Investing in the People’s Business: A Business Proposal for Campaign Finance Reform
A Statement by the Research and Policy Committee of the Committee for Economic Development Investing in the People’s Business: A Business Proposal for Campaign Finance Reform
A Statement by the Research and Policy Committee of the Committee 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 the Research and Policy Committee of the Committee for Economic Development. p. cm. At head of title: Draft policy statement. Includes bibliographical references ISBN 0-87186-133-X 1. Campaign funds — United States. I. Title. JK1991.C6516 1999 324.7'8' 0973 — dc21 99-19942 CIP
First printing in bound-book form: 1999 Paperback: $18.00 Printed in the United States of America Design: Rowe & Ballantine
COMMITTEE FOR ECONOMIC DEVELOPMENT 477 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 CONTENTS
RESPONSIBILITY FOR CED STATEMENTS ON NATIONAL POLICY iv
PURPOSE OF THIS STATEMENT vii
I. INTRODUCTION AND EXECUTIVE SUMMARY 1 Findings 2 The Complexity of Reform 3 Summary of Recommendations 4
II. FINANCING FEDERAL ELECTIONS 8 Campaign Spending 8 Sources of Funding 10 Trends in Financing and Their Effects on the Political System 13
III. RECENT INNOVATIONS IN POLITICAL FINANCE: SOFT MONEY AND ISSUE ADVOCACY 22 Soft Money 22 Issue Advocacy 28
IV. RECOMMENDATIONS FOR REFORM 32 Basic Principles for Reform 32 Recommendation #1: Eliminate Soft Money 33 Recommendation #2: Improve Candidate Access to Resources 35 Recommendation #3: Reduce the Fundraising “Arms Race” with Congressional Campaign Spending Limits 37 Recommendation #4: Reform Issue Advocacy 39 Conclusion 40
ENDNOTES 41
MEMORANDA OF COMMENT, RESERVATION, OR DISSENT 43
OBJECTIVES OF THE COMMITTEE FOR ECONOMIC DEVELOPMENT 45
iii RESPONSIBILITY FOR CED STATEMENTS ON NATIONAL POLICY
The Committee for Economic Development specific legislative proposals; its purpose is to is an independent research and policy organi- urge careful consideration of the objectives set zation of some 250 business leaders and educa- forth in this statement and of the best means of tors. CED is nonprofit, nonpartisan, and non- accomplishing those objectives. political. Its purpose is to propose policies that Each statement is preceded by extensive dis- bring about steady economic growth at high cussions, meetings, and exchange of memo- employment and reasonably stable prices, in- randa. The research is undertaken by a sub- creased productivity and living standards, committee, assisted by advisors chosen for their greater and more equal opportunity for every competence in the field under study. citizen, and an improved quality of life for all. The full Research and Policy Committee All CED policy recommendations must have participates in the drafting of recommenda- the approval of trustees on the Research and tions. Likewise, the trustees on the drafting Policy Committee. This committee is directed subcommittee vote to approve or disapprove a under the bylaws, which emphasize that “all policy statement, and they share with the research is to be thoroughly objective in char- Research and Policy Committee the privilege acter, and the approach in each instance is to of submitting individual comments for publica- be from the standpoint of the general welfare tion. and not from that of any special political or economic group.” The committee is aided by a Except for the members of the Research and Research Advisory Board of leading social sci- Policy Committee and the responsible subcommit- entists and by a small permanent professional tee, the recommendations presented herein are not staff. necessarily endorsed by other trustees or by the The Research and Policy Committee does advisors, contributors, staff members, or others not attempt to pass judgment on any pending associated with CED.
iv RESEARCH AND POLICY COMMITTEE
Chairman JOSH S. WESTON KATHLEEN B. COOPER CHARLES E.M. KOLB Honorary Chairman Chief Economist President Automatic Data Processing, Inc. Exxon Corporation Committee for Economic Development RONALD R. DAVENPORT ALLEN J. KROWE Vice Chairmen Chairman of the Board Retired Vice Chairman IAN ARNOF Sheridan Broadcasting Corporation Texaco Inc. Chairman FRANK P. DOYLE CHARLES R. LEE Bank One, Louisiana, N.A. Retired Executive Vice President Chairman and Chief Executive Officer ROY J. BOSTOCK GE GTE Corporation Chairman and Chief Executive Officer T.J. DERMOT DUNPHY A. V. LIVENTALS The MacManus Group Chairman and Chief Executive Officer Vice President, Strategic Planning BRUCE K. MACLAURY Sealed Air Corporation Mobil Corporation President Emeritus CHRISTOPHER D. EARL ALONZO L. MCDONALD The Brookings Institution Senior Vice President Chairman and Chief Executive Officer CLIFTON R. WHARTON, JR. Perseus Capital LLC Avenir Group, Inc. Former Chairman and Chief Executive W. D. EBERLE HENRY A. MCKINNELL Officer Chairman Executive Vice President TIAA-CREF Manchester Associates, Ltd. Pfizer Inc. WILLIAM S. EDGERLY JOSEPH NEUBAUER Chairman Chairman and Chief Executive Officer Foundation for Partnerships ARAMARK Corporation REX D. ADAMS WALTER Y. ELISHA JOHN D. ONG Dean Retired Chairman and Chief Executive Chairman Emeritus The Fuqua School of Business Officer The BF Goodrich Company Duke University Springs Industries, Inc. JAMES F. ORR III ALAN BELZER EDMUND B. FITZGERALD Chairman and Chief Executive Officer Retired President and Chief Managing Director UNUM Corporation Operating Officer Woodmont Associates STEFFEN E. PALKO AlliedSignal Inc. * HARRY L. FREEMAN Vice Chairman and President PETER A. BENOLIEL President Cross Timbers Oil Company Chairman, Executive Committee The Freeman Company VICTOR A. PELSON Quaker Chemical Corporation RAYMOND V. GILMARTIN Senior Advisor GORDON F. BRUNNER Chairman, President and Chief SBC Warburg Dillon Read Inc. Senior Vice President and Director Executive Officer PETER G. PETERSON The Procter & Gamble Company Merck & Co., Inc. Chairman FLETCHER L. BYROM BARBARA B. GROGAN The Blackstone Group President and Chief Executive Officer President * NED REGAN MICASU Corporation Western Industrial Contractors The Jerome Levy Economics Institute DONALD R. CALDWELL PATRICK W. GROSS JAMES Q. RIORDAN Chief Executive Officer Founder and Chairman, Executive Stuart, Florida North Atlantic Technology Fund Committee American Management Systems, Inc. MICHAEL I. ROTH ROBERT B. CATELL Chairman and Chief Executive Officer Chairman and Chief Executive Officer RICHARD W. HANSELMAN The MONY Group Inc. KeySpan Energy Corporation Retired Chairman Genesco Inc. GEORGE RUPP JOHN B. CAVE President Principal RODERICK M. HILLS Columbia University Avenir Group, Inc. Chairman Hills Enterprises, Ltd. HENRY B. SCHACHT CAROLYN CHIN Director and Senior Advisor Chief Executive Officer MATINA S. HORNER Lucent Technologies Inc. The Chin Company Executive Vice President TIAA-CREF ROCCO C. SICILIANO A. W. CLAUSEN Beverly Hills, California Retired Chairman and Chief GEORGE B. JAMES Executive Officer Retired Senior Vice President and Chief MATTHEW J. STOVER BankAmerica Corporation Financial Officer Group President, Bell Atlantic Levi Strauss & Co. Directory Group JOHN L. CLENDENIN Bell Atlantic Corporation Retired Chairman JOSEPH E. KASPUTYS BellSouth Corporation Chairman, President and Chief ARNOLD R. WEBER Executive Officer Chancellor GEORGE H. CONRADES Northwestern University Partner Primark Corporation Polaris Venture Partners MARTIN B. ZIMMERMAN Vice President, Governmental Affairs Ford 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
Co-Chairmen EDWARD A. KANGAS THOMAS J. KLUTZNICK Ex-Officio Members Global Chairman and Chief Executive President FRANK P. DOYLE Deloitte Touche Tohmatsu Thomas J. Klutznick Company Retired Executive Vice President GEORGE RUPP VICTOR A. PELSON GE President Senior Advisor CHARLES E.M. KOLB Columbia University SBC Warburg Dillon Read Inc. President PETER G. PETERSON Committee for Economic Development Chairman JOSH S. WESTON ALAN BELZER The Blackstone Group Retired President and Chief Honorary Chairman Operating Officer * NED REGAN Automatic Data Processing, Inc. AlliedSignal Inc. The Jerome Levy Economics Institute Special Guests JOHN BRADEMAS E.B. ROBINSON, JR. President Emeritus Chairman and Chief Executive Officer KATHY STANWICK New York University Deposit Guaranty National Bank Kohlberg & Co. JOHN B. CAVE DANIEL ROSE MARK SCHMITT Principal Vice Chairman Director of Governance and Public Policy Avenir Group, Inc. Rose Associates, Inc. The Open Society Institute W. D. EBERLE HOWARD M. ROSENKRANTZ Chairman Chief Executive Officer Manchester Associates, Ltd. Grey Flannel Auctions PATRICIA O’DONNELL EWERS JOHN C. SAWHILL PROJECT President President and Chief Executive Officer Pace University The Nature Conservancy DIRECTOR EDMUND B. FITZGERALD ROCCO C. SICILIANO Beverly Hills, California ANTHONY CORRADO Managing Director Associate Professor of Government Woodmont Associates ALAN G. SPOON Colby College ROSEMARIE GRECO President Greco Ventures The Washington Post Company * WILLIAM F. HECHT STEPHEN STAMAS Chairman, President and Chief Chairman ADVISORS The American Assembly Executive Officer MICHAEL S. BERMAN PP&L Resources, Inc. PAULA STERN President ROBERT J. HURST President The Duberstein Group, Inc. The Stern Group, Inc. Vice Chairman KENNETH GROSS Goldman, Sachs & Co. JAMES A. THOMSON Skadden, Arps, Slate, Meagher & Flom EAMON M. KELLY President and Chief Executive Officer RAND TREVOR POTTER Retired President Wiley, Rein & Fielding Tulane University
*Voted to approve the policy statement but submitted memoranda of comment, reservation, or dissent. See page 43.
vi Purpose of This Statement
Effective political campaigns have always been fueled by money as well as ideas. But in ACKNOWLEDGMENTS recent years, the cost of running for Congress or This policy statement was developed by an the Presidency has soared to record heights. For outstanding group of business, academic, and many candidates, raising money is no longer political leaders (see page vi). We are very grate- one important issue; it is the only issue. ful for the time, effort, and care that each put For incumbents and challengers, the system into the development of this report. We also has evolved (or devolved) into an eternal quest wish to cite CED’s previous policy statement for campaign funds. Good people with limited Financing a Better Election System (1968). It tack- resources are discouraged from seeking office. led many of the same concerns addressed in Broad popular participation in campaigns has this statement, including the need for greater been muscled aside by deep-pocket organiza- transparency and increasing voter participa- tions and individuals. Vast sums of unregu- tion in the political process. lated “soft” money have poured into political Special thanks go to subcommittee co-chair- parties and issue-oriented advertising. Most men Edward A. Kangas, Global Chairman and important, disparities in campaign resources Chief Executive of Deloitte Touche Tohmatsu, have reduced electoral competition. Over half and Columbia University President George the House races in 1998 were so one-sided as to Rupp for their leadership and intelligence. not be truly competitive. We are also indebted to nationally-known In this policy statement, the Trustees of CED campaign finance expert Professor Anthony make a strong case for sweeping reforms that Corrado of Colby College, who served as project will restore trust and balance to the campaign director, and to Van Doorn Ooms, CED’s finance system, while protecting the first amend- Senior Vice President and Director of Research, ment rights of candidates and contributors. We for his important contributions. call for a broad package of changes in federal We gratefully acknowledge The Pew Chari- election financing rules that we believe will im- table Trusts for its generous support for this prove competition, increase citizen participa- project and for CED’s ongoing work in this tion, and staunch the flow of unregulated area. money. Campaign finance reform does not rank high on most Americans’ lists of national problems. Josh S. Weston, Chairman We think it should. We urge the American CED Research and Policy Committee people — especially our colleagues in business Honorary Chairman — to take a more active role in supporting Automatic Data Processing, Inc. changes that will restore public confidence in the electoral process and encourage more Americans to actively participate in federal elec- tions.
vii I. Introduction and Executive Summary
The American public believes that our cam- of trust in government, notwithstanding some paign finance system is broken. The vast major- improvement in recent years.7 ity of citizens feel that money threatens the CED is deeply concerned about these nega- basic fairness and integrity of our political sys- tive public attitudes toward government and tem.1 Two out of three Americans think that the role of money in the political process. These money has an “excessive influence” on elec- attitudes highlight the importance the public tions and government policy.2 Substantial ma- places on campaign funding in forming its opin- jorities in poll after poll agree that “Congress is ions of government. They also indicate the largely owned by the special interest groups,” detrimental effects of the changes that have or that special interests have “too much influ- taken place in the political finance system since ence over elected officials.”3 Fully two-thirds of the adoption of the 1974 Federal Election Cam- the public think that “their own representative paign Act (FECA), which was passed in the in Congress would listen to the views of outsid- wake of the Watergate scandal to resolve the ers who made large political contributions be- problems of our campaign finance system. fore a constituent’s views.”4 As business leaders, we are also concerned These findings, typical of the results of pub- about the effects of the campaign finance sys- lic opinion surveys conducted in recent years, tem on the economy and business. Americans indicate a deep cynicism regarding the role of identify “special interests” principally with cor- money in politics. Many citizens have lost faith porations. A vibrant economy and well func- in the political process and doubt their ability tioning business system will not remain viable as individuals to make a difference in our in an environment of real or perceived corrup- nation’s political life. Americans see rising cam- tion, which will corrode confidence in govern- paign expenditures, highly publicized scandals ment and business. If public policy decisions and allegations regarding fundraising practices, are made—or appear to be made—on the and a dramatic growth in unregulated money basis of political contributions, not only will flowing into elections. It is therefore not sur- policy be suspect, but its uncertain and arbi- prising that voter cynicism and disillusionment trary character will make business planning have increased along with campaign spending. less effective and the economy less productive. One symptom of the public’s growing alien- In addition, the pressures on businesses to con- ation is our declining level of voter turnout, tribute to campaigns because their competi- which dropped to 36 percent in 1998, the low- tors do so will increase. We wish to compete in est turnout in a midterm election since 1942.5 the marketplace, not in the political arena. In 1996, only 49 percent of voters went to the Free and fair elections are an essential com- polls, a 70-year low for a presidential election.6 ponent of democratic government—and they Another symptom is the distressingly low level cannot be conducted without money. Candi-
1 Investing in the People’s Business dates must have a reasonable opportunity to obtain the resources needed to wage effective FINDINGS campaigns. Well-funded campaigns strengthen We have identified four fundamental prob- electoral competition and can increase the in- lems in the current system that challenge basic formation available to voters, which in turn principles of democratic government: can invigorate citizen participation in elections and government. A well-designed campaign fi- (1) Money and fundraising have become nance system would encourage citizens to ful- too important and demanding in our political fill their public responsibility by participating life. Rising campaign costs and the pressures actively in the process as candidates, donors, on candidates to outspend their opponents and voters. have driven the campaign expenditures of the Our present system often does not provide average House candidate over $500,000, while these benefits. Instead, the insatiable demand the average Senate contender spends nearly 8 for election money raises concerns about the $3.8 million. Candidates must spend enormous quality of political representation and the in- time and energy soliciting contributions, which tegrity of the political process. As campaign detracts from the quality of representation they expenditures increase and larger sums are spent provide their constituents and the amount of to win elective office, money becomes a barrier time they have available to discuss their views to entry into the political arena and provides with them. undue advantage to those with access to large (2) The high cost of campaigns and the amounts of it. Because our system of private burdens of fundraising have reduced competi- congressional campaign funding is based on tion and the pool of qualified candidates in the voluntary participation of individual citi- federal elections. The financial demands of a zens and organized groups, questions also arise typical federal race are pricing potential candi- about the interests that accompany campaign dates out of the competition and discouraging contributions. The solicitation and donation some well qualified candidates from seeking of private contributions can promote healthy office. Personal wealth is becoming a more interactions between politicians and their sup- important requirement for effective candidacy. porters. This process can inform government Those who do decide to run against incum- decision making and improve the responsive- bents very often find it difficult to raise the ness of the political system to constituents’ in- sums needed to wage a viable campaign and, in terests. But it can also lead to improper rela- almost every case, are outspent by substantial tionships between donors and policymakers or margins. Challengers, especially in House races, produce perceptions of influence that fuel pub- are increasingly underfunded, and the num- lic disaffection. ber of competitive races has declined. When We therefore believe we must reconsider competition is weak, voter choice is limited. the laws and regulations governing our system Too many contests for our nation’s highest of political finance. We have conducted a dis- offices fail to generate public participation or passionate review of our current system and inspire citizens to vote. the major patterns of financial activity in re- cent elections. We have analyzed the many criti- (3) The role of the small donor has de- cisms advanced against the current system and clined. Incumbents and challengers alike have identified the major issues and objectives that sought to meet the financial demands of cam- we believe should serve as guidelines in the paigns by concentrating on large gifts from design of regulation. This report presents our their most generous supporters. In 1998, 61 analysis and conclusions and sets forth our percent of the money received by congressional recommendations for reform. candidates from individual donors was raised
2 Introduction and Executive Summary in contributions of $500 or more—a much these ads are not subject to FECA. These un- higher proportion than the 38 percent only 14 limited funding devices give a relatively small years earlier. Incumbents have also emphasized group of donors great influence in the elec- political action committee (PAC) contributions, toral process. They facilitate relationships be- since these committees, especially those spon- tween monied interests and candidates that sored by corporate and trade associations, are increase the possibility of corruption and un- primarily concerned with gaining access to dermine the accountability and transparency legislators and rely on their contributions to that safeguard against it. And they threaten to obtain this access. The growth of PACs has led place candidates and their campaign issues in many voters to conclude that these committees the shadow of intervening interest groups, and other organized interests have so much whose unregulated expenditures drive their political influence that small contributions by own political agendas. individuals have little effect. Their disaffection has reduced participation in elections and weak- ened public faith in the legitimacy of election THE COMPLEXITY OF REFORM results. These four problems are not easily solved. (4) Unregulated funds raised and spent in Regulating political behavior is always difficult, federal elections have increased dramatically. but especially so when financing innovations We are especially troubled by the growth of are changing the landscape. No one or two changes will achieve the diverse, and some- party “soft money” financing and candidate- times competing, objectives of a well-function- specific “issue” advertising. Instead of encour- ing system. We need a comprehensive reform aging financial activity within the rules of FECA, program that honestly acknowledges compet- the current system encourages financial activi- ing values and provides the necessary trade- ties beyond the law’s authority. Parties and offs between them. organized groups, including committees spon- Successful reform must balance the need sored by corporations and labor unions, have for regulation with the protection of First strong incentives to solicit and spend money in Amendment liberties. It must permit the fund- unregulated ways and to engage in transac- ing needed for full and robust political debate tions hidden from public disclosure. and competition while limiting the undue in- In the 1996 election cycle, national party fluence of money. Reform must also pay due committees raised and spent over $250 million regard to the effects of specific changes on in “soft money” exempt from federal contribu- political parties and particular types of candi- tion limits. In 1998 they raised $201 million, a dates or sources of funding. record for a midterm election; the Republi- We have considered a full range of reform cans raised 112 percent more than in 1994, proposals, from deregulation and simple dis- and the Democrats 89 percent. The parties closure to the leading proposals for public fi- used this money for such activities as party- nancing. We have carefully weighed the poten- building, candidate-specific issue ads, and voter tial effects and consequences of each. Our registration and turnout drives. Much of this deliberations have led us to recommend the money was raised through contributions of following program of major changes. When $100,000 or more from individuals, PACs, cor- taken as a whole, we believe this program can porations, and labor unions, often with the provide the balance needed to strengthen our overt assistance of federal officeholders. In ad- democracy.* ** dition, millions of dollars were spent on candi- date-specific issue ads by organized groups that *See memorandum by HARRY L. FREEMAN (page 43). did not report their financial activity, since **See memorandum by NED REGAN (page 43).
3 Investing in the People’s Business
SUMMARY OF RECOMMENDATIONS
The four sets of recommendations that are dates, PACs, and party committees. We pro- summarized below are described in more de- pose that Congress establish two separate ag- tail in Chapter IV of this report. gregate limits for individuals. The first would Recommendation #1: limit the total amount contributed by an indi- vidual to federal candidates and PACs to ELIMINATE SOFT MONEY $25,000 annually. The second, separate ceiling As a general principle, funds used to pro- would limit the total amount contributed by an mote political candidacies should be subject to individual to national party committees to the requirements and restrictions of federal $25,000 annually. This change will allow par- campaign finance law. Soft money is the most ties to raise more regulated money from indi- egregious example of campaign financing that viduals than is permissible under current fed- violates this principle. No reform is more urgently eral law. needed than a ban on national party “soft money” financing. Some business leaders have already Recommendation #2: moved in this direction by refusing to make IMPROVE CANDIDATE ACCESS soft money contributions. We urge other mem- TO RESOURCES bers of the business community, labor unions, Candidates should have the opportunity to and individual citizens to follow this lead and raise the money they need to communicate voluntarily work to reduce the supply of soft effectively with voters and mount competitive money funds. campaigns without having to spend an inordi- CED also recommends that Congress pro- nate amount of time and resources on hibit national party committees and federal fundraising. We therefore recommend that officeholders and candidates from raising or Congress raise the limit on individual contribu- spending soft money. As a complementary mea- tions to federal candidates from $1,000 to sure, we urge state legislatures to pass any leg- $3,000 per candidate per election and thereaf- islation needed to ensure that state party com- ter adjust this limit for inflation. This increase mittees cannot finance their activities from will restore the purchasing power of a maxi- unlimited or undisclosed sources of funding. mum individual contribution that has been This change will reduce the role of large indi- lost since FECA was adopted 25 years ago. How- vidual contributors in the political process and ever, an individual’s total contributions to fed- prohibit parties from raising contributions from eral candidates and PACs should remain sub- corporations or labor unions. ject to the annual limit of $25,000 noted above.* Party committees play a valuable role in the Only a small proportion of donors are able or political process. They are important sources willing to contribute at the maximum level, of funding for challengers and for efforts to and this limit will help reduce the political improve voter participation. We realize that influence of these wealthy donors. eliminating soft money will significantly reduce We believe it is essential to enhance the role the resources available to party organizations. of small individual contributors in campaigns To partially compensate for this loss, we rec- and to reduce the amount of time candidates ommend a change in the rules limiting indi- have to spend raising money. Therefore, we vidual contributions to federal candidates and strongly recommend that Congress establish a political committees. Under current law, indi- voluntary program of public funding for con- viduals are limited to an annual total of $25,000 gressional candidates. This program would pro- for all contributions made to federal candi- vide eligible House and Senate candidates with
*See memorandum by WILLIAM F. HECHT, (page 44).
4 Introduction and Executive Summary two dollars in public money for every dollar that candidates who agree to restrict spending received from an individual donor, up to a are not materially disadvantaged if they face maximum of $400 for each individual contri- opponents who do not comply with the limits bution of $200. or if they are opposed by “independent” ex- Candidates who choose to participate in penditures by the opposing party or outside this program would be required to abide by groups. spending limits, as described below. Each par- We recognize that spending limits will not ticipating candidate would also be required to necessarily increase electoral competition, es- limit any personal contribution to his or her pecially if candidates are unable to raise funds own campaign to $25,000. This reform will commensurate with those available to their op- give candidates a strong incentive to solicit ponents. We therefore recommend that party small individual contributions and small con- committees be allowed to supplement a tributors an incentive to make them. It will candidate’s resources and finance the differ- significantly reduce the emphasis on fundrais- ence between the amount he or she raises and ing in federal campaigns because, with this the relevant spending limit. Spending limits amount of matching funds, candidates will have would be adjusted for candidates facing oppo- an option of receiving a majority of their cam- nents who have not agreed to limits.† paign money from small contributions and the The benefits of these recommendations can matching public funds. Indeed, total individual be realized only if these spending limits and contributions plus the matching funds would other requirements are effectively monitored be sufficient to fully finance congressional cam- and enforced. We are concerned that the Fed- paign spending at current levels. Finally, this eral Election Commission (FEC), the agency change will increase competition in federal responsible for overseeing the law, is under- elections by substantially increasing the re- funded and understaffed. It currently lacks the sources available to challengers. resources needed to administer a program of congressional campaigns with public financing Recommendation #3: and expenditure limits. We therefore urge Con- REDUCE THE FUNDRAISING “ARMS gress to review the staffing, structure, and cur- RACE” WITH CONGRESSIONAL rent funding of the FEC and provide it with the SPENDING LIMITS resources and authority needed to ensure accu- Improving candidates’ access to resources rate and timely monitoring and compliance with will not reduce the demand for campaign funds the law. or the amount of time candidates spend rais- Recommendation #4: ing money if the additional funds simply feed a REFORM ISSUE ADVOCACY funding “arms race.” It is therefore essential that Congress also enact a system of spending Greater regulation of candidate-specific limits on House and Senate candidates who issue advertising is needed to ensure a mean- accept public funding, as we now do in presi- ingful regulatory system. The current legal stan- dential elections. These limits should be gener- dard used to define “express advocacy” (the ous enough to induce candidates to accept pub- type of speech subject to regulation under fed- lic financing, but stringent enough to reduce the growth of campaign spending. Accordingly, †This recommendation would allow party committees, in most instances, to provide greater assistance to federal candidates we call for limits (detailed on page 38) higher than that allowed under current law. We recognize that coordi- than those proposed in recent reform bills pre- nated spending limits are presently being reviewed by the courts. sented to the Congress. The application of In general, we support the principle of expanded party financ- ing of elections, since it is a means of encouraging more fully such limits must be flexible enough to ensure funded and competitive elections.
5 Investing in the People’s Business eral campaign finance law) is too narrow. We TABLE 1 prefer a broader standard that will make it harder to by-pass our federal election laws. We Comparison of Major Features of CED urge Congress to adopt a standard that sets Reform Proposal with Current System forth clear criteria for identifying public com- CURRENT SYSTEM munications that constitute express advocacy, SUBJECT to require that such communications be wholly SOFT MONEY • Allows soft money; allows financed from funds raised under federal con- national party committees to tribution limits, and to require that the sources raise and spend unlimited of funding and amounts spent on such commu- amounts of money received nications be publicly disclosed. We suggest that from individuals, labor unions, corporations, and other donors. express advocacy include communications that: (1) refer to, or feature the image or likeness • Allows federal elected of, a clearly identified federal candidate; (2) officials and candidates to raise soft money for national occur within 30 days of a primary election and party committees. are targeted at the state in which the primary is occurring, or within 60 days of a general elec- INDIVIDUAL • Limits individual contributions tion; and (3) would be understood by a reason- CONTRIBUTIONS to federal candidates to $1,000 able person to be encouraging others to sup- per candidate per election. port or oppose that candidate. • Limits the annual aggregate If such a broader standard for determining amount contributed by an individ- express advocacy is not upheld by the courts, ual to federal candidates, PACs, we believe that, at a minimum, prompt public and party committees to $25,000. disclosure of the financial activity associated PUBLIC • No provision for public funding with these communications should be required. FUNDING in congressional elections. We recommend requirements for full public disclosure of the sources of funding and amounts spent on such communication. Such disclosure will ensure that the public can know EXPENDITURE • No expenditure limits for who is attempting to influence its voting deci- LIMITS congressional candidates. sions and will thus promote informed decision- making in the electoral process. Table 1 compares the major features of PARTY • Allows party committees to spend CED’s proposed reforms with the current EXPENDITURES a limited amount in coordination system: with federal candidates.
ISSUE • Communications that do not ADVOCACY expressly advocate the election or defeat of a federal candidate are not subject to the provisions of federal campaign finance law. There are no public disclosure requirements or restrictions on their sources of funding. • “Express advocacy” is defined narrowly, requiring the use of specific words in the text of a message indicating such advocacy.
6 Introduction and Executive Summary
CED RECOMMENDATIONS
• Eliminate soft money by prohibiting national party committees from soliciting, receiving, spending, directing or transferring 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 not subject to federal contribution limits. • Prohibit federal elected officials and candidates from sponsoring PACs that receive money not subject to federal contribution limits. • Encourage state legislatures to adopt legislation or regulations to ensure that state party committees cannot finance their activities with unlimited or undisclosed funds.
• Limit individual contributions to federal candidates to $3,000 per candidate per election, with adjustment for inflation. • 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 would receive $2 in public funding for every $1 raised from an individual contributor, up to a maximum of $400 for an individual contribution of $200. To be eligible, candidates must agree to limit personal contributions to their own campaigns and agree to spending limits.
• Require congressional candidates who accept public funding to abide by spending limits. The ceilings would be set at $500,000 per election in House races (with $200,000 for a runoff election) and a base of $1 million plus 50 cents times 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 broadcast or distributed within a certain time period prior to an election and meet specific criteria. Communications that meet these criteria would be considered express advocacy and be subject to full public disclosure and limits on their sources of funding. • Should the courts not accept a broader definition of express advocacy, would require full public disclosure of the amounts spent and sources of funding for issue advocacy communications broadcast or distributed within a certain time period prior to an election.
7 II. Financing Federal Elections
Money is essential to political campaigns. It patterns of recent elections. We conclude that is the means by which candidates acquire the significant increases in the amounts spent on goods, services, and skills needed to share their campaigns and changes in the sources of fund- views with the electorate and mobilize public ing have created a need to make resources support. Without adequate funding, a candi- more easily available to candidates, especially date has little chance of becoming known to those challenging established incumbents. the electorate and waging a viable campaign. Money therefore plays a key role in determin- ing the choices available to voters and the com- CAMPAIGN SPENDING petitiveness of elections. One of the central questions in the cam- In recent decades, the role of money in paign finance debate is whether too much election campaigns has become more promi- money is being spent on political campaigns. nent—and more controversial. The costs of Many observers contend that election spend- seeking office have grown, as candidates have ing is too high and must be reduced. We thus engaged in increasingly sophisticated methods begin by reviewing the amounts spent in re- of campaigning and turned more to broadcast cent elections and the major factors that have advertising as their principal means of commu- contributed to the rising expenditures. nicating with voters. These rising costs require During the 1996 election cycle, candidates, candidates to spend increasing amounts of their political committees, and other organizations time and resources fundraising. and individuals spent over $4 billion on politi- CED believes that the increasing financial cal campaigns.9 This spending covered not only requirements of recent elections and the grow- the races for the White House and seats in ing emphasis on fundraising raise serious ques- Congress, but also contests for state and local tions about the health of our campaign finance offices, efforts by political parties and other system. Our main concern is that an increas- organizations to register and turn out voters, ingly burdensome system may be reducing elec- costs incurred by party organizations at all lev- toral competition and discouraging qualified els of government, and the spending of nu- candidates from seeking office. We are also merous political committees sponsored by in- concerned that current financial practices may terest groups and other associations. provide some candidates with an unfair com- This $4 billion was almost 25 percent larger petitive advantage and some donors with un- than the amount spent in 1992. The 1996 elec- due political influence. tion thus continued a long rise in campaign In this chapter we explain these concerns spending, which has increased more than by analyzing the growth of campaign spend- twelve-fold in three decades, about three times ing, the sources of funding, and the financial the rate of general inflation.10 This growth in
8 Financing Federal Elections campaign spending has been led by the in- Most state and local candidates do not make creasing sums spent on campaigns for federal extensive use of paid broadcast advertising, but office.11 television is important in most campaigns for In 1998, this rise in campaign expenditures federal office. abated slightly—unfortunately, for reasons that As might be expected, television advertising increase rather than diminish our concern. By has had the greatest effect on spending in presi- year end, Congressional candidates reportedly dential races, where candidates must commu- spent $644 million, slightly less than during nicate with a national electorate. In 1996, for the comparable period in 1995–1996. While example, President Bill Clinton and Senator spending in Senate races appears to have risen Robert Dole allocated 52 and 46 percent of somewhat, to $249 million, that by House can- their respective campaign funds to media ad- didates declined from over $400 million in vertising.13 In the general election campaign, 1996 to $395 million. This drop in House both candidates spent over 60 percent of their spending, however, reflects declining political campaign funds in this manner.14 competition, which we address below. There Broadcast advertising represents a smaller were fewer open seat races, which tend to be share of the budget in congressional campaigns more competitive and expensive, and more but is still the major expense in most of these uncompetitive challengers and correspond- races, especially in the Senate. Major-party Sen- ingly safe incumbents. ate and House candidates in 1992 spent 42 and No single factor explains the growth in cam- 27 percent of their respective funds on elec- paign expenditures. Changes in the size of tronic media advertising, including payments electoral districts, innovations in campaign to media consultants, direct radio and televi- strategies, new technologies and polling tech- sion air time purchases, and advertising pro- niques, shifting levels of competition, and the duction costs. House candidates make less use diverse behavior and tactics of political groups of television and radio advertising because it is all contribute. However, much of the growth is not a cost-effective means of campaigning in the result of changes in the ways in which many districts, especially those in major metro- candidates communicate with voters. Candi- politan areas where media markets are much dates are making greater and greater use of larger than a single House district. These can- broadcast media and direct mail appeals to didates make greater use of more targeted com- share their views with ever larger electorates, munications, such as direct mail, and a signifi- and these broad-based types of communica- cant proportion spend no money at all on tion raise the costs of campaigning. broadcast advertising.15 The primary factor driving higher campaign Another major expense in most federal cam- spending has been the cost of television and paigns is the cost of raising funds. As expendi- other forms of paid broadcast advertising. The tures have risen, candidates have had to devote Television Bureau of Advertising estimates that larger sums to fundraising. The costs vary de- all primary and general election candidates pending on the office being sought, the finan- for federal, state, and local offices spent a total cial needs of a campaign, and the fundraising of $50.8 million on television advertising in methods. In general, fundraising expenses rep- 1976. By 1996, candidate spending on televi- resent 10-20 percent of the costs of campaigns, sion had reached $400 million—an inflation- with the average higher for incumbents (who adjusted increase of more than 200 percent raise more money) than for challengers.16 Ris- over the last five presidential election cycles.12 ing expenditures on other campaign staples However, these television advertising expendi- such as mailings and travel have also contrib- tures represent only about 10 percent of the uted to the growth in campaign spending. In total spent on all campaigns for elective office. addition, modern campaigns rely on an array
9 Investing in the People’s Business of consultants and sophisticated new technolo- eign nationals17 from making any contribu- gies, including polling, computerized direct tions to federal campaigns. If a business or mail, and teleconferencing services, all of which labor union wants to participate in the financ- have increased costs. ing of a candidate’s campaign, it must estab- We do not consider increased spending on lish a PAC and make donations only from rev- candidate communications per se to be a major enues raised through voluntary contributions cause for concern. Indeed, effective communi- received by the PAC. (The current contribu- cations are an essential component of a mean- tion limits on individuals, PACs, and political ingful campaign and are necessary to have an party organizations in federal elections are informed electorate. Thirty-second television shown in Table 2.) spots may not be the best means of presenting In recent elections, most of the money in voters with detailed information on a federal races has come from the voluntary con- candidate’s positions or public policy propos- tributions of individual citizens, who on aver- als, but these ads are the most accessible and age have provided about 50–60 percent of the cost-effective means available to candidates to monies received by candidates in House and communicate with large segments of the popu- Senate campaigns. PACs, the next largest lation. source, provided an average 34 percent of the Nevertheless, we are concerned about the funding in House races and approximately 18 burdens that rising expenditures place on in- percent in the Senate. Party committees have dividual candidates as they face the rising fi- provided about 5 and 9 percent of the money nancial requirements of communicating with in House and Senate races respectively, while increasingly large electorates. Increased cam- personal contributions by the candidates them- paign spending is not simply a consequence of selves have accounted for about 8 percent of new technology, changing campaign practices, financing in the House and 9 percent in the and higher costs of communication. Spending Senate. The sources of funding for House and is also driven by candidate behavior. Most can- Senate candidates in 1996 are shown in Figure didates fear being outspent by an opponent 1 (see page 12). and worry about not spending enough on a In presidential races, the pattern is very campaign. Since no politician can know with different, largely due to the option of public certainty how much spending is “enough,” or funding. In presidential primary elections, most which campaign activities are most effective in of the money raised by candidates comes from garnering support, candidates tend to spend individual donors and the public funds gener- as much money as they can raise. This attitude ated by small individual donations. On aver- contributes to an “arms race mentality” among age, more than 95 percent of the total funds candidates that, in turn, intensifies the pursuit received by recent presidential candidates has of campaign dollars. come from individuals and public funding, with individual donations providing about two- thirds of total receipts and public matching SOURCES OF FUNDING funds about one-third. Federal candidates are required by federal PACs play little role in the financing of law to finance their campaigns by soliciting presidential campaigns. Even candidates who contributions from limited, publicly-disclosed specifically target PAC donations as a source of sources. In addition, FECA sets limits on the funding rarely receive more than 5 percent of amounts individuals, PACs, and parties may their total funds from this source. Because donate to candidates and prohibits corpora- PAC contributions are not eligible for public tions, national banks, labor unions, and for- matching funds, candidates have less incentive
10 Financing Federal Elections
TABLE 2 Federal Contribution Limits
DONORS RECIPIENTS SPECIAL LIMITS
Candidate Political State or Local National (or candidate Action Political Party Political Party committee) Committee (party (party (multi-candidate committee) committee) PAC1)
INDIVIDUAL $1,000 $5,000 $5,000 $20,000 $25,000 (or partnership) per election2 per calendar year per calendar year3 per calendar per calendar year (combined limit year3 (combined limit on contributions on contributions to all state and to all candidates, local parties) PACs, and parties)
POLITICAL $5,000 $5,000 $5,000 $15,000 ACTION per election2 per calendar year per calendar year3 per calendar COMMITTEE (combined limit year3 (multi-candidate on contributions ______PAC1) to all state and local parties)
CORPORATIONS prohibited prohibited unlimited by federal law AND LABOR provided money used for non- ______UNIONS candidate-specific activities4 (see also footnote 3 below)
STATE OR $5,000 $5,000 unlimited “transfers” LOCAL per election per calendar year to other party committees POLITICAL (combined limit (combined limit ______PARTY on contributions on contributions (party committee) to all candidates) to all PACs)
NATIONAL $5,000 $5,000 unlimited “transfers” $17,500 POLITICAL per election2 per calendar year to other party committees to a U.S. Senate PARTY5 candidate per (party committee) campaign
1. Most business, labor, and ideological/issue PACs are “multi-candidate” committees under federal law, which means they have been 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 that individuals 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 which may 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).
11 Investing in the People’s Business to solicit these sources. In addition, most PACs Figure 1 choose to concentrate their resources on con- gressional campaigns, and some have a policy Sources of Congressional Campaign of not participating in presidential races.18 Funding, 1990–19961 However, public subsidies, financed through a checkoff on federal individual income tax SENATE forms, have been an important source of funds PAC Candidate Party Other in presidential campaigns. This system gives 18% 9% 9% 5% presidential aspirants a strong incentive to so- licit small individual contributions of $250 or less, since these are matched on a dollar-for- dollar basis with public funds. To qualify for the matching funds, a candidate need only raise $5,000 per state in 20 states in small con- tributions and agree to observe aggregate and state legal spending limits. Candidates who par- ticipate in the program must also limit any personal contributions to their own campaigns to $50,000. Almost all those who have sought a major party’s presidential nomination have accepted Individual public financing. The only exceptions have 59% been Republicans John Connally in 1980 and Malcolm “Steve” Forbes and Maurice Taylor in 1996; the two latter candidates financed their HOUSE campaigns largely from their personal wealth. The availability of public funding has encour- PAC Candidate aged many candidates, especially lesser-known 34% 8% challengers, to pursue financial strategies that Party 5% emphasize the solicitation of small gifts. This approach has allowed such candidates, includ- Other 5% ing such diverse challengers as Republicans Ronald Reagan and Patrick Buchanan and Democrats Jesse Jackson and Jerry Brown, to raise 40 percent or more of their total revenues from public funds. Under the law, no candi- date can receive more than half of the amount allowed by the spending limit in public mon- ies. In presidential general election contests, public funding has become the principal means Individual of financing a campaign. Major-party candi- 48% dates receive a full subsidy of the total amount of allowable spending. (The law also sets forth 1. Average of the four elections, 1990-1996. guidelines under which minor-party challeng- SOURCE: Ornstein, N., Mann, T., and Malbin, M., ers or the nominee of a new party may qualify Vital Statistics on Congress, 1997-1998 (Washington, D.C.: for a proportionate subsidy.) When the law was Congressional Quarterly, 1998).
12 Financing Federal Elections adopted in 1974, this spending ceiling was set times as much money as did their counterparts at $20 million, with adjustments for inflation; 20 years ago. The collision of these rising costs by 1996 it had increased to $61.8 million. To with fixed contribution limits has made the qualify for this subsidy, a candidate must abide fundraising problem particularly acute. by the spending limit and agree to raise and The pressure to raise money is especially spend no additional private monies except for strong for members of the House, most of costs incurred to comply with the law. whom begin to seek contributions as soon as Since the law’s adoption, every major-party they are sworn into office. Some legislators presidential candidate has accepted public fi- have reported spending hours every day seek- nancing in the general election. And, although ing contributions.19 The time candidates have H. Ross Perot financed his independent bid to devote to fundraising on average is not for the presidency in 1992 largely out of his known, but one former senator has estimated own personal wealth, as the Reform Party nomi- that at campaign time he and his staff spent up nee in 1996 he accepted the partial public to 80 percent of their time seeking contribu- subsidy for which he qualified by virtue of his tions.20 share of the vote in 1992. The overall pattern of the sources of cam- Reducing the Quality of Governance paign funding has not changed markedly over and the Pool of Qualified Candidates the past decade, as the relative shares of total This emphasis on fundraising undermines receipts from individuals, PACs, public subsi- the quality of our governance. We recognize dies, and other sources have remained fairly that fundraising can be a valuable part of a stable. The most noteworthy change in recent democratic political process. A candidate election cycles has been the increase in the should spend time seeking the support of indi- share of funds that has come from the candi- viduals and encouraging them to participate dates’ own pockets. This change is best ex- financially in a campaign. Indeed, an plained by exploring the general trends in po- individual’s willingness to make a contribution litical finance in more detail and in a broader is an important expression of political sup- context. port. But too many candidates now must spend too much time raising too much money. In- cumbents then spend less time serving con- TRENDS IN FINANCING AND stituents, working on policy matters, engaging THEIR EFFECTS ON THE in legislative debate, or performing other offi- POLITICAL SYSTEM cial duties. Similarly, candidates seeking office have less time available to meet with voters, Aspiring candidates now face the prospect gain an understanding of voters’ concerns, and of extremely costly campaigns. The average develop views on the policy questions they may cost of races during 1976–1998 rose from ap- have to address if elected. proximately $73,000 to over $500,000 for the The burden of fundraising also affects the House and from $596,000 to $3.8 million for choices available to voters, since it discourages the Senate. In 1976, no House campaign cost some individuals from continuing in office or more than $500,000; in 1998, 309 did so. Mil- from seeking office altogether. In recent years, lion-dollar House campaigns, which numbered a growing number of retiring senators and 22 as recently as 1988, nearly quintupled to representatives have cited the demands of 104 by 1998. In this last election, 15 of the fundraising as one of the factors in their deci- candidates seeking election to the Senate spent sion to leave office. They have noted that at least $5 million. In general, House and fundraising has become too arduous and de- Senate candidates now must raise six or seven meaning, has taken too much time and energy
13 Investing in the People’s Business away from the work they were elected to do, on legislators. The active involvement of small and has diminished the quality of their repre- donors also can diminish the relative influence sentation. of large donors and organized interest groups Such pronouncements by experienced leg- by stimulating broad public participation in islators highlight the difficulties that prospec- elections. This shift in relative influence would tive candidates face in deciding whether to promote public confidence in the political pro- seek office. Incumbent legislators, with an es- cess and encourage new donors to contribute. tablished capacity for raising money, have a The result would be a dynamic system of politi- relatively easy time compared with those who cal finance in which individuals see their own consider challenging them. For many poten- contributions, however small, as a meaningful tial challengers, the prospect of attracting hun- and important form of political expression. dreds of thousands, if not millions, of dollars Our present system has not developed in from thousands of contributors appears a daunt- this way. It has neither led candidates to em- ing and perhaps impossible task. phasize small contributions nor encouraged CED is therefore deeply concerned that the small contributors to make them. While more burdens of fundraising may be limiting the individuals contribute to federal candidates pool of qualified candidates for public office. than did so 20 years ago, there has been a clear While many factors determine a candidacy, in- trend towards larger individual gifts, especially cluding the national political environment, the in congressional campaigns. strength of a prospective opponent, and the This is hardly surprising. Candidates must potential for public disclosure of an individual’s raise money as efficiently as possible to cope private life, the ability to raise money is now a with the rising financial demands of their cam- central issue. Escalating campaign costs have paigns. Since public matching funds are not become a stronger barrier to entry for those available for small contributions to congres- without access to money or to a broad base of sional races, Senate and House candidates can donors, while personal wealth has become a raise meaningful sums most efficiently by tar- more important qualification for effective can- geting large donations. Building a broad base didacy. Even those with access to resources of small donors is more time consuming and may choose not to run rather than endure the expensive, since it requires the use of extensive process. A campaign finance system should en- solicitation methods such as direct mail and courage individuals to compete for our nation’s telemarketing. highest offices, not discourage them. It should In recent elections, congressional candidates increase, not diminish, potential candidacies. have increasingly relied on large individual con- Our current system does not do so. tributions. (See Figure 2). In 1984, Senate can- didates in all elections raised about 41 percent The Diminishing Role of the Small of their total individual contributions in dona- Contributor tions of $500 or more. By 1998, this figure had A central objective of FECA was to expand grown to 68 percent. The large-donor propor- public participation in the financing of elec- tion for House candidates rose from 34 to 56 tions by encouraging candidates to solicit mod- percent over the same period. est contributions from a broad base of donors. Large contributions have become impor- This goal acknowledged the beneficial value of tant for both incumbents and challengers. In small donors in a private system of campaign 1998, Senate incumbents raised almost 69 per- finance. Small contributions from many indi- cent of their individual contributions in vidual donors diminish the potential for cor- amounts of $500 or more and challengers 67 ruption, since such contributions do not pro- percent. In House races, large gifts made up 56 vide donors with excessive access to or influence percent of individual receipts for both incum-
14 Financing Federal Elections
Figure 2 tainly made contributions totaling more than $500 that are not reflected in the large-contri- Contributions of $500 or More as a butions data. Share of All Individual Contributions, 1984–1998* The Growing Influence and Concen- tration of Political Action Committees Percent A more prominent change in the campaign 80 finance system since the adoption of FECA has House been the emergence of PACs as a major source Senate of funding in congressional elections. In the 60 two decades after FECA was adopted, the num- ber of PACs grew from approximately 990 in 1976 to almost 4,600 in 1998. The greatest 40 growth has come in the number of corporate PACs, which rose from 433 in 1976 to almost 20 1,800 in 1998, and in the number of PACs organized by ideological groups, known as “non-connected” PACs, which increased from 0 1984 1988 1992 1994 1996 1998 about 100 to approximately 1,400. During the 1984 1988 1992 1994 1996 1998 same period, the number of trade association Year PACs rose from 489 to 900, while PACs orga- *Contributions to candidates in special, primary and general nized by labor unions grew from slightly more elections. than 200 to 348. SOURCE: FEC data. 1998 contributions data as available on While PACs are commonly cast in public February 15, 1999 in “cansum” files at
15 Investing in the People’s Business this funding, since PACs may give five times as TABLE 3 much as individuals to a federal campaign. Most PACs, however, give less than the maxi- PACs Classified by the Size of Their mum permissible contribution of $5,000 per Total Contributions, 1997–1998 election to the candidates they support. A substantial share of PAC funding is associ- Amount of a Total Percent PAC’s Total Percent Contribu- of All ated with corporations. In 1998, PACs related Contributions Number of All tions PAC to publicly and privately held corporations do- ($ thousands) of PACs PACs ($ millions) Spending nated $76 million to federal candidates com- None 1,620 35.2 0.0 0.0 pared with $61 million donated by trade asso- ciation PACs, $44 million by labor PACs, and Less than 5 927 20.2 1.9 0.9 $28 million by non-connected PACs.22 The 5-50 1,257 27.3 25.0 11.6 average total contributed by the many corpo- 50-100 330 7.2 23.5 10.9 rate PACs was $42,800, as compared with an 100-250 285 6.2 44.2 20.4 average of approximately $126,000 by labor 250-500 94 2.0 33.2 15.3 PACs and $20,000 by non-connected PACs. 500-1,000 51 1.1 35.7 16.5 These aggregate statistics, however, mask the great diversity in resources among PACs. More than 1,000 34 0.7 52.6 24.3 In 1998, 55 percent of the more than 4,500 Total 4,598 100 216.1 100 PACs active in the cycle made contributions Percentages may not total 100% due to rounding. totaling less than $5,000, with 35 percent mak- SOURCE: Based on data through November 23, 1998 reported ing no contributions at all. (See Table 3). In by the Federal Election Commission. fact, less than four percent of all PACs made total contributions of more than $250,000. This small group of 179 PACs was responsible for 56 ing to charges that PAC donations are a major percent of all federal PAC contributions in the factor in determining legislators’ votes and that 1998 cycle. This disproportionate role of a rela- PACs therefore exert undue influence in the tively small group of well-financed PACs is typi- political process. We have not found the direct cal of recent experience. influence of PACs on legislative voting to be as PACs are pragmatic participants in the po- significant as many claim. The charges of “vote litical process. Approximately 70 percent of buying” by PACs are not well supported. In- their contributions goes to incumbents, while deed, most studies that have examined the the remaining 30 percent is distributed among matter have found little relationship between open seat candidates and challengers.23 While PAC contributions and voting behavior, which PACs do not support only incumbents, and the is best explained by a legislator’s ideology, party PAC community is too diverse to be strictly affiliation, and constituency interests.25 categorized, their donations are a major source However, because a small proportion of of the resource advantage held by incumbents.24 PACs is responsible for most of the money In 1998, PACs gave incumbents in House races donated to federal candidates, this concentra- on average almost $8 for every $1 contributed tion of financial influence does provide privi- to challengers; in Senate contests the ratio was leged access that raises serious questions about over $5 to $1. Corporate and trade association the role of PACs in the political process. Even PACs especially favor incumbents, in large part if PAC contributions do not directly affect leg- because they seek access to legislators who will islators’ votes, they undoubtedly provide im- decide issues that may affect their interests. portant influence. Indeed, committee or floor The growth in PACs has been a cause for votes are but one indicator of the influence alarm among many advocates of reform, lead- PACs may exert. Access can influence legisla-
16 Financing Federal Elections tive decisions in a variety of ways that take place consideration is whether a challenger can raise well before any committee or floor votes are enough money to finance a viable campaign. taken. For example, a PAC may seek to ensure Money means more to a challenger than an that a particular bill never makes it onto a incumbent because a challenger is less well- subcommittee or committee agenda; it may be known. A challenger has a more pressing need asked for its view on a particular bill or be to generate awareness of his or her candidacy granted an opportunity to testify at a commit- among voters, to be seen as a viable candidate, tee hearing; or it may be allowed to help de- and to communicate positions effectively. velop detailed and obscure legislative provi- Nevertheless, it is troubling that the resource sions designed to benefit a specific industry, disparity between incumbents and challengers business, group, or cause. Such influence is has increased greatly in both absolute size and difficult to quantify, but it highlights our con- proportion in recent years. (Both are arguably cern about the rise in PAC contributions and important to the competitiveness of elections.) the disproportionate influence of the small In 1976, the average House challenger spent group of PACs that contribute most of the about $51,000, or 65 percent as much as the money. $79,000 spent by the average incumbent. By 1998, the discrepancy had grown to roughly Diminished Competition: $265,000 versus $657,000, or 40 percent. (See Underfunded Challengers Table 4, page 18.) In Senate races, the ratio of Election results demonstrate the powers of incumbent to challenger spending has not in- congressional incumbency. Challengers face creased significantly, since Senate challengers formidable obstacles and usually lose, espe- tend to be higher-profile candidates who often cially in the House. Money, of course, plays a have held elective office and have begun can- major role in these outcomes. Incumbents nor- didacies with more established financial sup- mally enjoy a very large advantage in campaign port. However, the absolute advantage of Sen- fundraising and are therefore capable, in most ate incumbents also has widened. In 1976, instances, of outspending their opponents by Senate incumbents spent on average $172,000 substantial margins. more than challengers; by 1998, the gap had However, money isn’t everything. Even grown to $1.6 million. highly competitive challengers characteristically In this context, recent financing trends, es- spend significantly less than their incumbent pecially in House elections, reveal an alarming opponents. House challengers who earned at problem—challengers who simply are not fi- least 40 percent of the two-party vote in 1998 nancially competitive. The majority of House spent an average of $639,000 on their cam- challengers now raise and spend so little that paigns, as compared with almost $1 million for they cannot wage a viable campaign. In 1998, the incumbents they opposed. Of the nine chal- just under half of the House challengers raised lengers who beat House and Senate incum- $100,000, and only about one-third raised bents in 1998, seven spent less than their oppo- $200,000. As a result, most House elections nents. This is consistent with long historical were financially uncompetitive. Average spend- experience. A survey of the 1,540 House races ing by Democratic challengers was $270,000, from 1976 to 1990 in which an incumbent compared with $718,000 by their incumbent faced a major party challenger in successive opponents; Republican challengers on aver- elections concluded that, while money is essen- age spent $260,000, while their opponents spent tial, challengers do not as a rule have to spend $588,000. In fact, 60 percent of House incum- as much as incumbents to win.26 bents either had no significant opposition or Thus, while incumbent spending clearly af- outspent their opponents by a margin of 10- fects election outcomes, the most important to-1 or more.27 Figure 3 (page 19) shows the
17 Investing in the People’s Business relationship between campaign spending by of the two-party vote. Second, challengers with individual challengers and their share of the very little funding benefit greatly from addi- two-party vote in the 1998 House elections. tional resources, on average, but such gains The relationship between spending and votes diminish sharply as they pass a threshold in the is not tight, of course, because of the many range of $200,000. Finally, to move well into other factors that affect elections. Neverthe- the competitive range of 40 percent or more of less, several points are clear from the graph. the two-party vote, challengers typically need First, a very large proportion of the challengers roughly $300,000 or more in resources.28 spent less than $200,000 and were simply The Growing Reliance on uncompetitive, receiving less than 40 percent Personal Wealth In its Buckley v. Valeo decision in 1976, the TABLE 4 Supreme Court ruled that candidates who are Congressional Candidates: not receiving public subsidies may contribute Average Expenditures, 1976–1998 as much money as they desire to their own campaigns. In recent elections, an increasing HOUSE number of affluent candidates have taken ad- Thousands of Dollars vantage of this option to meet the fundraising All Open Challenger/ requirements facing their campaigns. Year Candidates Incumbents Challengers Seats Incumbent (percent) As indicated by Figure 4, page 20, the 1976 73 79 51 125 65 amounts contributed by congressional candi- 1980 153 165 122 202 74 dates to their own general election campaigns have increased significantly, especially in the 1984 241 279 162 362 58 more costly Senate contests. Self-financing in 1988 273 379 120 465 32 Senate contests has risen from 5 percent in 1992 408 595 167 436 28 1988 to 11 percent in 1998, and the total 1996 517 679 287 654 42 amount contributed has roughly tripled from 29 1998 512 657 265 777 40 about $10 million to $28 million. In House races the share of self-funding has been more stable, but the amount contributed neverthe- SENATE less has more than doubled over the same de- Millions of Dollars cade, from $12.5 million to nearly $26 million. All Open Challenger/ This growth is not due simply to larger amounts Year Candidates Incumbents Challengers Seats Incumbent (percent) spent by a few individuals. Many more candi- 1976 0.6 0.6 0.5 0.8 72 dates are now helping to finance their own 1980 1.1 1.3 0.8 1.1 65 campaigns. In all primary and general election campaigns in 1998, 18 Senate candidates and 1984 2.3 2.5 1.2 5.0 49 69 House candidates put $100,000 or more of 1988 2.8 3.7 1.8 2.9 49 their own money into their campaigns, either 1992 2.9 3.9 1.8 2.9 47 through direct contributions or loans. 1996 3.6 4.2 3.1 3.3 74 Almost all self-contributions are made by 1998 3.8 4.7 3.1 2.7 66 challengers or individuals contesting open seats. In campaigns from 1988 to 1998, only 1.6 per- SOURCE: Norman J. Ornstein, et al., Vital Statistics on Congress, 1984-1985 (Washington, D.C.: American Enterprise Institue, cent of the funds raised by congressional in- 1984), pp. 65-66, 69-70, and Vital Statistics on Congress, 1997- cumbents has come from their own funds—2.6 1998 (Washington, D.C.: Congressional Quarterly, 1998), percent in the Senate and 1 percent in the pp 81-83, 84-85. 1998 data are preliminary FEC data. House. In 1998, only one Senate and two House
18 Financing Federal Elections
Figure 3 Campaign Spending and Election Results: Major Party House Challengers, 1998*
Challenger’s Vote (percent of two-party vote) 60 Average Relationship of Challenger’s Vote and Spending
50
40
30
20
10
0 0 200 400 600 800 1,000 1,200 1,400 1,600 Campaign Spending by Challenger (thousands of dollars)
*Includes all major party challengers with reported expenditures in 1998 House races. SOURCE: FEC 1998 election data as available on February 15, 1999 at
19 Investing in the People’s Business constraint is the amount of personal resources out wealthy candidates to run against better- the candidate is willing to commit. known, better-financed incumbents. This trend This financial advantage, of course, does further discourages less-affluent individuals not always translate into victory at the polls. Of from becoming candidates, since they would the 87 Senate and House candidates who con- now face two major financial hurdles—a pri- tributed $100,000 or more to their election mary opponent with a substantial financial ad- campaigns in 1998, only 11 were successful— vantage and a well-financed incumbent. Indeed, providing further evidence that money alone the prospect of challengers with large personal does not win elections. resources may also discourage some incum- We believe that, while individuals should bents from seeking reelection. be free to use their own resources in cam- paigns, the growing role of personal wealth Supporting Challengers: raises serious issues with respect to the future The Role of Political Parties health of our federal electoral process. It di- The other major source of campaign money minishes the role of individual citizens and that primarily benefits challengers is party discourages broader public participation in money. In allocating their campaign resources, campaign funding, since individual donors are party organizations have one overriding goal: less likely to consider a contribution meaning- to maximize the number of seats their party ful when a candidate assumes primary financ- holds in Congress. While it might be assumed ing responsibility. The increasing reliance on that party leaders would favor incumbents in self-financing also makes personal wealth a distributing their resources, the reality is just more important qualification for seeking pub- the opposite. Instead, party committees focus lic office. National party leaders naturally seek on candidates in close contests or marginal
Figure 4 Self-Financing of Congressional Candidates, 1988–1998
SENATE HOUSE
Millions of Dollars Percent of Candidate Funding Millions of Dollars Percent of Candidate Funding 60 25 60 25 Amount of Candidate ▼ 50 Self-Financing 50 20 20 Amount of 40 40 Candidate Percent Self-Financing 15 15 of Total Percent Candidate 30 30 of Total Funding Candidate ▼ 10 Funding 10 ▼ 20 20 ▼
5 5 10 10
0 0 0 1988 1990 1992 1994 1996 1998 1988 1990 1992 1994 1996 1998 0
SOURCE: Based on data reported by the FEC.
20 Financing Federal Elections districts where party assistance might make a mittee could not even cover the costs of a letter difference in the outcome. They also concen- mailed to each registered party supporter. trate on challengers who can wage competitive Despite these constraints, parties place great campaigns against an entrenched incumbent emphasis on assisting their candidates, espe- of the opposite party. cially those in the most competitive contests. Like other sources of campaign funding, Since 1990, the Democratic and Republican party committees are limited in the amount of parties have each spent at least $20 million to direct assistance they may provide to their can- $30 million per election cycle on coordinated didates. But the law acknowledges the unique expenditures. This represents a substantial in- relationship between parties and their candi- crease from the levels of the early 1980s, when dates by allowing party committees also to spend the Democrats typically spent $3-5 million and money in coordination with their candidates. This the Republicans $10-15 million. By contrast, “coordinated spending” is also subject to FECA the major parties spend only 1 to 2 percent of limits; the general ceiling is set at 2 cents times their federal funds on direct contributions to the voting-age population, adjusted for infla- candidates, or an average recently of $2-3.5 tion. In 1996, national party committees were million per election.32 allowed to spend $12.3 million on behalf of a Most of the coordinated expenditures by presidential candidate; the 1998 congressional both parties are made on behalf of non-incum- limits were $32,550 for House candidates bents. In 1996, the Democrats gave non-in- ($65,100 in a single-district state) and from cumbents 85 percent of their total coordinated $65,100 in the smallest states to $1.5 million in expenditures in Senate races and 80 percent in California for Senate candidates. House races, with much of the largest share While the Supreme Court in Buckley struck going to open-seat candidates. Almost all of down most other limits on spending in federal the remaining money spent on behalf of in- elections, these party limits were not specifi- cumbents went to those in jeopardy of losing cally challenged in that landmark case and their seats. The Republicans’ coordinated have remained in effect. However, these re- spending also favored non-incumbents, al- strictions are now being challenged in the case though more was spent defending incumbents of Colorado Republican Federal Campaign Commit- because of the unusually large number of in- tee v. Federal Election Commission.31In June 1996, cumbents involved in close races. (Most of the the Supreme Court ruled in this case that party large freshman class in the House won in 1994 committees may make unlimited independent with 55 percent of the vote or less.) Even so, expenditures in connection with federal elec- the Senate and House Republican committees tions, but it did not render an opinion on the each disbursed close to two-thirds of their co- constitutionality of the limits on coordinated ex- ordinated funds to assist non-incumbents. penditures. This constitutional challenge was These 1996 allocations are similar to the pat- remanded to the District Court, which struck terns that characterized previous cycles.33 down such limits in February, 1999. At this Because party committees direct their coor- time it is uncertain whether this decision will dinated expenditures to help the maximum be appealed by the FEC. number of candidates win election, party fund- However, the limits on coordinated spend- ing helps to make elections more competitive. ing have significantly constrained the direct It enhances the ability of non-incumbents to assistance parties can provide to candidates. increase their name recognition and make their The ceilings are so low that a party committee views known to the electorate. In this way, par- cannot legally pay the postage costs to send ties improve the choices available to the elec- one letter to each eligible voter in a district or torate and enhance the competitiveness of the state. In fact, they are so low that a party com- electoral process.
21 III. Recent Innovations in Political Finance: Soft Money and Issue Advocacy
Efforts to regulate the flow of campaign access they can provide to federal officials, or money often produce unintended and unfore- on the more direct influence of federal office- seen consequences. Candidates and their staffs, holders and candidates, to solicit the large sums as well as party committees and interest groups, from corporations, labor unions, and other have responded to regulation with imaginative donors that provide most of their soft money. innovations, producing new financial practices They then distribute a share of these monies to unanticipated by lawmakers. The law has also state party committees, who usually spend these been interpreted by the courts and administra- funds in accordance with national party direc- tive agencies in unexpected ways, producing tives. Soft money fundraising is therefore pri- new directives that also have encouraged new marily a “top-down” system, with the national financial strategies. Both these developments party organizations playing the central role. have dramatically increased the flow of money Because these funds are not supposed to be in federal elections and significantly under- used for activities related to federal elections, mined the effectiveness of our federal cam- they are not subject to the contribution and paign finance laws. expenditure limits imposed on parties by FECA. National party committees may thus raise and spend unlimited amounts of soft money. They SOFT MONEY may also solicit unlimited soft money contribu- tions from sources that are banned from mak- Faced with rising campaign costs and an ing contributions in federal elections, espe- increased demand for money, yet constrained cially corporations and labor unions. by contribution limits and, in some cases, spending limits, politicians and organized The Origins of Soft Money groups have sought additional ways outside Soft money was not recognized as a form of the scope of FECA to finance political activity. party finance under the original provisions of Party committees, in particular, have pursued FECA. In fact, FECA contained only one nar- new methods of assisting candidates. row exception to the party contribution limits. The most controversial of these activities Parties could receive contributions in unlim- has been the development of “non-federal” ited amounts from unlimited sources for “build- funding, or “soft money” — funds raised by ing funds” established to pay for new buildings national party committees to finance party- or headquarters structures. Outside of this building activities and other expenditures. “bricks and mortar” provision, all monies re- These committees rely in large part on the ceived by parties were subject to federal limits.
22 Recent Innovations in Political Finance
By 1980, the year of the second presidential rules on party fundraising: the monies spent election conducted under FECA, these tough on these activities had to come from “hard prohibitions on party receipts and expendi- money” donations subject to federal contribu- tures had begun to erode, and the door had tion limits. Congress also specified that none been opened to unregulated party financial of these unlimited expenditures could pay for activity. This occurred as a result of problems mass public communications, such as direct experienced in the 1976 election and adminis- mail or television advertising. trative decisions of the Federal Election Com- At the same time that Congress was making mission (FEC) that altered the kinds of money these changes in the law, party officials were parties could raise.34 asking the FEC to decide another set of issues In the 1976 election, party leaders quickly related to general party activities. The parties recognized that the activities they traditionally argued that their organizations were involved financed in conjunction with national elections not only in federal but also in non-federal elec- were significantly hindered by the new system tion activity, such as supporting candidates in of public financing and spending limits for state-level races and building party support at presidential campaigns. Under the new law, the state and local level. Furthermore, many expenditures by a party to help the presiden- generic party activities, such as voter registra- tial ticket might be considered in-kind contri- tion and turnout drives, are conducted to help butions to the candidate or election-related both federal and non-federal candidates. The expenditures that were no longer allowed. Par- parties therefore contended that the finance ties therefore looked to the presidential cam- rules should recognize the non-federal role of paigns to fund much of the paraphernalia used party organizations and allow parties to par- in traditional volunteer activities, such as signs, tially finance their political activity with monies bumper stickers, and buttons, as well as voter subject only to state laws. registration and turnout activities. But the presi- The FEC responded to these questions with dential campaigns, now faced with limited funds a series of rulings that recognized the non- and wanting to maximize the resources avail- federal role of state and national party organi- able for television advertising, did not allocate zations. These rulings allowed parties to finance substantial amounts to these other activities a share of their activities with money raised that parties considered important. As a result, under state law if they maintained separate party leaders appealed to Congress after the accounts for federal and non-federal funds. election to change the law so that they could Subsequent rules established complex alloca- finance volunteer and party-building activities tion formulas that determined the shares of without risking a violation of the law. particular expenditures that had to be allo- Congress responded to these concerns and cated to federal and non-federal accounts. in 1979 amended FECA to exempt very spe- Thus was born the distinction between cific, narrowly defined party activities from the “hard” and “soft” money. Hard (federal) money definitions of “expenditure” and “contribution” is subject to federal contribution limits and is contained in the Act. Thus, parties were al- the only type of funding that can be used to lowed to spend unlimited amounts on grass- support federal candidates directly. All contri- roots, party-building activities and generic party butions to federal candidates, coordinated ex- activities such as voter registration and turnout penditures, or independent expenditures made drives. They were also permitted to spend un- in federal contests must use hard money. Soft limited amounts on such traditional campaign (non-federal) money is exempt from federal materials as bumper stickers, buttons, and slate limits and can be used to finance general party cards. But the Congress did not change the activities, including such activities as voter reg-
23 Investing in the People’s Business istration drives, even though these activities Figure 5 may indirectly influence federal elections, for example, by encouraging more party members Political Party Spending, 1976–1996 to vote. The FEC’s decisions essentially freed par- Millions of Dollars ties to engage in unlimited fundraising as long 1000 as they abided by the technical requirements 900 of the law. They could now raise (and spend) Federal (Hard Money) monies obtained from sources that were banned 800 Non-Federal (Soft Money) from participating in federal elections or from 700 Total individuals and PACs that had already donated 600 the legal maximum. These changes in the rules thus gave parties a strong incentive to raise soft 500 money. 400
The Growth of Soft Money 300
Parties quickly adapted to the new regula- 200 tory environment. At first, soft money was pri- marily raised in presidential election years for 100 use on voter registration and turnout opera- 0 tions. But the parties soon expanded the role 1976 1980 1984 1988 1992 1996 of soft money by expanding the range of activi- Year ties that could be paid for with these funds. SOURCE: Data for 1976 through 1988 based on Herbert E. They also began to raise soft money more ag- Alexander, “Financing the 1976 Election” (Washington, D.C.: gressively, soliciting ever larger sums. Congressional Quarterly, 1979), p.190, and Anthony Corrado, Since 1980, soft money has grown rapidly. “Paying for Presidents” (New York: Twentieth Century Fund, In 1980, the Republican and Democratic na- 1993), p. 67. Other data based on reports filed with the Federal Election Commission. 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 in mittees $124 million. In contrast, hard money 1984. By 1988, however, the amount of soft increased much more slowly. Democratic hard money had more than doubled to $45 million, money increased by 59 percent over 1992, and shared about equally between the two major Republican funds by 71 percent. parties. By 1992, soft money had almost doubled Similarly, soft money fundraising in 1998 again to $80 million, with the Republicans was up dramatically over the previous off-year spending $47 million to the Democrats’ $33 election cycle of 1994. As of 20 days after the million.35 election, the national party committees had Yet the soft money raised in those elections raised $201 million in soft money, close to pales in comparison to that raised in 1996 and twice the $107 million they had raised in the 1998. In the Presidential election cycle of 1996 entire 1994 election cycle. The Republicans the two major parties raised $262 million in had raised $111.3 million, compared with $52.5 soft money, more than three times the amount million in 1994, an increase of 112 percent; the garnered only four years earlier. (See Figure Democrats had raised $89.4 million, 82 per- 5.) The Republican committees solicited more cent more than the $49.1 million four years than $138 million and the Democratic com- earlier.36
24 Recent Innovations in Political Finance
The share of total party funds represented lion of the $102.2 million in soft money re- by soft money has also increased substantially. ceived by national party committees during In 1992, for example, soft money constituted the 1994 election cycle. In 1998, these organi- 26 percent of the receipts of all three Demo- zations had donated more than $105 million cratic national party committees. By 1998 the of the more than $200 million received through soft-money share had risen to 37 percent. For October. The vast majority of this money came the three Republican national party commit- from corporations rather than trade associa- tees, the proportion rose from 20 percent to 29 tions or other incorporated organizations. percent during the same six years. These figures do not, of course, include indi- vidual contributions made by members of the The Sources of Soft Money business community. Soft money has grown rapidly because both A substantial share of this money came from parties have been increasingly successful in so- large contributions. In 1998 at least 218 corpo- liciting large soft money gifts. Since at least rations donated more than $100,000, compared 1988, both parties have had organized pro- with 96 that gave this amount in 1994. Sixteen grams to recruit large donors. In 1992, for corporations gave $500,000 or more, whereas 39 example, the DNC and RNC raised a total of only four gave at this level four years earlier. $63 million in soft money, about 30 percent of Further evidence of the role of business which came from contributors of $100,000 or contributions in the growth of soft money is more.37 The parties have also been successful found in a 1997 analysis conducted by the Los in soliciting major contributions from corpora- Angeles Times, which found that soft money tions and, primarily in the Democratic Party, donations made by the 544 largest public and labor unions. The parties have thus succeeded private U.S. companies had more than tripled in gaining access to contributions from sources between 1992 and 1996, growing from $16 and in amounts that were prohibited by the million to $51 million. In comparison, the con- campaign finance reforms of the 1970s. tributions made by PACs maintained by these According to an analysis by the FEC, the companies rose only from $43 million to $52 40 parties have raised an increasingly large num- million. ber of contributions in this manner. During The largest soft money donors tend to be the 1992 election cycle, the national party com- companies or industries that are heavily regu- mittees’ soft money accounts accepted at least lated by the federal government or those whose 381 individual contributions in excess of profits can be dramatically affected by govern- $20,000 (the annual federal party contribution ment policy. For example, according to the limit) and about 11,000 contributions from Center for Responsive Politics’ analysis of 1996 41 sources that are prohibited from giving in fed- donors: eral elections, particularly corporations and la- Tobacco companies and their executives, bor unions. By the 1996 election cycle, these who have faced concerted federal efforts to figures had more than doubled. The national strengthen the regulations governing to- party committees received nearly 1,000 indi- bacco sales and advertising, as well as the vidual contributions of more than $20,000 and possibility of congressional action to settle approximately 27,000 contributions from ongoing lawsuits, gave a total of $6.83 mil- sources prohibited from giving hard money.38 lion in 1996, with $5.77 million donated to The business community is by far the most the Republicans and $1.06 million to the important source of soft money, as shown in Democrats. This group was led by Philip Table 5 (page 26). According to one indepen- Morris, which donated the most soft money dent analysis, businesses provided $55.9 mil- of all contributors in 1996, giving a total of
25 Investing in the People’s Business
about $3 million, $2.52 million of which went $552,000 to Republicans and $422,000 to to the Republicans. RJR Nabisco gave a total Democrats, for a total of $974,000; one of its of $1.44 million, with $1.18 million going to major competitors, MCI Telecommunica- the Republicans. tions, gave $964,000, with almost two-thirds Telecommunications companies, in the of that amount, $607,000 going to the Demo- midst of deregulation and interested in an crats. NYNEX, one of the regional telephone array of proposals that will affect the indus- companies gave $651,000, $411,000 of which try, contributed $6.28 million in soft money, went to the Republicans. almost equally divided between Democrats The oil and gas industry, which is affected ($3.2 million) and Republicans ($3.1 mil- by a wide range of federal laws and environ- lion). The leader in this group was the com- mental regulations, gave $9.13 million in munications giant AT&T, which gave about soft money, $6.59 million of which went to
TABLE 5 Sources of Soft Money Contributions: 1994 and 1998 Elections
TYPE OF DONOR 1993-1994 1997-1998
Amount Percent of Amount Percent of Donated Itemized Donated Itemized ($ millions) Receipts ($ millions) Receipts
Business: Total 55.9 58.7 105.7 60.0
Corporations (50.1) (52.6) (92.2) (52.3)
Individual Incorporated Entities (1.0) (1.0) (1.1) (0.6)
Trade Associations (4.9) (5.1) (12.4) (7.0)
Individuals 20.4 21.4 42.9 24.3
Labor Organizations 4.7 4.9 7.8 4.4
Other Organizations and Groups 2.9 3.1 1.6 0.9
Political Candidate Committees 0.5 0.5 0.6 0.3
Political Parties 10.8 11.3 17.6 10.0
Total Itemized Contributions 95.3 100 176.2 100
Unitemized Contributions 6.9 44.3
Total Contributions 102.2 220.5
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 transfers between committees.
26 Recent Innovations in Political Finance
the Republicans, $2.54 million to the Demo- and fueled public cynicism about the influ- crats. Atlantic Richfield and its executives, ence enjoyed by wealthy contributors. Further the leading donor in this group, gave a total examination of the Democratic Party’s public of $1.25 million, with $764,000 sent to Re- disclosure reports revealed that the Democratic publican committees and $486,000 to Demo- National Committee had deposited at least cratic committees. $3 million in illegal or questionable contribu- tions into their soft money accounts. These examples, which are not atypical, The Democratic Party’s 1996 fundraising demonstrate how ineffective the party contri- activities, however, are only one example of bution limits established by FECA have become the consequences of unrestricted party in practice. Instead of relying solely on contri- fundraising. In recent years, both major par- butions limited in amount from individuals ties have offered soft money donors access to and PACs, parties now raise funds in amounts elected leaders in exchange for contributions. subject to no limits, receiving a substantial share White House officials and congressional lead- of their funding from donors who give hun- ers have been asked to appear at party soft dreds of thousands of dollars in each election money fund-raisers, participate in party-spon- cycle. sored policy briefings, attend weekend retreats The Effects of Soft Money on the with donors, and play a role in other small group meetings. Elected officials have even Political System been recruited by the party committees to so- The rise of soft money has greatly increased licit soft money donations from potential con- the flow of money in national elections and has tributors, especially from their own financial turned party fundraising into a frenetic and supporters and others with whom they have never ending chase for large contributions. As relationships. the range of party activities financed with soft Federal officeholders have thus assisted their money has increased, party organizations have parties in raising funds for issue advocacy ad- engaged in more aggressive and directed ef- vertising, voter registration, election day turn- forts to raise soft dollars. The parties therefore out drives, and other activities that directly have sought ever larger amounts from soft benefit their own campaigns for office. They money donors and have pursued new sources have also participated in fundraising efforts of soft money contributions, especially among directed at donors whose interests are directly members of the business community. influenced by federal policy decisions. Such One of the primary ways parties obtain very activities place undue pressure on potential large contributions is by providing donors with donors. Businesses, in particular, are induced access to federal elected officials. The most to contribute to keep up with their competi- highly publicized and controversial example of tors or ensure their own access to lawmakers. the access and privilege afforded soft money Given the size and source of most soft money donors is the use of the White House during contributions, the public cannot help but be- the 1996 election cycle as a venue for dinners lieve that these donors enjoy special influence and other events with President Clinton. While and receive special favors. The suspicion of money was not raised at these events, they were corruption deepens public cynicism and di- clearly designed to reward past soft money do- minishes public confidence in government. nors and stimulate future contributions. Pub- More important, these activities raise the likeli- lished reports of these sessions sparked a con- hood of actual corruption. Indeed, we believe troversy that raised serious questions as to it is only a matter of time before another major whether access to the White House was for sale scandal develops within the soft money system.
27 Investing in the People’s Business
restrictions of FECA. In recent years, the First, ISSUE ADVOCACY Second, and Fourth Circuit Courts of Appeals Throughout the 1980s and early 1990s, soft have all adopted this approach.43 money was considered to be the major “loop- The FEC has argued for a broader standard hole” that had to be closed in order to ensure that recognizes the context of a message. In its an effective system of regulation. In 1996, it view, a message or advertisement should be was joined by another innovation in political considered express advocacy, and therefore be finance known as “issue advocacy advertising.” subject to federal regulation, if it presents an Issue advocacy is the general term used to “electioneering message” that is clearly in- cover three distinct types of speech: advocacy tended to encourage the audience to support of policy positions, information about issues, or oppose a particular candidate for federal and, most critically, specific information about office. This is the general approach that has candidates’ voting records, conduct, and policy been adopted in the Ninth Circuit Court of views. It is to be distinguished from “express Appeals. In Furgatch v. FEC, the Ninth Circuit advocacy,” which is speech that directly advo- Court ruled that speech without the “magic cates the election or defeat of a particular can- words” could amount to express advocacy if, didate. In Buckley, the Supreme Court distin- when “read as a whole, and with limited refer- guished between information about issues and ence to external events,” a message is suscep- candidates and the advocacy of election or de- tible to no other reasonable interpretation than feat of candidates, noting that the latter is the as “an exhortation to vote for or against a spe- particular focus of federal campaign finance cific candidate.”44 The FEC has adopted a simi- regulation.42 It decided that Congress has the lar approach in drafting regulations intended power to regulate only political spending that to govern issue advocacy expenditures. But “expressly advocates the election or defeat of a these regulations have been successfully chal- particular federal candidate.” The court fur- lenged in the First Circuit, where the Court ther noted that express advocacy can be identi- affirmed a District Court ruling that the guide- fied by the use of certain words in any speech lines were unconstitutional on their face be- or communication, such as “vote for,” “elect,” cause they moved beyond the “magic words” “defeat,” or “support.” test established in earlier cases.45 Since Buckley, courts have had to confront the question of how best to limit the scope of The Rise of Issue Advocacy Spending campaign finance regulation in order to pro- The judicial decisions distinguishing express tect free speech. In resolving this issue, the advocacy from issue advocacy have provided courts have sought a “bright-line” standard to individuals, organizations, and party commit- distinguish express advocacy from issue advo- tees with an easy way to circumvent federal cacy, so that advocates can know what is al- campaign finance restraints. By crafting adver- lowed and potential First Amendment prob- tisements to avoid the “magic words,” parties lems can be avoided. Most courts have and other organizations can engage in com- embraced a narrow test that provides the great- munications that are not subject to the provi- est possible protection to free speech—the sions of FECA, even when those communica- “magic words” test that was suggested by the tions are designed to influence the voting in Supreme Court in Buckley. According to these federal elections. The sponsors of such ads can rulings, as long as a message or advertisement therefore finance these communications with does not contain the specific words listed in funds drawn from any source without any limit. Buckley as indicative of express advocacy, it is They need disclose neither their spending nor not express advocacy and is not subject to the the sources of their funding.
28 Recent Innovations in Political Finance
During the 1996 election cycle, a wide array paign. The Republicans spent at least $20 mil- of party organizations and other groups seized lion, including about $9 million in soft money, on the issue advocacy distinction and spent on ads designed to help Senator Dole’s presi- tens of millions of dollars on advertisements dential bid in the months leading up to the carefully designed to avoid the restrictions of Republican national convention and another federal law. Most of these ads featured specific $8 million in the general election on ads de- federal candidates. Issue advocacy advertising signed to defend their congressional candi- thus became the new strategy for election dates. In addition, the Democratic Congres- spending, especially for organizations not al- sional Campaign Committee spent an estimated lowed to make direct contributions in federal $8.4 million on issue ads and the Democratic campaigns. Senatorial Campaign Committee spent $10 Party committees were the biggest issue ad- million. Similarly, the Republican senatorial vocacy spenders because they could then fi- and congressional committees spent at least nance advertising that directly benefited their $20 million on ads aired in markets covering candidates with soft money. Each of the major key congressional races and five states.46 parties spent tens of millions of dollars on ads Party organizations were not the only groups designed to support its presidential candidate. to engage in issue advertising in 1996. Issue ads Both parties also sponsored issue ads that were broadcast in markets across the nation sought to influence the voting in marginal con- and aired in every key congressional race in gressional races. the country. At least two dozen organizations The parties were not required to count any sponsored issue ads in 1996. These organiza- of the funds used for issue advocacy against tions included labor unions, a coalition of busi- federal contribution or spending limits. They ness groups, non-profit and tax-exempt orga- were, however, required to disclose these ex- nizations, and an array of organized interest penditures, since all national party committee groups. Almost all the commercials broadcast financial activity must be reported to the FEC. by these organizations featured specific federal But, in most instances, the national party com- candidates, and most were aired in the final six mittees largely avoided even this requirement. weeks of the general election campaign. Instead of directly paying for the ads, the na- The total amount spent on issue ads during tional committees transferred large sums to the 1996 election is not known. Because such state party committees, which purchased the spending is not subject to disclosure, there is broadcast time. The national party organiza- no public record of these expenditures. What tions had to disclose only the amounts trans- is known is based on self-reporting by the orga- ferred to state committees. This tactic allowed nizations or groups involved, and many of the the parties to spend a greater share of soft advertisers chose not to reveal the extent of money on issue ads, since they were legally their spending or the sources of their funding. state rather than national party expenditures. However, those sums that were reported It also shifted the responsibility for disclosing suggest that many tens of millions of dollars specific expenditures to state committees, which were involved. The most prominent effort was made it extremely difficult to trace the money. conducted by the AFL-CIO, which announced Most estimates suggest that the party orga- its intention early in 1996 to spend $35 million nizations spent at least $100 million on issue on activities designed to influence congres- advertising in 1996. The Democrats spent at sional elections, including an estimated $22 least $34 million in soft money during the presi- million for issue ads. All this advertising was dential primary season on issue ads designed directed at congressional districts held by first- to benefit President Clinton’s reelection cam- term Republicans or those with open seats.
29 Investing in the People’s Business
Other examples include the advertising done ment regulation should only be permitted in by The Coalition, a business group led by the this area when a compelling interest is at stake. U.S. Chamber of Commerce ($5 million); the But we believe that the health of our politi- Sierra Club ($4 million); and Citizens for the cal system is such an interest. The courts, in Republic Education Fund, a tax-exempt foun- their efforts to protect First Amendment liber- dation ($4 million). Millions more are esti- ties, have adopted an approach that precludes mated to have been spent by other such groups, necessary and effective restraints on campaign quite apart from the millions of dollars spent finance. The current guidelines for distinguish- by the Christian Coalition and National Right ing between express advocacy and issue advo- to Life Committee on voter education infor- cacy are so narrowly construed that it is now mation and pamphlets.47 possible to conduct unrestricted financial ac- Most observers believe that even more was tivity that is, for all intents and purposes, spent in 1998 on issue advocacy advertising in campaign spending. connection with the congressional elections Our greatest concern here is that issue ad- than in 1996, although no accurate estimate of vocacy spending is not even subject to full and the amount spent to influence outcomes is effective public disclosure. We believe the pub- available due to lack of disclosure. According lic has a right to know who is attempting to to a study by the Annenberg Public Policy Cen- influence its vote. Currently, organized groups ter, 836 issue ads were broadcast in 30 states and political committees other than party com- during the final 60 days before the election, of mittees are not required to disclose their ex- which an estimated 70 percent were sponsored penditures or sources of funding. At best, mem- by the major parties. The study estimated that bers of the public only know that they have 77 different organizations engaged in the prac- seen an advertisement sponsored by, for in- tice during the 1998 cycle.48 While not all of stance, Citizens for Reform, Citizens for a Sound these ads were designed to influence the elec- Economy, Coalition for Change, or Women tion results, the widespread use of this tactic for Tax Reform—all of which engaged in issue and lack of information about its funding are a advocacy spending in connection with the 1996 cause for concern. election, and none of which is a publicly regis- tered political committee whose sources of Issue Advocacy and Campaign funding are known to the public. Such limited Finance Reform information does not provide the knowledge Issue advocacy spending as practiced in the needed by voters to make informed decisions 1996 and 1998 elections highlights the tension or by officials to effectively carry out the ad- between the government’s authority to regu- ministration of campaign finance laws. late campaign finance and the protection of We are also troubled that issue advocacy political speech. This issue is not easily resolved. spending raises the demand for campaign fund- The freedom of political speech is a core ing and therefore for soft money. The primary value of our democracy. Robust political de- reason that national party committees sought bate is the essence of a system of free and fair soft money contributions so aggressively in 1996 elections. An informed electorate requires dis- and 1998 is that they needed these funds to cussion of issues and information on policy finance their issue advertising. The emphasis questions and candidates. We therefore agree on issue advertising thus created an almost with the courts that the government’s regula- insatiable demand for funds—whatever tory authority should be narrowly limited when amounts the party could raise could be imme- it involves First Amendment rights. Govern- diately spent on issue ads. This strategy in-
30 Recent Innovations in Political Finance creased the value of soft money and encour- aged the parties to expand their efforts to raise it. Candidates also face greater pressure to raise funds as a result of issue advocacy. Those seek- ing office, especially those in marginal contests or open seats, must now be prepared to wage a campaign that competes not only with an op- ponent but also with outside groups and party committees. Candidates must be prepared to respond to questions and accusations promoted by hundreds of thousands of dollars of issue advertising. This not only compels candidates to spend more time and resources raising money, but may cause them to lose effective control of their campaigns.
31 IV. Recommendations for Reform
Reform of the campaign finance system is process equitably. In particular, it should en- long overdue. For at least a decade, it has been sure that corporate entities and labor unions clear to most observers of American politics are treated in a comparable manner. that the regulatory system established by Con- (3) Reforms should not impose unrealistic gress in the 1970s is failing to achieve its ends. constraints on campaign funding that will place CED shares this view. an undue burden on those who seek to comply In this chapter we present our recommen- with the law. Such burdens will only encourage dations for reform. These recommendations circumvention of the rules. reflect our view that no one or two changes will (4) Reforms must uphold the liberties pro- achieve the diverse, and sometimes compet- tected by the First Amendment. Reforms should ing, objectives of a well-functioning system. We not impose a burden on political speech unless need a comprehensive reform program that there is a compelling interest to do so, in accor- honestly acknowledges competing values and dance with court rulings. Rather, reforms provides the necessary trade-offs between them. should be designed to promote citizen partici- Our proposals are therefore designed to be pation in the political process as well as robust taken as a whole. They present a major alterna- political debate. tive to the current regulatory approach, one that we believe will significantly improve our campaign finance system. In framing these proposals, our thinking BASIC PRINCIPLES FOR REFORM has been guided by several practical consider- Our recommendations are also informed ations that we believe should govern any ef- by our belief in certain basic principles that forts to legislate in this area: should govern a system of campaign finance (1) A program of reform should be rela- regulation. The five principles listed below re- tively simple and easy to understand. Candi- flect the objectives we regard as most impor- dates and voters must be able to understand tant, which should form the basis for evaluat- the rules, and administrators must be able to ing regulatory reform proposals. implement the law efficiently and effectively. (1) Regulation should protect free speech and pro- (2) The campaign finance rules should not mote an informed citizenry. provide an unfair advantage to any particular The First Amendment and the principles it party or specific candidates. A feasible and ef- embodies guarantee freedom of speech and fective regulatory system must ensure fair elec- expression and thus protect the cornerstone of tions and be capable of obtaining bipartisan our political system: full and robust political support. It must also treat participants in the debate. The courts have acknowledged the link
32 Recommendations for Reform between political finance and the First Amend- (4) Regulation should encourage public participa- ment in ruling that the financing of political tion in the political system. expression is a protected form of political The strength of a democracy depends upon speech under the First Amendment. Campaign the political participation of its citizens. Citi- finance laws must recognize these constitutional zens should be encouraged not only to vote considerations and uphold the principles of but to participate in the process in other ways. free speech. It is especially important to pro- Campaign finance rules should not discourage tect and promote the political speech that takes citizens from seeking elective office, associat- place in election campaigns, the purpose of ing with others, volunteering their skills and which is to provide American citizens with the time, or participating in the financing of cam- knowledge needed to make informed decisions paigns. Such participation enhances the legiti- on Election Day. macy of the representative process and thereby (2) Regulation should protect the political system strengthens popular support for the political from corruption or the appearance of corruption. system. The regulations governing campaign fi- (5) Regulation should promote electoral competition. nance should promote public confidence in The essence of democracy lies in competi- the political process and ensure that the integ- tive elections that offer voters a choice of can- rity of the electoral system is maintained. It is didates. Competition stimulates public interest therefore essential that the system guard against in election campaigns, induces greater num- corruption or the appearance of corruption in bers of citizens to learn about the candidates, the financing of political campaigns. A system gives more meaning to elections, and encour- of political finance that fulfills this objective ages people to vote. It is an essential element helps to ensure that elected officials are re- in promoting the vitality and quality of politi- sponsive to broad public interests and the de- cal life. The regulation of campaign funding sires of their constituencies. should therefore promote competitive elections by ensuring that candidates have an opportu- (3) Regulation should ensure public accountability. nity to obtain the resources needed to share A goal of the campaign finance system their views with voters. should be full transparency of the funding of campaigns for public office, supported by the Recommendation #1: public’s right to know. Elections allow citizens ELIMINATE SOFT MONEY to hold candidates and elected officials account- We believe that, as a general principle, funds able for their views and actions. If the major used to promote political candidacies should participants in political campaigns are to be be subject to the requirements and restrictions held accountable, the public must have full of federal law on campaign finance. Soft money and timely information about their campaigns, is the most egregious example of campaign including information about how they are fi- financing that violates this principle. No reform nanced. Any system of campaign finance must is more urgently needed than the elimination of soft therefore ensure full public disclosure of the money. sources of campaign funding, the activities un- Some business leaders have already taken dertaken with it, and the amounts raised and action to help remedy this problem by refusing spent. Disclosure not only provides the elector- to participate in the soft money system. Most ate with the information it needs but also helps businesses in America do not give unregulated curtail excesses and promote full public scru- soft money funds to the political parties. Oth- tiny of financial transactions. ers, including such industry leaders as General
33 Investing in the People’s Business
Motors, AlliedSignal, and Monsanto, have re- or staffs. In addition, federal officeholders or cently declared that they will no longer make candidates should be prohibited from raising such contributions. They have been joined by or spending soft money through personal PACs dozens of corporate executives, who recognize or so-called “leadership PACs.” (An exemp- the dangers to our system of government cre- tion, however, would be made for federal of- ated by this type of fundraising.49 CED sup- ficeholders running for state or local office ports these voluntary efforts to reduce soft who are raising monies allowable under the money and lauds the leadership shown by these relevant state law—e.g., a U.S. senator running members of the business community. We urge as a candidate in a gubernatorial election.) other business leaders, labor unions, and indi- In short, national party committees, includ- vidual citizens to follow this lead and voluntar- ing the national congressional campaign com- ily work to reduce the supply of soft money mittees, and federal politicians would not be funds. allowed to raise and spend monies from unre- There are ample opportunities for mem- stricted sources in unlimited amounts. We be- bers of the business community to express their lieve that this reform will greatly reduce the support for candidates or party organizations, unregulated party money that is now flowing either as individuals or through PACs. We en- through the system. courage participation in the process in these This reform also would significantly sim- ways. But there is no need for members of the plify the rules governing party finance. Na- business community, labor unions, or others to tional party committees would be allowed to supplement these opportunities with soft money raise only hard money. National party commit- contributions. Participation in the soft money tees would no longer be able to raise or use practices of the national party committees fu- corporate or labor union treasury funds or els the demand for soft dollars and spurs the unlimited gifts from individuals and PACs. arms race mentality that now characterizes party Their revenues would have to come from lim- fundraising at the national level. ited voluntary contributions from individuals, Voluntary efforts alone, however, will not PACs, or other federally registered political solve the soft money problem. Potential do- committees, such as candidate campaign com- nors will still face pressure from elected offi- mittees. There would no longer be a need for cials and national party leaders to make soft separate types of bank accounts or complex money contributions. We therefore believe that allocation rules for the financing of different a legislative remedy is needed to end soft types of party activity. money. Specifically, we recommend that Con- Taking national party committees, federal gress prohibit national party committees, their officeholders and candidates, and their agents officers or staff, and any organizations or enti- and staffs out of the business of raising and ties established or controlled by national party spending soft money will change the relation- committees or their personnel, from soliciting, ship between donors and federal politicians. It receiving, or directing any contributions, dona- will reduce both the incentive for donors to tions, or transfers of funds that are not subject give in exchange for access and the pressure to to the limitations, prohibitions, and public dis- give that is created by solicitations from na- closure requirements of federal law. These tional party leaders or elected officeholders. It committees and individuals should also be pro- will also prevent federal candidates from rais- hibited from spending any funds that are not ing unlimited funds that can be used by party subject to such restrictions and requirements. committees to benefit indirectly their own bids Similar prohibitions should be applied to fed- for office. We believe that this reform will sub- eral officeholders, candidates, and their agents stantially alter the incentive structure that en-
34 Recommendations for Reform courages soft money contributions. As a result, diminish their role in the electoral process. we expect the vast majority of this pool of funds, Soft money represents a substantial share of especially much of the money donated by the party revenues and is used to finance many of business community, to dry up. Most of this the costs directly related to the parties’ activi- money came into the system only during the ties, ranging from staff salaries and overhead last two presidential cycles, largely in response expenses to voter registration and mobiliza- to the aggressive fundraising practices of the tion efforts. The loss of soft money is likely to national party committees. These donors are reduce such party activities and would require unlikely to aggressively seek out other means that parties pay more of their administrative of pouring money into the system. and political services costs from funds they raise We recognize, however, that this recommen- under federal limits. This, in turn, may lead to dation could be circumvented. Federal office- a reduction in the amounts of money available holders and candidates could still engage in for candidate support or voter turnout efforts. soft money fundraising by shifting their activi- Since parties are the only source of private ties to the state level. Federal officials could funding (other than personal contributions or help their respective state parties raise funds loans) that favors challengers, a significant re- that are not subject to federal limits, and the duction in party resources is likely to decrease state parties could in turn use these monies to the resources available to challengers. It is also finance activities, such as voter registration and likely to reduce the amounts available for voter turnout drives, that influence federal elections identification and turnout programs. We be- in their state. Such activities would diminish lieve that these party activities play a valuable the benefits of reforms adopted at the national role in enhancing the competitiveness of elec- level. tions and encouraging citizen participation. We have carefully considered the proposal To partially compensate for this loss, we to close this “loophole” by extending federal recommend a change in the rules limiting indi- regulation to any state party activities that might vidual contributions to federal candidates and influence the outcome of a federal election political committees. Under current law, indi- and are financed by contributions not permit- viduals are limited to an annual total of $25,000 ted by federal law. But we are very troubled by for all contributions made to federal candi- the prospect of using federal rules to govern dates, PACs, and party committees. We pro- pose that Congress establish two separate ag- state party political finance, especially when gregate limits for individuals. The first would these committees are acting in conformance limit the total amount contributed by an indi- with the laws adopted by the people of their vidual to federal candidates and PACs to states. Such an approach raises troublesome $25,000 annually. The second, separate ceiling issues regarding the principle of federalism would limit the total amount contributed by an and the scope of Congress’s authority to legis- individual to national party committees to late in this area. Accordingly, we conclude that $25,000 annually. This change will allow par- this issue is most appropriately handled by the ties to raise more regulated money from indi- states. We therefore urge state legislatures to viduals than is permissible under current fed- pass any legislation necessary to ensure that eral law. state party committees cannot finance their activities from unrestricted or undisclosed Recommendation #2: sources of funding. IMPROVE CANDIDATE ACCESS We recognize that a ban on soft money will TO RESOURCES have a significant effect on the resources avail- Reform should ease the burdens of fund- able to national party committees and may raising by making it easier for candidates to
35 Investing in the People’s Business raise the funds needed to communicate effec- for candidates to seek PAC funding. This in- tively with voters and mount competitive cam- crease in the individual contribution limit to paigns. $3,000 will significantly reduce the disparity Fundraising has become more onerous in between it and the maximum allowable PAC part because contribution limits have remained contribution of $5,000. This reform will there- fixed. In the 20 years since FECA was adopted, fore reduce the relative influence of PACs by inflation has reduced the value of a $1,000 increasing the role of individuals. It will make contribution to approximately $350, and the it easier for candidates to eschew PAC contri- costs of campaigns have risen much faster than butions, since it will be easier to replace PAC inflation. Consequently, in each successive elec- monies with funds raised from individual do- tion, candidates have had to raise a signifi- nors. cantly larger number of contributions. We are concerned, however, that this in- We recommend that Congress raise the limit crease in individual limits alone will have only on individual contributions to federal candi- a modest effect on public participation in fed- dates from $1,000 per election to $3,000 and eral campaign funding, since relatively few in- index this new limit for inflation. dividual donors are constrained by the current This change in the individual contribution ceilings. Therefore, to broaden public partici- limits will approximately restore the purchas- pation and enhance the role of the small do- ing power of contributions that has been lost nor in the financing of campaigns, we favor a since FECA was adopted. It will encourage can- program of public matching funds for congres- didates to rely more on individuals for cam- sional candidates similar to the program that paign funds and allow them to receive more now exists for presidential candidates. money from their most generous supporters. CED recommends that Congress establish a By significantly increasing the potential pool voluntary program of public funding under of money available from individuals, it will there- which individual contributions to congressional fore enhance the role of the individual donor candidates would be eligible for matching sub- in the financing of federal campaigns. sidies. Candidates who choose to participate We recognize, however, that a relatively would receive two dollars in public money for small number of donors are willing or able to every dollar received from an individual do- give $3,000 to a federal candidate. In order to nor, up to a maximum of $400 for each indi- ensure that such donors do not gain undue vidual contribution of $200. Candidates would influence as a result of this change, an qualify by raising a threshold amount of money individual’s total contributions to federal can- in small individual donations of $200 or less. didates and PACs should remain subject to the Those who choose to participate in the pro- annual limit of $25,000 described above.* gram would be required to abide by campaign We do not believe that this increase in indi- spending limits, as described below. Each par- vidual contribution limits materially increases ticipating candidate must also limit any per- the risk of corruption or the appearance of sonal contribution to his or her own campaign corruption in the political process. The amount to $25,000. The costs of the program would be contributed by any one individual under these financed through federal budget appropria- higher limits will still represent an insignificant tions. share of most candidates’ total receipts. Finally, We estimate that the initial cost of this pro- all such donations will continue to be publicly gram of public subsidies will be in the range of disclosed, which makes this funding easy to $400 million to $600 million for each two-year trace. election cycle. The two-for-one match is higher By expanding the amounts individuals may than the current dollar-for-dollar match used give, our proposal should reduce the incentive in presidential primary campaigns. Soliciting
*See memorandum by WILLIAM F. HECHT (page 44). 36 Recommendations for Reform small contributions will be far more cost- funding is one less dollar a candidate has to effective under a two-for-one match program. solicit. Under this proposal, total individual contribu- Fourth, public funding diminishes the risk tions plus the matching funds would be sufficient to of corruption. Because these funds are not fully finance congressional campaign spending at from private sources, they are attached to no current levels. We make no apology for proposing particular interest. Because they also encour- direct public financing of this program. The improve- age candidates to broaden their base of finan- ment of our campaign finance system is a public cial support, they help to diminish the influ- benefit, and it should therefore be publicly funded. It ence of large donors. In particular, public is an investment in the people’s business. funding reduces the relative influence of PACs In deciding to recommend this program, and may provide candidates with a further in- we considered other forms of subsidy such as centive to raise contributions from individuals providing free television or radio broadcast rather than PACs. time to candidates or reduced-rate postage. Finally, and most important, public fund- But we found these alternatives to be less at- ing, along with higher individual contribution tractive. Free or reduced-rate broadcast time limits, will promote competition in federal elec- for candidates and reduced-rate postage are tions. As we noted in Chapter II, the chief unfunded mandates that would shift the bur- financial impediment to greater competition den of payment onto broadcasters or the U.S. in federal elections is the lack of money on the Postal Service. But more important, we believe part of challengers. Our proposals will improve the benefits of a program of public matching the resources available to these candidates, most funds far outweigh the advantages of these of whom currently do not raise sufficient funds more limited alternatives: to wage a viable campaign. By making it easier First, the leveraging effect of matching sub- for challengers to raise funds, these reforms sidies would encourage individual contributions will also make it less likely that candidates will by small donors and broaden participation in be discouraged from running by the burdens our political system. of fundraising. This, too, should improve the Second, public subsidies would provide can- level of competition, while expanding the didates with a strong financial incentive to seek choices available to voters. out such small contributions from a large num- Recommendation #3: ber of donors. In advancing this view, we draw from the experience of the matching fund pro- REDUCE THE FUNDRAISING “ARMS gram in presidential nomination campaigns. RACE” WITH CONGRESSIONAL The availability of matching funds has induced CAMPAIGN SPENDING LIMITS presidential candidates to raise a substantial Allowing congressional candidates to raise portion of their campaign funds through small money more easily will not necessarily reduce contributions. As a result, more than a third of the emphasis on fundraising in federal cam- the revenues received by most presidential can- paigns. Candidates might respond to these re- didates comes from public funding. Those can- forms by simply escalating the open-ended didates who prove particularly successful at gen- quest for campaign dollars, relying on the erating small gifts often receive 40 percent or higher contribution limits and availability of more of their funding from this source. public funding to raise and spend even larger Third, as is also evident from the experience sums than they do under the current system. in presidential campaigns, the availability of After all, it is difficult to legislate political be- matching funds, when combined with expen- havior, and competitive pressures feed an “arms diture limits, reduces the burdens of race” fundraising mentality. Faced with no clear fundraising. Every dollar received in public limit to the amounts that their opponents can
37 Investing in the People’s Business spend, candidates may continue to believe it pliance. Such ceilings will permit candidates to necessary to raise as much money as possible. communicate effectively with voters, while elimi- The absence of spending limits would there- nating the open-ended quest for funding that fore undermine the benefits from providing now characterizes federal campaigns. In the candidates with easier access to funds. near term, limits set at these levels would not We therefore recommend that Congress es- substantially reduce the amounts spent in the tablish a system of voluntary candidate spend- majority of congressional campaigns, but they ing ceilings. Candidates who agree to accept would constrain spending in the most expen- public subsidies would be required to abide by sive House and Senate contests. For example, these ceilings. in 1998, 101 House candidates spent more than One advantage of public financing is that it our proposed limit; many of them would have facilitates ceilings on expenditures. The Su- had to restrict their spending under our pro- preme Court has upheld the constitutionality posal. Over time, however, ceilings at these of spending ceilings for candidates who volun- levels should substantially reduce spending in tarily accept public subsidies. federal elections relative to its rapidly increas- In calling for limits on expenditures, we ing trend. recognize that ceilings must be generous Ceilings should not put candidates at a sig- enough to induce candidate participation, but nificant disadvantage vis-a-vis their competitors. not so generous that they have little practical Candidates who agree to accept subsidies and effect on campaign expenditures. In our view, adhere to the limits may be challenged by op- these parameters are best fulfilled by limits set ponents who do not agree to these restrictions. at the following levels. In House elections, a Ceilings on candidate expenditures may also candidate receiving public funds should be al- encourage PACs and other organizations to lowed to spend up to $500,000 in a primary engage in independent expenditure or issue and $500,000 in a general election. An addi- advertising campaigns, which cannot be lim- tional $200,000 would be allowed in the event ited, to support or defeat candidates. To en- of a runoff election. These limits would be sure that candidates who agree to ceilings are adjusted for inflation at the beginning of each not unfairly disadvantaged, the ceilings should new election cycle. In Senate elections, a candi- be adjusted in these circumstances. Candidates date should be allowed to spend a total amount who face opponents who are not bound by equal to a base of $1 million plus 50 cents spending limits, or who are opposed by inde- times the voting-age population of the state. pendent expenditures, should be allowed to An additional amount equal to 20 percent of spend additional amounts and receive addi- this limit would be allowed in the event of a tional public subsidies equal to the amounts runoff election. This ceiling would also be ad- expended against them. justed for inflation. Any costs incurred by a We realize that limits on spending do not campaign for legal and accounting services, or guarantee that candidates will have the re- other costs incurred to comply with the law, sources to compete against a better-funded would be exempt from these limits. opponent or well-financed independent spend- These ceilings are set at a higher level than ers. Party committees therefore should be al- those included in most current legislative pro- lowed to assist candidates by providing finan- posals. We feel that more generous limits will cial assistance up to the level of the spending encourage candidate participation in the pub- limit. Party organizations should be allowed to lic funding program and help to ensure com- make coordinated expenditures on behalf of a
38 Recommendations for Reform candidate to supplement a candidate’s cam- in the majority of decisions rendered to date, paign spending, so long as the combined the so-called “magic words” test, is too narrow. amount spent by the candidate and the party in Under this standard, campaign finance laws a race does not exceed the set limit.† are easily circumvented; the mere avoidance of Finally, spending limits will be effective only specific words in the text of a communication if they are adequately monitored and enforced. allows the sponsoring organization to operate We are concerned that the FEC is currently wholly outside the scope of FECA. Their elec- underfunded and understaffed. At its present tion-directed messages are not subject to fed- levels of staff and budget authority, the FEC eral contribution limits or public disclosure. will not be able to efficiently and effectively More restraint is needed, and we prefer a monitor compliance with spending ceilings, broader standard for defining “express advo- conduct the audits that will be required in a cacy.” program of congressional campaign finance, We urge Congress to adopt a standard that or determine violations in a timely and respon- sets forth clear criteria for identifying public sible manner. We therefore urge Congress to communications that constitute express advo- review the staffing, structure, and current fund- cacy, to require that such communications be ing of the FEC and provide it with the re- wholly financed from funds raised under fed- sources and authority needed to ensure accu- eral contribution limits, and to require that the rate and timely monitoring and compliance with sources of funding and amounts spent on such the law. The FEC should be able to expand its communications be publicly disclosed. We sug- audit and compliance staff to the extent needed gest that express advocacy include communi- to ensure vigilant monitoring of candidate com- cations that: (1) refer to a clearly identified pliance and timely and efficient audits of the federal candidate, or feature the image or like- financial activities of candidates receiving pub- ness of a clearly identified federal candidate; lic funding and subject to spending limits. (2) occur within 30 days of a primary election Recommendation #4: and are targeted at the state in which the pri- REFORM ISSUE ADVOCACY mary is occurring, or within 60 days of a gen- eral election; and (3) would be understood by a As noted in Chapter III, any effort to reform reasonable person to be encouraging others to issue advocacy spending in connection with support or oppose that candidate. Communi- federal elections must strike a regulatory bal- cations that meet these criteria would have to ance between protecting political speech and be paid for with funds raised under federal protecting the integrity of our electoral pro- contribution limits. In addition, the sources of cess. The extent of the regulation to be allowed funding and the amounts expended would be will ultimately be decided by the courts. fully disclosed and reported to the FEC. We cannot determine in advance how the In our view, this proposal would strengthen courts will eventually decide this issue. We do the integrity of our electoral system without believe, however, that the current standard used overly restricting political speech. It would safe- guard the system against corruption by ensur- † This recommendation would allow party committees, in most ing that unlimited corporate treasury funds, instances, to provide greater assistance to federal candidates than that allowed under current law. We recognize that coordi- labor union treasury funds, or other monies nated spending limits are presently being reviewed by the courts. not permitted in federal elections, as well as In general, we support the principle of expanded party financ- ing of elections, since it is a means of encouraging more fully undisclosed transactions between unregistered funded and competitive elections. political committees, are not used to influence
39 Investing in the People’s Business
federal elections. It would ensure citizens’ rights ads broadcast on television or radio within a to know the identity of the speakers who are reasonable time period before an election. attempting to influence their votes. And it Disclosure has the advantage of being con- would make publicly available the information stitutionally permissible. Courts have ruled that needed for adequate enforcement. Those who disclosure is an essential tool in guarding against wish to sponsor such messages could still com- political corruption or the appearance of cor- municate their views to the electorate, but they ruption and have upheld disclosure rules for would have to pay for these communications lobbying expenditures as well as campaign fi- with funds raised from voluntary contributions nances. While the courts have protected anony- subject to legal limits. mous speech, this exemption to full disclosure We recognize that this proposal may not has usually applied to specific circumstances. withstand judicial scrutiny. In that instance, we The extent to which the courts might allow required disclosure of issue ads, or even candi- would support the most comprehensive regime date-specific messages, is yet to be determined. of disclosure permitted by the courts. We But given the severe problems created by the strongly support a regulatory approach that at current lack of disclosure in issue advocacy, we least ensures disclosure of the amounts spent believe that requirements for effective disclo- and the sources of funding for candidate- sure and transparency are urgently needed. specific issue ads that occur within a reason- Then the public will be better able at least to able time period before an election. If neces- assess the messages distributed through these sary, subject to the determination of the courts, communications, and regulators and this proposal could be further narrowed by policymakers will have a better sense of the limiting the disclosure of sources of funding to scope of this activity and its impact on the the top donors to an issue advocacy group, or effectiveness of federal election laws and regu- by restricting disclosure to candidate-specific lations.
CONCLUSION There is no panacea for the many problems nation’s political life. This is the best way to of our campaign finance system. To some de- ensure the integrity of our government. gree these problems are an inevitable part of Reform will not come easily. Major changes the price we pay for democratic elections. But in the current system are needed, and such a program of effective reform can nevertheless dramatic changes are always difficult to make. improve the vitality of our politics by reducing This is especially true for a program of reform the emphasis on campaign fundraising and that candidly balances deeply felt competing increasing competition in federal contests. It values and recognizes and accepts trade-offs can stem the flow of unregulated money and between diverse goals. However, we do not shift political influence more from organized believe that the current trends in campaign interests towards a broad base of individual finance are sustainable. They will eventually be voters. These changes will improve the quality rejected by the public. Reform will come. We of representation provided by elected officials. believe that these recommendations, when They will promote public confidence in elec- taken as a whole, provide the foundation for tions and encourage more citizens to partici- an effective, broad-based, and competitive sys- pate actively in them. Reform can thus en- tem of campaign finance. hance the role of individual citizens in our
40 Endnotes
1. Celinda Lake, “Polls Say Public Has Prescription for 14. Ira Chinoy, “In Presidential Race, TV Ads Were Big- Reform,” Roll Call, March 23, 1998. gest ’96 Cost by Far,” Washington Post, March 31, 1997, p. A19. 2. Money and Politics: A National Survey of the Public’s Views on How Money Impacts Our Political System (Washington, 15. Sarah Fritz and Dwight Morris, Handbook of Campaign D.C.: Center for Responsive Politics, April-May 1997), Spending: Money in the 1990 Congressional Races (Washing- p. 1. This survey was conducted by Princeton Survey ton, D.C.: Congressional Quarterly, 1992), pp. 53-54; Research Associates. Hereafter cited as PSRA. Dwight Morris and Murielle E. Gamache, Handbook of Campaign Spending: Money in the 1992 Congressional Races 3. Buckley Stops Here, Report of the Twentieth Century (Washington, D.C.: Congressional Quarterly, 1994), Fund Working Group on Campaign Finance Litigation pp. 6-10; and Dwight Morris and Murielle E. Gamache, (New York: Twentieth Century Fund, 1998), p. 16. Gold-Plated Politics: The 1992 Congressional Races (Washing- 4. PSRA, p. 2. ton, D.C.: Congressional Quarterly, 1994), p. 9. 5. Ann Scales, “Blacks, Especially in South, Answered the 16. See Sara Fritz and Dwight Morris, Gold-Plated Politics: Democrats’ Call,” The Boston Globe, November 5, 1998, Running for Congress in the 1990s (Washington, D.C.: Con- page A-34. gressional Quarterly, 1992), pp. 14-26; for 1992, Morris 6. Buckley Stops Here, p. 17. and Gamache, Gold-Plated Politics: The 1992 Congressional Races, pp. 18-29. 7. Nancy Benac, “American Trust in Government Im- proving, But Still Overall Low,” Associated Press News 17. Foreign citizens who are not lawfully admitted for Release, March 9, 1998 (Reporting the findings of a sur- permanent residence in the United States. vey conducted by the Pew Research Center for the People 18. Anthony Corrado, “The Changing Environment of & the Press). Presidential Campaign Finance,” in William G. Mayer, 8. To the greatest extent possible, data in this report ed., In Pursuit of the White House (Chatham, NJ: Chatham reflect the 1998 campaigns and elections and are those House, 1995), p. 226. reported by the Federal Elections Commission as of 19. See, for example, the statements of former legislators February 15, 1999. For most, but not all, campaigns the in Martin Schram, Speaking Freely (Washington, D.C.: Cen- data reflect campaign reports covering the period through ter for Responsive Politics, 1995), Chapter 3. December 31, 1998. These data are preliminary, and in 20. Phillip M. Stern, Still the Best Congress Money Can Buy some cases incomplete, and will change as later reports (Washington, D.C.: Regnery, 1992), p. 119. are filed. 21. 1998 data on the size of contributions are from the 9. Herbert E. Alexander, “Financing the 1996 Election,” Federal Election Commission “cansum98.zip” at 41 28. In this model, challenger spending and party identifi- 39. Based on data developed by Public Disclosure, Inc., cation explain about 55 percent of the variation in voting for the Campaign Reform Project. These findings are results. The graph has been simplified to remove the reported at http://206.239.183.87/SoftMoneyReport.htm effect of party identification. Interestingly, inclusion of (January 29, 1999). the incumbent’s spending does not add significantly to 40. Ralph Vartabedian, “Corporate Traffic Heavy on U.S. the explanatory power of the model, apparently because Political Money Trail,” Los Angeles Times, September 21, of the interdependence between challenger and incum- 1997, p. A1. bent spending in an “arms race” effect. 41. The examples that follow are based on the soft money 29. The extraordinary spike to $54 million (20 percent) contribution data found in Jennifer Keen and John Daly, in 1994 resulted principally from Republican Michael Beyond the Limits: Soft Money in the 1996 Elections (Washing- Huffington’s self-financing of more than $28 million in ton, D.C.: Center for Responsive Politics, 1997). the California race and the unusual (for an incumbent) self-financing of nearly $7 million in Wisconsin by Sena- 42. 424 U.S. at 42. tor Herbert Kohl. 43. For a review of the decisions made in this area, see 30. Alexander, “Financing the 1996 Election,” pp. 143- Trevor Potter, “Issue Advocacy and Express Advocacy,” in 144, and Makinson, The Big Picture, p. 4. Campaign Finance Reform: A Sourcebook, pp. 227-239. 31. 116 S. Ct. 2309 (1996). 44. Furgatch v. FEC, 807 F.2d 857 (9th Cir. 1987), at 864. 32. The data in this paragraph and in the analysis that 45. Maine Right to Life Committee, Inc. v. FEC, 914 follows are based on CED computations from data re- F.Supp. 8 (D. Me. 1996), aff’d, 98 F.3d 1 (1st Cir. 1996). ported to the Federal Election Commission. See Federal 46. Based on data reported in Anthony Corrado, “Financ- Election Commission, “FEC Reports Major Increase in ing the 1996 Elections,” in Gerald M. Pomper, ed., The Party Activity for 1995-96,” press release, March 19, 1997. Election of 1996 (Chatham, NJ: Chatham House, 1997), 33. Paul S. Herrnson, Congressional Elections (Washington, and Diana Dwyre, “Pushing the Campaign Finance Enve- D.C.: Congressional Quarterly, 1995), p. 86. lope,” Paper delivered at the Annual Meeting of the American Political Science Association, Washington, D.C., 34. The following review of the origins of soft money is August 28-31, 1997. loosely based on the more detailed legal history found in Anthony Corrado, “Party Soft Money,” in Anthony 47. See Annenberg Public Policy Center, Issue Advocacy Corrado, et al., Campaign Finance Reform: A Sourcebook Advertising During the 1996 Campaign: A Catalog (Philadel- (Washington, D.C.: Brookings Institution, 1997), phia, Penn.: Annenberg Public Policy Center, September Chapter 6. 1997), and Eliza Newlin Carney, “Stealth Bombers,” National Journal, August 16, 1997, p. 1640. 35. Anthony Corrado, “Hard Facts About Soft Money,” Trends in Political Financing and Campaign Reform, Occa- 48. The Annenberg Public Policy Center study is avail- sional Paper 5 (Los Angeles: Citizens’ Research Founda- able at http://appcpenn.org/issueads/. tion, 1997), p. 3. 49. See, among others, Mary Beth Regan and Amy Borrus, 36. Federal Election Commission, “Political Party Fund- “Business Gets Hard-Nosed About Soft Money,” Business raising Continues to Climb,” press release, January 26, Week, June 23, 1997; David Lightman, “Corporate Execu- 1999. tives Jump on Finance Reform Bandwagon,” Hartford Courant, July 8, 1998; and Jerome Kohlberg, “‘Soft Money’ 37. Anthony Corrado, “Soft Money: To Reform or Not to is Bad Business,” New York Times, July 5, 1998. Reform,” Paper presented at the Annual Meeting of the New England Political Science Association, Salem, Mass., April 22, 1994. 38. Federal Election Commission, “Soft Money: Draft Notice of Proposed Rulemaking,” Memorandum to the Federal Election Commission from Lawrence M. Noble, Agenda Document 98-10, January 26, 1998, p. 22. 42 Memoranda of Comment, Reservation, or Dissent Page 3, HARRY L. FREEMAN, with which Page 3, NED REGAN THOMAS J. KLUTZNICK has asked to be I am pleased to be associated with this re- associated port and I support its recommendations. I have, No responsible person can in any way ob- however, one major qualification. ject to or quarrel with the report and its recom- While our present form of raising money is mendations; we all know that campaign contri- clearly flawed, its impact on the electoral pro- butions—and the cost of campaigns—are cess and government policy setting is not as incredibly out of line. pernicious as often portrayed. Consider the Having said that, and with due respect to following points. the drafters, I do not believe this Congress, or • Paid ads are now a vital source of informa- even the next one, will enact campaign reform tion on candidates. As every survey shows, legislation. I have looked at the vote and head and readers and viewers know, serious news counts and just do not see it. We would have to media coverage of candidates for public of- have a major turn of events, and this I admit is fice has decreased. Even in the last presi- possible, to turn the political tide. dential election the candidates were rarely We can encourage, and already have en- given much more than “photo-op” cover- couraged, U.S. companies to voluntarily stop age on the six o’clock news. Increasingly the flow, absolutely, of “soft money.” We tried candidates have to resort to paid ads to this around 10 years ago when the average explain their position (or criticize their op- corporate soft money contribution was $10,000 ponents’). or $25,000. Now it has skyrocketed beyond prior belief. CED’s efforts should be concen- • Fundraising activities do not detract from trated on negotiations and on urging other meeting voters to discuss issues; in fact, it is major business organizations to try to convince somewhat the opposite. Fundraising is not all their members to “take the pledge.” In- all done through frantic phone calls to lob- deed, I think most companies would welcome byists; money is raised through an endless a way out of this situation. There is no need to round of breakfasts, lunches and after-work drop support for revision of the laws. But I meetings (albeit with individuals with the urge CED to take this opportunity to take a ability to write at least a modest check) where path where some degree of success might be the issues are always fiercely discussed. Com- obtained and with relatively little time and munity gatherings, at one time a staple of expense. urban living, have diminished in suburban The nonconforming companies can make settings, so fund raising events have become their soft money contributions, but they would a major way for candidates to interact with be identified through the FEC. I believe the voters. media would pick up those who stray from the • Incumbents raise a disproportionate share practice. of campaign funds, but this is not a new If corporations follow this path, it will be phenomenon. Incumbents are powerful and much easier to try to contain organized labor’s have always raised the most money and gar- contributions, and hopefully the cost of cam- nered the most support from interest paigns. groups. 43 • There are numerous impediments associ- Pages 4 and 36, WILLIAM F. HECHT ated with seeking public office, and raising In addition to adjusting the limit on indi- large amounts of money is certainly one. vidual contributions for inflation, it is appro- But the major reason potential candidates priate to inflation-adjust the limits of PAC con- do not come forward is because of the in- tributions. This would restore the purchasing tense media scrutiny their personal lives power of contributions, which has been lost would receive. since Federal Election Campaign Act (FECA) Finally, we appear to be getting fairly good was adopted 25 years ago. As noted on p. 15, government these days. It is centerist and prag- PACs “collectively represent thousands of dif- matic at the federal level, with fiscal and social ferent interests and tens of thousands of indi- problems that have bedeviled the country for vidual contributors. All PAC monies contrib- decades now resolved. And state governors and uted to candidates must come from voluntary city mayors are widely praised for their pro- donations; a committee can request, but not gressive and fiscally sound policies. In spite of require, such donations from the members of the malevolence attributed to our campaign a corporation or group with which it is associ- finance process, government seems to work ated. PACs thus provide small donors with a quite well. means of participating in the financing of cam- paigns through a broader group that repre- sents their concerns. In this way, they have increased public participation in the financing of elections and offered individuals a valuable means of exercising their rights of free speech and political association.” 44 OBJECTIVES OF THE COMMITTEE FOR ECONOMIC DEVELOPMENT For more than 50 years, the Committee for foundations, and individuals. It is independent, Economic Development has been a respected nonprofit, nonpartisan, and nonpolitical. influence on the formation of business and Through this business-academic partner- public policy. CED is devoted to these two ship, CED endeavors to develop policy state- objectives: ments and other research materials that To develop, through objective research and commend themselves as guides to public and informed discussion, findings and recommenda- business policy; that can be used as texts in tions for private and public policy that will contribute college economics and political science courses to preserving and strengthening our free society, achiev- and in management training courses; that ing steady economic growth at high employment and will be considered and discussed by newspaper reasonably stable prices, increasing productivity and and magazine editors, columnists, and com- living standards, providing greater and more equal mentators; and that are distributed abroad to opportunity for every citizen, and improving the qual- promote better understanding of the Ameri- ity of life for all. can economic system. To bring about increasing understanding by CED believes that by enabling business present and future leaders in business, government, leaders to demonstrate constructively their con- and education, and among concerned citizens, of the cern for the general welfare, it is helping busi- importance of these objectives and the ways in which ness to earn and maintain the national and they can be achieved. community respect essential to the successful CED’s work is supported by private volun- functioning of the free enterprise capitalist tary contributions from business and industry, system. 45 CED BOARD OF TRUSTEES Chairman FRANK P. DOYLE, Retired Executive Vice President C. L. BOWERMAN, Executive Vice President, GE Planning and Corporate Relations & Services Phillips Petroleum Company JOHN BRADEMAS, President Emeritus Vice Chairmen New York University ROY J. BOSTOCK, Chairman and Chief WILLIAM E. BROCK, Chairman Executive Officer The Brock Group, LTD The MacManus Group STEPHEN L. BROWN, Chairman and Chief JOHN H. BRYAN, Chairman and Chief Executive Officer Executive Officer John Hancock Mutual Life Insurance Company Sara Lee Corporation GORDON F. BRUNNER, Senior Vice President DONALD R. CALDWELL, Chief Executive Officer and Director North Atlantic Technology Fund The Procter & Gamble Company RAYMOND V. GILMARTIN, Chairman, President JOHN H. BRYAN, Chairman and Chief and Chief Executive Officer Executive Officer Merck & Co., Inc. Sara Lee Corporation HENRY A. MCKINNELL, Executive Vice President MICHAEL BUNGEY, Chairman and Chief Pfizer Inc. Executive Officer JAMES N. SULLIVAN, Vice Chairman of the Board Bates Worldwide, Inc. Chevron Corporation J. GARY BURKHEAD, Vice Chairman FMR Corporation Treasurer W. VAN BUSSMANN, Corporate Economist REGINA DOLAN DaimlerChrysler Corporation Senior Vice President, Chief Financial Officer and JEAN B. BUTTNER, Chairman and Chief Chief Administrative Officer Executive Officer PaineWebber Group Inc. Value Line Inc. * FLETCHER L. BYROM, President and Chief Executive Officer MICASU Corporation DONALD R. CALDWELL, Chief Executive Officer North Atlantic Technology Fund ROGER G. ACKERMAN, Chairman and Chief FRANK C. CARLUCCI, Chairman Executive Officer The Carlyle Group Corning Incorporated REX D. ADAMS, Dean MARSHALL N. CARTER, Chairman and Chief Executive Officer The Fuqua School of Business State Street Corporation Duke University PAUL A. ALLAIRE, Chairman and Chief ROBERT B. CATELL, Chairman and Chief Executive Officer Executive Officer KeySpan Energy Corporation Xerox Corporation IAN ARNOF, Chairman JOHN B. CAVE, Principal Avenir Group, Inc. Bank One, Louisiana, N.A. JOHN S. CHALSTY, Chairman HANS W. BECHERER, Chairman and Chief Executive Officer Donaldson, Lufkin & Jenrette, Inc. Deere & Company RAYMOND G. CHAMBERS, Chairman of the Board Amelior Foundation HENRY P. BECTON, JR., President and General Manager MARY ANN CHAMPLIN, Retired Senior Vice WGBH Educational Foundation President Aetna Inc. ALAN BELZER, Retired President and Chief Operating Officer ROBERT CHESS, Co-Chief Executive Officer AlliedSignal Inc. Inhale Therapeutic Systems PETER A. BENOLIEL, Chairman, Executive Committee CAROLYN CHIN, Chief Executive Officer Quaker Chemical Corporation The Chin Company MELVYN E. BERGSTEIN, Chairman and Chief A. W. CLAUSEN, Retired Chairman and Chief Executive Officer Executive Officer Diamond Technology Partners BankAmerica Corporation C. ROBERT BLACK, Senior Vice President * JOHN L. CLENDENIN, Retired Chairman Texaco Inc. BellSouth Corporation JON A. BOSCIA, President and Chief Executive Officer NANCY S. COLE, President Lincoln National Corporation Educational Testing Service ROY J. BOSTOCK, Chairman and Chief FERDINAND COLLOREDO-MANSFELD, Chairman Executive Officer and Chief Executive Officer The MacManus Group Cabot Industrial Trust *Life Trustee GEORGE H. CONRADES, Partner JOSEPH GANTZ Polaris Venture Partners Gantz Foundation KATHLEEN B. COOPER, Chief Economist THOMAS P. GERRITY, Dean Exxon Corporation The Wharton School GARY L. COUNTRYMAN, Chairman University of Pennsylvania Liberty Mutual Insurance Company RAYMOND V. GILMARTIN, Chairman, President and STEPHEN A. CRANE, President and Chief Chief Executive Officer Executive Officer Merck & Co., Inc. Gryphon Holdings, Inc. SUE LING GIN, President and Chief Executive Officer RONALD R. DAVENPORT, Chairman of the Board Flying Food Fare, Inc. Sheridan Broadcasting Corporation FREDERICK W. GLUCK ROBERT M. DEVLIN, Chairman and Chief McKinsey & Company, Inc. Executive Officer CAROL R. GOLDBERG, President American General Corporation The Avcar Group, Ltd. JOHN DIEBOLD, Chairman ALFRED G. GOLDSTEIN, Chief Executive Officer John Diebold Incorporated AG Associates JOHN T. DILLON, Chairman and Chief ELLEN R. GORDON, President and Chief Executive Officer Operating Officer International Paper Company Tootsie Roll Industries, Inc. REGINA DOLAN, Senior Vice President, Chief JOSEPH T. GORMAN, Chairman and Chief Financial Officer and Chief Administrative Officer Executive Officer PaineWebber Group Inc. TRW Inc. IRWIN DORROS, Chairman RICHARD A. GRASSO, Chairman and Chief NJ Commission on Science & Technology Executive Officer FRANK P. DOYLE, Retired Executive Vice President New York Stock Exchange, Inc. GE EARL G. GRAVES, SR., Publisher and Chief E. LINN DRAPER, JR., Chairman, President and Chief Executive Officer Executive Officer Black Enterprise Magazine American Electric Power Company WILLIAM H. GRAY, III, President and Chief T. J. DERMOT DUNPHY, Chairman and Chief Executive Officer Executive Officer The College Fund Sealed Air Corporation ROSEMARIE B. GRECO CHRISTOPHER D. EARL, Senior Vice President Greco Ventures Perseus Capital LLC GERALD GREENWALD, Chairman and Chief W. D. EBERLE, Chairman Executive Officer Manchester Associates, Ltd. UAL Corporation WILLIAM S. EDGERLY, Chairman BARBARA B. GROGAN, President Foundation for Partnerships Western Industrial Contractors WALTER Y. ELISHA, Retired Chairman and Chief PATRICK W. GROSS, Founder and Chairman, Executive Officer Executive Committee Springs Industries, Inc. American Management Systems, Inc. JAMES D. ERICSON, President and Chief JUDITH H. HAMILTON, Chief Executive Officer Executive Officer Classroom Connect The Northwestern Mutual Life Insurance Company RICHARD W. HANSELMAN, Retired Chairman WILLIAM T. ESREY, Chairman and Chief Genesco Inc. Executive Officer WILLIAM F. HECHT, Chairman, President and Chief Sprint Executive Officer PATRICIA O’DONNELL EWERS, President PP&L Resources, Inc. Pace University JOSEPH D. HICKS, President and Chief Executive Officer KATHLEEN FELDSTEIN, President Siecor Corporation Economic Studies, Inc. HEATHER HIGGINS, President RONALD E. FERGUSON, Chairman, President and Randolph Foundation Chief Executive Officer RODERICK M. HILLS, Chairman General RE Corporation Hills Enterprises, Ltd. E. JAMES FERLAND, Chairman, President and Chief HAYNE HIPP, President and Chief Executive Officer Executive Officer The Liberty Corporation Public Service Enterprise Group Inc. RONALD N. HOGE, President and Chief Executive * EDMUND B. FITZGERALD, Managing Director Officer Woodmont Associates MagneTek, Inc. HARRY L. FREEMAN, President DEBORAH C. HOPKINS, Senior Vice President and The Freeman Company Chief Financial Officer MITCHELL S. FROMSTEIN, Chairman, President and The Boeing Company Chief Executive Officer MATINA S. HORNER, Executive Vice President Manpower Inc. TIAA-CREF *Life Trustee AMOS B. HOSTETTER, Chairman COLETTE MAHONEY, RSHM, President Emeritus Pilot House Associates, LLC Marymount Manhattan College PHILIP K. HOWARD ELLEN R. MARRAM Howard Smith & Levin L.L.P. Continuation Investments Group, Inc. WILLIAM R. HOWELL, Retired Chairman of the Board ALONZO L. MCDONALD, Chairman and Chief J. C. Penney Company, Inc. Executive Officer ROBERT J. HURST, Vice Chairman Avenir Group, Inc. Goldman, Sachs & Co. EUGENE R. MCGRATH, Chairman, President and ALICE STONE ILCHMAN, Former President Chief Executive Officer Sarah Lawrence College Consolidated Edison Company of New York, Inc. GEORGE B. JAMES, Retired Senior Vice President and HENRY A. MCKINNELL, Executive Vice President Chief Financial Officer Pfizer Inc. Levi Strauss & Co. DAVID E. MCKINNEY JAMES A. JOHNSON, Retired Chairman Thomas J. Watson Foundation Fannie Mae DEBORAH HICKS MIDANEK, Principal ROBBIN S. JOHNSON, Corporate Vice President, Jay Alix & Associates Public Affairs HARVEY R. MILLER, Senior Partner Cargill, Incorporated Weil, Gotshal & Manges ROBERT M. JOHNSON, Chairman and Chief NICHOLAS G. MOORE, Chairman Executive Officer PricewaterhouseCoopers Bowne & Co., Inc. DIANA S. NATALICIO, President H.V. JONES, Managing Director The University of Texas at El Paso Korn/Ferry International, Inc. MARILYN CARLSON NELSON, Vice Chair and Chief PRES KABACOFF, President and Co-Chairman Executive Officer Historic Restoration, Inc. Carlson Holdings, Inc. JOSEPH J. KAMINSKI, Corporate Executive JOSEPH NEUBAUER, Chairman and Chief Vice President Executive Officer Air Products and Chemicals, Inc. ARAMARK Corporation EDWARD A. KANGAS, Global Chairman and BARBARA W. NEWELL, Regents Professor Chief Executive Florida State University Deloitte Touche Tohmatsu THOMAS H. O’BRIEN, Chairman and Chief JOSEPH E. KASPUTYS, Chairman, President and Executive Officer Chief Executive Officer PNC Bank Corporation Primark Corporation LEO J. O’DONOVAN, S.J., President EAMON M. KELLY, Retired President Georgetown University Tulane University DEAN R. O’HARE , Chairman and Chief JAMES P. KELLY, Chairman and Chief Executive Officer Executive Officer Chubb Corporation United Parcel Service of America, Inc. JOHN D. ONG, Chairman Emeritus THOMAS J. KLUTZNICK, President The BF Goodrich Company Thomas J. Klutznick Company ANTHONY J. F. O'REILLY, Chairman CHARLES F. KNIGHT, Chairman and Chief H.J. Heinz Company Executive Officer JAMES F. ORR III, Chairman and Chief Emerson Electric Co. Executive Officer CHARLES E.M. KOLB, President UNUM Corporation Committee for Economic Development ROBERT J. O'TOOLE, Chairman and Chief ALLEN J. KROWE, Retired Vice Chairman Executive Officer Texaco Inc. A.O. Smith Corporation C. JOSEPH LABONTE STEFFEN E. PALKO, Vice Chairman and President The Vantage Group Cross Timbers Oil Company CHARLES R. LEE, Chairman and Chief Executive Officer SANDRA PANEM, President GTE Corporation Vector Fund Management, L.P. ROBERT H. LESSIN, Chairman CAROL J. PARRY, Executive Vice President Wit Capital Corporation Chase Manhattan Corporation A.V. LIVENTALS, Vice President, Strategic Planning VICTOR A. PELSON, Senior Advisor Mobil Corporation SBC Warburg Dillon Read Inc. MICHAEL D. LOCKHART PETER G. PETERSON, Chairman Rembert, South Carolina The Blackstone Group EDWIN A. LUPBERGER, Consultant DEAN P. PHYPERS Entergy Corporation New Canaan, Connecticut JOSEPH T. LYNAUGH, Retired President and Chief ARNOLD B. POLLARD, President and Chief Executive Officer Executive Officer NYLCare Health Plans, Inc. The Chief Executive Group BRUCE K. MACLAURY, President Emeritus The Brookings Institution *Life Trustee JAMES T. PORTER, Vice President and Chief * GEORGE P. SHULTZ, Distinguished Fellow Administrative Officer The Hoover Institution Honeywell, Inc. Stanford University S. LAWRENCE PRENDERGAST, Chairman and Chief JOHN C. SICILIANO, Managing Director Executive Officer Payden & Rygel Investment Counsel AT&T Investment Management Corporation ROCCO C. SICILIANO HUGH B. PRICE, President and Chief Beverly Hills, California Executive Officer RUTH J. SIMMONS, President National Urban League Smith College ROBERT A. PRITZKER, President and Chief RONALD L. SKATES, President and Chief Executive Officer Executive Officer The Marmon Group Data General Corporation NED REGAN FREDERICK W. SMITH, Chairman, President and The Jerome Levy Economics Institute Chief Executive Officer WILLIAM R. RHODES, Vice Chairman Federal Express Corporation Citibank, N.A. TIMOTHY P. SMUCKER, Chairman JAMES Q. RIORDAN The J.M. Smucker Company Stuart, Florida HUGO FREUND SONNENSCHEIN, President E. B. ROBINSON, JR., Chairman and Chief The University of Chicago Executive Officer ALAN G. SPOON, President Deposit Guaranty National Bank The Washington Post Company DANIEL ROSE, Vice Chairman JOHN R. STAFFORD, Chairman, President and Rose Associates, Inc. Chief Executive Officer HOWARD M. ROSENKRANTZ, Chief Executive Officer American Home Products Corporation Grey Flannel Auctions STEPHEN STAMAS, Chairman JOHN A. ROTH, President and Chief The American Assembly Executive Officer JOHN L. STEFFENS, Vice Chairman Northern Telecom Limited Merrill Lynch & Co., Inc. MICHAEL I. ROTH, Chairman and Chief PAULA STERN, President Executive Officer The Stern Group, Inc. The MONY Group Inc. DONALD M. STEWART, President JOHN W. ROWE, Chairman, President and Chief The College Board Executive Officer Unicom Corporation ROGER W. STONE, President and Chief Executive Officer LANDON H. ROWLAND, Chairman, President and Smurfit-Stone Container Corporation Chief Executive Officer Kansas City Southern Industries, Inc. MATTHEW J. STOVER, Group President, Bell Atlantic Directory Group NEIL L. RUDENSTINE, President Bell Atlantic Corporation Harvard University JAMES N. SULLIVAN, Vice Chairman of the Board GEORGE RUPP, President Chevron Corporation Columbia University RICHARD J. SWIFT, Chairman, President and GEORGE F. RUSSELL, JR., Chairman Chief Executive Officer Frank Russell Company Foster Wheeler Corporation ARTHUR F. RYAN, Chairman and Chief RICHARD F. SYRON, Chairman and Chief Executive Officer Executive Officer The Prudential Insurance Company of America American Stock Exchange STEPHEN W. SANGER, Chairman and Chief ALISON TAUNTON-RIGBY, President and Chief Executive Officer Executive Officer General Mills, Inc. Aquila Biopharmaceuticals, Inc. JOHN C. SAWHILL, President and Chief RICHARD L. THOMAS, Retired Chairman Executive Officer First Chicago NBD Corporation The Nature Conservancy JAMES A. THOMSON, President and Chief HENRY B. SCHACHT, Director and Senior Advisor Executive Officer Lucent Technologies Inc. RAND JONATHAN M. SCHOFIELD, Chairman and Chief CHANG-LIN TIEN, NEC Distinguished Professor of Executive Officer Engineering Airbus Industrie of North America, Inc. University of California, Berkeley DONALD J. SCHUENKE, Chairman THOMAS J. TIERNEY, Worldwide Managing Director Northern Telecom Limited Bain & Company WALTER V. SHIPLEY, Chairman and Chief ALAIR A. TOWNSEND, Publisher Executive Officer Crain’s New York Business The Chase Manhattan Corporation ALEXANDER J. TROTMAN, Retired Chairman WALTER H. SHORENSTEIN, Chairman of the Board Ford Motor Company The Shorenstein Company *Life Trustee JAMES L. VINCENT, Chairman and Chief Executive Officer Biogen, Inc. ROBERT WAGGONER, Chief Executive Officer Burrelle’s Information Services DONALD C. WAITE, III, Managing Director McKinsey & Company, Inc. ARNOLD R. WEBER, Chancellor Northwestern University ROBERT E. WEISSMAN, Chairman IMS Health Inc. JOHN F. WELCH, JR., Chairman and Chief Executive Officer GE JOSH S. WESTON, Honorary Chairman Automatic Data Processing, Inc. CLIFTON R. WHARTON, JR., Former Chairman and Chief Executive Officer TIAA-CREF DOLORES D. WHARTON, Chairman and Chief Executive Officer The Fund for Corporate Initiatives, Inc. MICHAEL W. WICKHAM, Chairman and Chief Executive Officer Roadway Express, Inc. HAROLD M. WILLIAMS, Retired President The J. Paul Getty Trust J. KELLEY WILLIAMS, Chairman and Chief Executive Officer ChemFirst Inc. LINDA SMITH WILSON, President Radcliffe College MARGARET S. WILSON, Chairman and Chief Executive Officer Scarbroughs HUGH WOOD, Chairman Hugh Wood, Inc. KURT E. YEAGER, President and Chief Executive Officer Electric Power Research Institute MARTIN B. ZIMMERMAN, Vice President, Governmental Affairs Ford Motor Company *Life Trustee CED HONORARY TRUSTEES RAY C. ADAM, Retired Chairman JOHN T. FEY NL Industries Park City, Utah O. KELLEY ANDERSON JOHN M. FOX Boston, Massachusetts Sapphire, North Carolina ROBERT O. ANDERSON, Retired Chairman DON C. FRISBEE, Chairman Emeritus Hondo Oil & Gas Company PacifiCorp ROY L. ASH RICHARD L. GELB, Chairman Emeritus Los Angeles, California Bristol-Myers Squibb Company SANFORD S. ATWOOD, President Emeritus W. H. KROME GEORGE, Retired Chairman Emory University Aluminum Company of America ROBERT H. B. BALDWIN, Retired Chairman WALTER B. GERKEN, Chairman, Executive Committee Morgan Stanley Group Inc. Pacific Mutual Life Insurance Company GEORGE F. BENNETT, Chairman Emeritus PAUL S. GEROT State Street Investment Trust Delray Beach, Florida HAROLD H. BENNETT LINCOLN GORDON, Guest Scholar Salt Lake City, Utah The Brookings Institution JACK F. BENNETT, Retired Senior Vice KATHARINE GRAHAM, Chairman of President the Executive Committee Exxon Corporation The Washington Post Company HOWARD W. BLAUVELT JOHN D. GRAY, Chairman Emeritus Keswick, Virginia Hartmarx Corporation MARVIN BOWER JOHN R. HALL, Retired Chairman Delray Beach, Florida Ashland Inc. ALAN S. BOYD ROBERT A. HANSON, Retired Chairman Washington, D.C. Deere & Company ANDREW F. BRIMMER, President ROBERT S. HATFIELD, Retired Chairman Brimmer & Company, Inc. The Continental Group, Inc. HARRY G. BUBB, Chairman Emeritus ARTHUR HAUSPURG, Member, Board Pacific Mutual Life Insurance of Directors THEODORE A. BURTIS, Retired Chairman Consolidated Edison Company of New York, Inc. of the Board PHILIP M. HAWLEY, Retired Chairman Sun Company, Inc. of the Board PHILIP CALDWELL, Chairman (Retired) Carter Hawley Hale Stores, Inc. Ford Motor Company ROBERT C. HOLLAND, Senior Fellow EVERETT N. CASE The Wharton School Van Hornesville, New York University of Pennsylvania HUGH M. CHAPMAN, Retired Chairman LEON C. HOLT, JR., Retired Vice Chairman NationsBank South Air Products and Chemicals, Inc. E. H. CLARK, JR., Chairman and Chief SOL HURWITZ, Retired President Executive Officer Committee for Economic Development The Friendship Group GEORGE F. JAMES DOUGLAS D. DANFORTH, Retired Chairman Ponte Vedra Beach, Florida Westinghouse Electric Corporation GEORGE M. KELLER, Chairman of the JOHN H. DANIELS, Retired Chairman and Board, Retired Chief Executive Officer Chevron Corporation Archer-Daniels Midland Co. JAMES R. KENNEDY RALPH P. DAVIDSON Kaysville, Utah Washington, D.C. PHILIP M. KLUTZNICK, Senior Partner ARCHIE K. DAVIS, Chairman of the Klutznick Investments Board (Retired) FRANKLIN A. LINDSAY, Retired Chairman Wachovia Bank and Trust Company, N.A. Itek Corporation ALFRED C. DECRANE, JR., Retired Chairman and ROY G. LUCKS Chief Executive Officer San Francisco, California Texaco, Inc. ROBERT W. LUNDEEN, Retired Chairman ROBERT R. DOCKSON, Chairman Emeritus The Dow Chemical Company CalFed, Inc. IAN MACGREGOR, Retired Chairman LYLE EVERINGHAM, Retired Chairman AMAX Inc. The Kroger Co. RICHARD B. MADDEN, Retired Chairman THOMAS J. EYERMAN, Retired Partner and Chief Executive Officer Skidmore, Owings & Merrill Potlatch Corporation FRANK L. MAGEE JAMES J. RENIER Stahlstown, Pennsylvania Renier & Associates STANLEY MARCUS, Consultant IAN M. ROLLAND, Former Chairman and Chief Stanley Marcus Consultancy Executive Officer AUGUSTINE R. MARUSI Lincoln National Corporation Lake Wales, Florida AXEL G. ROSIN, Retired Chairman WILLIAM F. MAY, Chairman and Chief Book-of-the-Month Club, Inc. Executive Officer WILLIAM M. ROTH Statue of Liberty-Ellis Island Foundation, Inc. Princeton, New Jersey OSCAR G. MAYER, Retired Chairman JOHN SAGAN, President Oscar Mayer & Co. John Sagan Associates GEORGE C. MCGHEE, Former U.S. Ambassador RALPH S. SAUL, Former Chairman of the Board and Under Secretary of State CIGNA Companies JOHN F. MCGILLICUDDY, Retired Chairman GEORGE A. SCHAEFER, Retired Chairman and Chief Executive Officer of the Board Chemical Banking Corporation Caterpillar, Inc. JAMES W. MCKEE, JR., Retired Chairman ROBERT G. SCHWARTZ CPC International, Inc. New York, New York CHAMPNEY A. MCNAIR, Retired Vice Chairman MARK SHEPHERD, JR., Retired Chairman Trust Company of Georgia Texas Instruments, Inc. J. W. MCSWINEY, Retired Chairman of the Board RICHARD R. SHINN, Retired Chairman The Mead Corporation and Chief Executive Officer ROBERT E. MERCER, Retired Chairman Metropolitan Life Insurance Company The Goodyear Tire & Rubber Co. DAVIDSON SOMMERS RUBEN F. METTLER, Retired Chairman and Washington, D.C. Chief Executive Officer ELMER B. STAATS, Former Controller TRW Inc. General of the United States LEE L. MORGAN, Former Chairman of the Board FRANK STANTON, Former President Caterpillar, Inc. CBS, Inc. ROBERT R. NATHAN, Chairman EDGAR B. STERN, JR., Chairman of the Board Nathan Associates, Inc. Royal Street Corporation ALFRED C. NEAL ALEXANDER L. STOTT Harrison, New York Fairfield, Connecticut J. WILSON NEWMAN, Retired Chairman WAYNE E. THOMPSON, Past Chairman Dun & Bradstreet Corporation Merritt Peralta Medical Center JAMES J. O’CONNOR, Former Chairman and Chief CHARLES C. TILLINGHAST, JR. Executive Officer Providence, Rhode Island Unicom Corporation HOWARD S. TURNER, Retired Chairman LEIF H. OLSEN, President Turner Construction Company Leif H. Olsen Investments, Inc. L. S. TURNER, JR. NORMA PACE Dallas, Texas New York, New York THOMAS A. VANDERSLICE CHARLES W. PARRY, Retired Chairman TAV Associates Aluminum Company of America JAMES E. WEBB WILLIAM R. PEARCE, President and Washington, D.C. Chief Executive Officer SIDNEY J. WEINBERG, JR., Limited Partner IDS Mutual Fund Group The Goldman Sachs Group, L.P. JOHN H. PERKINS, Former President ROBERT C. WINTERS, Chairman Emeritus Continental Illinois National Bank and Trust Company Prudential Insurance Company of America RUDOLPH A. PETERSON, President and ARTHUR M. WOOD Chief Executive Officer (Emeritus) Chicago, Illinois BankAmerica Corporation RICHARD D. WOOD, Director EDMUND T. PRATT, JR., Retired Chairman and Eli Lilly and Company Chief Executive Officer Pfizer Inc. WILLIAM S. WOODSIDE, Chairman LSG Sky Chefs ROBERT M. PRICE, Retired Chairman and Chief Executive Officer CHARLES J. ZWICK Control Data Corporation Coral Gables, Florida R. STEWART RAUCH, Former Chairman The Philadelphia Savings Fund Society CED RESEARCH ADVISORY BOARD Chairman JOHN COGAN ROBERT D. REISCHAUER JOHN P. WHITE Senior Fellow Senior Fellow John F. Kennedy School of Government The Hoover Institution The Brookings Institution Stanford University Harvard University JOHN B. SHOVEN RONALD F. FERGUSON Professor, Department of Economics Professor Stanford University GEORGE A. AKERLOF John F. Kennedy School of Government MURRAY WEIDENBAUM Senior Fellow Harvard University Chairman, Center for the Study The Brookings Institution HELEN F. LADD of American Business Professor, Department of Economics Professor of Public Policy Studies and Washington University University of California, Berkeley Economics DAVID WESSEL ELIZABETH E. BAILEY Duke University Chief Economics Correspondent John C. Hower Professor of Public Policy LINDA YUEN-CHING LIM The Wall Street Journal and Management Professor The Wharton School University of Michigan Business School SIDNEY G. WINTER University of Pennsylvania Deloitte and Touche Professor ROBERT E. LITAN of Management ALAN S. BLINDER Director of Economic Studies The Wharton School Gordon S. Rentschler Memorial The Brookings Institution University of Pennsylvania Professor of Economics Princeton University CED PROFESSIONAL AND ADMINISTRATIVE STAFF CHARLES E.M. KOLB President Research Communications/Government Relations Development VAN DOORN OOMS CLAUDIA P. FEUREY EVA POPPER Senior Vice President and Vice President for Communications Vice President, Director of Director of Research and Corporate Affairs Development, and Secretary of the Board of Trustees MICHAEL J. PETRO Vice President and Director of JAMES WRIGHT ELLIOT SCHWARTZ Business and Government Policy Director of Grants and Foundation Vice President and Director and Chief of Staff Relations of Economic Studies KAREN CONNELL KATHLEEN EDMONDSON SCOTT MORRIS Public Affairs Associate Contributions Secretary Senior Economist CHRIS DREIBELBIS DEOKI PESTANO ALASTAIR SMITH Business and Government Policy Grants Coordinator Research Associate Associate ANA SOMOHANO SETH TUROFF VALERIE MENDELSOHN Campaign Coordinator Research Associate Conference Manager and Secretary of the Research and Policy Committee HELENA ZYBLIKEWYCZ Finance and Administration Research Associate JESSICA B. ORKIN TIMOTHY J. MUENCH Assistant Director, Special Vice President and Director of Advisor on International Projects and Communications Finance and Administration Economic Policy KAREN CASTRO ISAIAH FRANK Accounting Manager William L. Clayton Professor of International Economics SHARON A. CLATTERBAUGH The Johns Hopkins University Executive Assistant to the President PETER E. COX Operations Manager ARLENE M. MURPHY Executive Assistant to the President AMANDA TURNER Office Manager STATEMENTS ON NATIONAL POLICY ISSUED BY THE COMMITTEE 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. CED COUNTERPART ORGANIZATIONS Close relations exist between the Committee for Economic Development and independent, nonpolitical research organizations in other countries. Such counter- part groups are composed of business executives and scholars and have objectives similar to those of CED, which they pursue by similarly objective methods. CED cooperates with these organizations on research and study projects of common interest to the various countries concerned. This program has resulted in a number of joint policy statements involving such international matters as energy, East-West trade, assistance to developing countries, and the reduction of nontariff barriers to trade. 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