under Secretary of StateJOHN F. MCGILLICUDDY, Retired Chairman

and Chief Executive OfficerChemical Banking CorporationJAMES W. MCKEE, JR., Retired ChairmanCPC International, Inc.CHAMPNEY A. MCNAIR, Retired Vice ChairmanTrust Company of GeorgiaJ. W. MCSWINEY, Retired Chairman of the BoardThe Mead CorporationROBERT E. MERCER, Retired ChairmanThe Goodyear Tire & Rubber Co.RUBEN F. METTLER, Retired Chairman and

Chief Executive OfficerTRW Inc.LEE L. MORGAN, Former Chairman of the BoardCaterpillar, Inc.ROBERT R. NATHAN, ChairmanNathan Associates, Inc.ALFRED C. NEALHarrison, New YorkJ. WILSON NEWMAN, Retired ChairmanDun & Bradstreet CorporationJAMES J. O’CONNOR, Former Chairman and Chief

Executive OfficerUnicom CorporationLEIF H. OLSEN, PresidentLeif H. Olsen Investments, Inc.NORMA PACENew York, New YorkCHARLES W. PARRY, Retired ChairmanAluminum Company of AmericaWILLIAM R. PEARCE, President and

Chief Executive OfficerIDS Mutual Fund GroupJOHN H. PERKINS, Former PresidentContinental Illinois National Bank and Trust CompanyRUDOLPH A. PETERSON, President and

Chief Executive Officer (Emeritus)BankAmerica CorporationEDMUND T. PRATT, JR., Retired Chairman and

Chief Executive OfficerPfizer Inc.ROBERT M. PRICE, Retired Chairman and

Chief Executive OfficerControl Data CorporationR. STEWART RAUCH, Former ChairmanThe Philadelphia Savings Fund Society

CED RESEARCH ADVISORY BOARDChairmanJOHN P. WHITEJohn F. Kennedy School of GovernmentHarvard University

GEORGE A. AKERLOFSenior FellowThe Brookings InstitutionProfessor, Department of EconomicsUniversity of California, Berkeley

ELIZABETH E. BAILEYJohn C. Hower Professor of Public Policy

and ManagementThe Wharton SchoolUniversity of Pennsylvania

ALAN S. BLINDERGordon S. Rentschler Memorial

Professor of EconomicsPrinceton University

JOHN COGANSenior FellowThe Hoover InstitutionStanford University

RONALD F. FERGUSONProfessorJohn F. Kennedy School of GovernmentHarvard University

HELEN F. LADDProfessor of Public Policy Studies and

EconomicsDuke University

LINDA YUEN-CHING LIMProfessorUniversity of Michigan Business School

ROBERT E. LITANDirector of Economic StudiesThe Brookings Institution

ROBERT D. REISCHAUERSenior FellowThe Brookings Institution

JOHN B. SHOVENProfessor, Department of EconomicsStanford University

MURRAY WEIDENBAUMChairman, Center for the Study

of American BusinessWashington University

DAVID WESSELChief Economics CorrespondentThe Wall Street Journal

SIDNEY G. WINTERDeloitte and Touche Professor

of ManagementThe Wharton SchoolUniversity of Pennsylvania

CHARLES E.M. KOLBPresident

CED PROFESSIONAL AND ADMINISTRATIVE STAFF

Communications/Government RelationsCLAUDIA P. FEUREYVice President for Communications

and Corporate Affairs

MICHAEL J. PETROVice President and Director of Business and Government Policy

and Chief of Staff

KAREN CONNELLPublic Affairs Associate

CHRIS DREIBELBISBusiness and Government Policy

Associate

VALERIE MENDELSOHNConference Manager and Secretary of

the Research and Policy Committee

JESSICA B. ORKINAssistant Director, Special Projects and Communications

DevelopmentEVA POPPERVice President, Director of

Development, and Secretaryof the Board of Trustees

JAMES WRIGHTDirector of Grants and Foundation

Relations

KATHLEEN EDMONDSONContributions Secretary

DEOKI PESTANOGrants Coordinator

ANA SOMOHANOCampaign Coordinator

Finance and AdministrationTIMOTHY J. MUENCHVice President and Director of Finance and Administration

KAREN CASTROAccounting Manager

SHARON A. CLATTERBAUGHExecutive Assistant to the President

PETER E. COXOperations Manager

ARLENE M. MURPHYExecutive Assistant to the President

AMANDA TURNEROffice Manager

ResearchVAN DOORN OOMSSenior Vice President and

Director of Research

ELLIOT SCHWARTZVice President and Director

of Economic Studies

SCOTT MORRISSenior Economist

ALASTAIR SMITHResearch Associate

SETH TUROFFResearch Associate

HELENA ZYBLIKEWYCZResearch Associate

Advisor on InternationalEconomic PolicyISAIAH FRANKWilliam L. Clayton Professor

of International EconomicsThe Johns Hopkins University

STATEMENTS ON NATIONAL POLICY ISSUED BY THECOMMITTEE FOR ECONOMIC DEVELOPMENT

SELECTED PUBLICATIONS:

The Employer’s Role in Linking School and Work (1998)Employer Roles in Linking School and Work: Lessons from Four Urban Communities (1998)America’s Basic Research: Prosperity Through Discovery (1998)Modernizing Government Regulation: The Need For Action (1998)U.S. Economic Policy Toward The Asia-Pacific Region (1997)Connecting Inner-City Youth To The World of Work (1997)Fixing Social Security (1997)Growth With Opportunity (1997)American Workers and Economic Change (1996)Connecting Students to a Changing World: A Technology Strategy for Improving Mathematics and

Science Education (1995)Cut Spending First: Tax Cuts Should Be Deferred to Ensure a Balanced Budget (1995)Rebuilding Inner-City Communities: A New Approach to the Nation’s Urban Crisis (1995)Who Will Pay For Your Retirement? The Looming Crisis (1995)Putting Learning First: Governing and Managing the Schools for High Achievement (1994)Prescription for Progress: The Uruguay Round in the New Global Economy (1994)*From Promise to Progress: Towards a New Stage in U.S.-Japan Economic Relations (1994)U.S. Trade Policy Beyond The Uruguay Round (1994)In Our Best Interest: NAFTA and the New American Economy (1993)What Price Clean Air? A Market Approach to Energy and Environmental Policy (1993)Why Child Care Matters: Preparing Young Children For A More Productive America (1993)Restoring Prosperity: Budget Choices for Economic Growth (1992)The United States in the New Global Economy: A Rallier of Nations (1992)The Economy and National Defense: Adjusting to Cutbacks in the Post-Cold War Era (1991)Politics, Tax Cuts and the Peace Dividend (1991)The Unfinished Agenda: A New Vision for Child Development and Education (1991)Foreign Investment in the United States: What Does It Signal? (1990)An America That Works: The Life-Cycle Approach to a Competitive Work Force (1990)Breaking New Ground in U.S. Trade Policy (1990)Battling America's Budget Deficits (1989)*Strengthening U.S.-Japan Economic Relations (1989)Who Should Be Liable? A Guide to Policy for Dealing with Risk (1989)Investing in America's Future: Challenges and Opportunities for Public Sector Economic

Policies (1988)Children in Need: Investment Strategies for the Educationally Disadvantaged (1987)Finance and Third World Economic Growth (1987)

Reforming Health Care: A Market Prescription (1987)Work and Change: Labor Market Adjustment Policies in a Competitive World (1987)Leadership for Dynamic State Economies (1986)Investing in Our Children: Business and the Public Schools (1985)Fighting Federal Deficits: The Time for Hard Choices (1985)Strategy for U.S. Industrial Competitiveness (1984)Productivity Policy: Key to the Nation's Economic Future (1983)Energy Prices and Public Policy (1982)Public-Private Partnership: An Opportunity for Urban Communities (1982)Reforming Retirement Policies (1981)Transnational Corporations and Developing Countries: New Policies for a Changing

World Economy (1981)Stimulating Technological Progress (1980)Redefining Government's Role in the Market System (1979)Jobs for the Hard-to-Employ: New Directions for a Public-Private Partnership (1978)

*Statements issued in association with CED counterpart organizations in foreign countries.

CE Circulo de Empresarios

Madrid, Spain

CEDA Committee for Economic Development of Australia

Sydney, Australia

EVA Centre for Finnish Business and Policy Studies

Helsinki, Finland

FAE Forum de Administradores de Empresas

Lisbon, Portugal

FDE Belgian Enterprise Foundation

Brussels, Belgium

IDEP Institut de l’Entreprise

Paris, France

IW Institut der Deutschen Wirtschaft

Cologne, Germany

Keizai Doyukai

Tokyo, Japan

SMO Stichting Maatschappij en Onderneming

The Netherlands

SNS Studieförbundet Naringsliv och Samhälle

Stockholm, Sweden

CED COUNTERPART ORGANIZATIONS

Close relations exist between the Committee for Economic Development andindependent, nonpolitical research organizations in other countries. Such counter-part groups are composed of business executives and scholars and have objectivessimilar to those of CED, which they pursue by similarly objective methods. CEDcooperates with these organizations on research and study projects of commoninterest to the various countries concerned. This program has resulted in anumber of joint policy statements involving such international matters as energy,East-West trade, assistance to developing countries, and the reduction of nontariffbarriers to trade.

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