In 1971, Congress crafted a stringent new law in an effort to address the rising costs of federal campaigns and the weaknesses in previous disclosure policies. The 1971 Federal Election Campaign Act (FECA) changed campaign finance regulations in two major ways. First, in an effort to address rising campaign costs, it limited the amount of money a candidate could give to his or her own campaign and placed limits on the amount a candidate could spend on television advertising. Second, it revised the regulations for disclosing contributions and expenditures by requiring candidates, PACs, and all party committees active in federal elections to file reports on a quarterly basis. The information to be disclosed included the name, occupation, address and business of each contributor or spender of more than $100. For large contributions of $5,000 or more, disclosure was required within 48 hours of receiving the contribution.
The many shortcomings of disclosure under the Corrupt Practices Act became readily apparent with the implementation of the new FECA regulations. In 1968, under the old law, federal candidates reported $8.5 million in spending. In 1972, under FECA, spending reported by federal candidates soared to $88.9 million.
Despite FECA's increased disclosure requirements and new media spending limits, campaign spending continued to grow at a rapid pace, rising to $425 million in 1972. The Watergate scandal and other campaign finance abuses in the 1972 election spurred Congress to draft additional provisions that overhauled the 1971 law and established a more comprehensive regulatory regime. The 1974 FECA Amendments strengthened disclosure requirements, placed stricter limits on political contributions, replaced the media spending limits with overall spending limits for federal campaigns, and limited party spending on behalf of candidates. These amendments also created a new federal agency responsible for administering and enforcing federal campaign finance laws, the Federal Election Commission (FEC).
Another notable component of the 1974 FECA was the creation of a public funding program for presidential candidates. This system, financed through a tax checkoff on individual federal income tax forms, offered candidates the opportunity to participate in a voluntary program of public funding. Participating candidates were eligible for matching subsidies in primary elections, based on a dollar-for-dollar match on individual contributions of up to $250. In the general election, candidates were eligible for a grant of public money to be used to finance the entire campaign. To be eligible for public funding, candidates have to agree to not raise any private funds for their campaigns. They also have to abide by spending limits and caps on the amounts of money they could contribute to their own campaigns. The program also provided a subsidy to party committees to pay for their presidential nominating conventions.
Even before FECA was fully implemented, Congress was forced to revisit its regulatory approach as a result of the Supreme Court's 1976 decision in Buckley v. Valeo (424 U.S. 1, 1976), the landmark case that determined the constitutionality of FECA's major provisions. In its decision, the Supreme Court created a framework for future campaign finance decisions and congressional regulation. The Court concluded that Congress did not have the authority to limit political spending as a means of promoting equality, but did have the right to regulate political contributions as a means of preventing "corruption and the appearance of corruption." Congress amended FECA in light of Buckley in 1976 and removed or revised the provisions found to be unconstitutional. Most importantly, the 1976 law was brought into conformity with the Court's ruling by eliminating campaign spending limits or caps on the amount a candidate could give to his or her own campaign, except in the case of presidential candidates who accepted public funding.
In 1979, Congress revised the law once again, this time to allay some critics' concerns about overly burdensome reporting requirements and to ease party spending restrictions. The law's disclosure rules were modified so that only contributions or expenditures of more than $200 had to be reported. The new rules also allowed political parties to spend without limit on get-out-the-vote and voter registration activities conducted primarily for a presidential candidate, so long as the funds used to pay for these activities came from monies raised under FECA contribution limits (so-called hard money). This exemption was designed to promote political party grass-roots activity, while limiting the amount of funds parties could spend on political advertisements.
During its first decade, FECA had a tremendous effect in both increasing the transparency of campaign funding and improving the enforcement of the law. The contribution limits also did away with the large financial gifts that had sparked public outcries in 1972. But changing campaign tactics and other financial innovations eventually began to erode the regulatory structure, reducing its overall effectiveness.
Over time, FECA's restrictions on campaign funding were significantly undermined by aggressive party fundraising practices and weak or non-existent responses to these practices by the FEC. One major problem that emerged in the 1980s stemmed from the use of unregulated monies by party committees, which came to be known as soft money. In the 1970s, the political parties asked the FEC if they could raise and spend unregulated money—including corporate and labor union donations and unlimited funds from individuals—on non-federal party-building activities and administrative costs. The FEC eventually allowed both the state and the national political parties to do so. The parties soon began to use these funds on voter registration and turnout programs, as well as other activities that supported the election of specific federal candidates.
Beginning with the 1988 campaign, both presidential campaigns for the first time concentrated on raising large sums of soft money, which were then spent by their party committees on activities designed to influence federal elections. Following that election, soft money became a major part of the financing of presidential and congressional elections for the next fifteen years (see Soft Money Fundraising 1992-2002 chart). Presidential candidates and members of Congress began to play an active role in helping the parties to raise soft money, often to pay for activities that would directly benefit their own campaigns. Parties also began seeking increasingly large soft money gifts, especially from corporations with interests in federal policies. Consequently, the amounts of soft money available to parties grew at a rapid rate.
One of the reasons why soft money became such a prominent feature of federal elections was that party committees aggressively pushed new ways to spend these funds to affect federal elections, with little or no objection from the Federal Election Commission. Beginning in the 1996 election, national and state party committees began to use these funds to pay for candidate-specific issue ads that featured their respective presidential nominees, but were not subject to the contribution or spending limits imposed on parties or publicly funded presidential candidates. The parties claimed that these ads were not subject to FECA limits because they did not expressly advocate the election or defeat of a candidate. The parties argued that because their ads did not use such words as "vote for," "elect," or "defeat,"—words that the Supreme Court had cited in Buckley as examples of express advocacy that could be regulated by Congress—the ads could be financed with soft money. In each election between 1996 and 2002, the parties spent millions of dollars in soft money on issue ads to help elect their candidates.
