A Decade of McCain-Feingold

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The good, the bad and the ugly.


We’re now five election cycles removed from the passage of McCain-Feingold, which drastically altered the landscape of campaign finance law and has been at the center of countless court challenges over the past decade. It’s more than enough time to properly assess the long-term impacts of the law and judge how its major provisions have fared through the years.

Since the 2004 election cycle, when McCain-Feingold took effect, we’ve had a front row seat, representing candidates, party committees and third party groups grappling with the ever-changing campaign finance landscape. So from the perspective of a Democratic campaign finance attorney and a Republican former chairman of the Federal Election Commission, what follows is a bipartisan perspective on the law—the good, the bad and the ugly.

Let’s flash back to 2002. A Democrat-controlled Congress sought to address several issues it believed to be destroying American politics. Party committees were supposedly running amok. Spending by “unregulated” outside groups, which were running issue ads with unregulated funds, was rising. And the effects of the 1996 election scandals were still being felt —highlighting fundraising practices in both parties, as well as troubling attempts by foreign donors to funnel money into American elections.

Although McCain-Feingold faced many hurdles, adept political maneuvering by its proponents created a law that was quite different than the one initially introduced. McCain-Feingold was carefully crafted to achieve two goals: break the link between politicians and soft money, and reduce the number of so-called negative sham issue ads that had begun to make incumbents nervous.

Once passed, it wasn’t a slam dunk that then-President George W. Bush would sign the bill into law. Yet he did sign the Bipartisan Campaign Reform Act of 2002 (commonly referred to as McCain-Feingold) into law in March of 2002. The law’s provisions were to take effect after the 2002 elections.

Unsurprisingly, even before the ink on the president’s signature was dry, legal challenges were filed. Although the reform groups and the federal government successfully defended most of these initial facial challenges, several subsequent challenges to McCain-Feingold’s provisions have profoundly altered the state of campaign finance law in America. This leaves us wondering: Was the initial effort worth the trouble?

THE GOOD

The Soft Money Ban The lynchpin of McCain-Feingold was the prohibition on national party committees raising funds from sources and in amounts that were inconsistent with federal law—that is, unlimited soft money contributions from corporations, individuals and labor unions. To date, the ban has withstood constitutional challenge.

In theory, these funds were intended to help pay for a portion of the party’s overhead and for their activities in state and local elections. Starting in the mid-90s, party committees began using these funds to pay for “issue ads” that promoted their candidates and attacked their party opponents. Based upon FEC rulings, the party committees could pay for such ads, without limit, in full coordination with their candidates, and in large part, with soft money.

As you could imagine, the success of these ads created a significant dependence on these large contributions by the national party committees and party leaders, which brought to light many unseemly fundraising practices where six-figure donors were offered special access to lawmakers and the president. One of the more celebrated examples of this practice: sleepovers in the White House.

To the extent that McCain-Feingold sought to break the link between national parties and soft money, it has achieved this stated goal. Some claim the parties have more than made up for this shortfall, pointing to gross fundraising numbers. For example, in the 2012 cycle, the Democratic National Committee and the Republican National Committee raised over $650 million combined, as compared to approximately $330 million combined in the 2000 election cycle (the final presidential cycle before McCain-Feingold took effect).

Such comparisons over-simplify the harm the law has caused. First, in the 2000 cycle, the two major national party committees raised over $300 million combined in soft money.

Second, such comparisons tend to be selective, ignoring the other national party committees dedicated to House and Senate elections and the negative effect it’s had on these entities, particularly in non-presidential cycles. Third, it ignores the exponential increase in the cost of communicating with voters.

From the cost of postage to the explosion in the cost of broad- cast air time, party committees simply do not have the buying power they used to have. In absolute dollars, the parties appear healthy; but in political bang-for-the-buck, they are a shadow of what they used to be.

Contribution Limits Although not included in the original bill, McCain-Feingold was amended to raise contribution limits to candidates and party committees, and also index many of those limits for inflation. The change was a long time coming, and it was the first amendment to the incoming contribution limits since the mid-70s.

The new limits helped replace some of the money being excluded from the system by the soft money ban. The limits for national party committees were raised from $20,000 to $25,000 and the candidate limit was doubled from $1,000 per election to $2,000 per election, both of which were indexed for inflation. However, these increased limits had some other consequences. For one, they have permitted candidates to raise more money. This can either be perceived as a good or bad trend, depending on how you look at the issue. In the 2012 cycle, congressional candidates raised over $1.8 billion compared to $980 million during the 2002 cycle.

At the presidential level, the increased contribution limits, combined with successful Internet fundraising, have made the current presidential public financing system completely irrelevant.

President Obama and his Republican challenger Mitt Romney collectively raised more than $1 billion in 2012. Had each agreed to the public grant for the general election period, each candidate would have been limited to spending no more than $92 million in the general.

While the numbers are staggering, raising contribution limits to catch up to inflation, and indexing them to inflation, is a good thing for the political system. Several states have either higher limits than those in federal races, or no limit at all, without any additional threat of corruption. It helps campaigns to keep up with rising costs. Critically, it can help some challengers raise the funds necessary to wage a credible campaign against entrenched incumbents.

On the other hand, the ability to raise more funds, coupled with the rising costs of political messaging, significantly increased the average spending in federal races, which may deter otherwise enthusiastic challengers. More and more campaigns are being dominated by self-funders, who need not rely on smaller contributions or party committees.

THE BAD

State and Local Party Committees Although sold as a national party soft money ban, buried in the details of McCain-Feingold were several provisions that have harmed state and local parties. Essentially, McCain-Feingold federalized almost all elections, even those for state and local office, and forced the state and local parties to pay for most everything they do with hard money.

McCain-Feingold created a new concept called “federal election activity,” which includes the traditional party programs to register voters, develop voter lists, provide sample ballots and get voters to the polls on Election Day. The law piled on several restrictive provisions that apply even if those activities also benefitted state and local candidates, and even if not undertaken to assist federal candidates. In addition, McCain-Feingold placed a very complex set of regulations upon state and local committees, which make the law regulating state parties look like a Rube Goldberg contraption.

Of course, most state campaign finance laws are less restrictive than federal law. Therefore, the new law has created disincentives for state and local party committees to engage in a consolidated effort to elect both federal and state candidates together. The days of spending on ticket-wide mailings and slate cards have been replaced by separate appeals for federal and, maybe, if they can afford it, state and local candidates.

Although state party federal limits were doubled in McCain- Feingold, total receipts from the 100 Democratic and Republican state party committees in the 2012 election cycle (not including joint fundraising projects) were only about $200 million, or an average of $2 million per committee. State party committees have lagged far behind candidates, national party committees and the nascent Super PACs in their ability to raise federal funds. Many state parties had received significant transfers of funds from the national parties as well, which all but disappeared with the passage of McCain-Feingold.

As spending from candidates, national party committees and outside groups is skyrocketing, state party spending has stayed relatively flat. This may be an indication that state and local party committees are becoming marginalized in the current campaign finance scheme. This is unfortunate.

The two-party system has been a stabilizing force in our democracy for over 200 years. Without that stabilizing force, however, there has been a significant rise in the number of single-issue candidates, nasty primaries pitting the middle against the hard partisan flank, and a general polarization. It is time for Congress to reconsider whether some of the regulations placed upon state party committees should be revisited, especially in light of the rise of Super PACs and other outside spending.

Candidate Fundraising Recognizing that nothing can feel more awkward than a phone call from your party chairman, member of Congress, or perhaps even the president, asking you to contribute $100,000 or more to a national or state party committee, McCain-Feingold altered the ability of politicians to raise funds. Under McCain-Feingold, party officers, candidates and members of Congress were limited to soliciting only federally permissible funds for outside groups that participate in elections or for the non-federal accounts of party committees.

But the First Amendment limits the ability to impose such limits, and based upon FEC and court rulings, candidates have found it relatively easy to continue to appear at events that raise large contributions. Ironically, they at the same time have been restricted in raising contributions, under state rules, for their state and local party committees.

Prior to McCain-Feingold, state party committees relied heavily on the ability of their candidates for federal office to raise non-federal funds for their campaign efforts. By cutting off the ability of members and candidates to raise these otherwise legal funds, the struggle for state and local party committees to be relevant in the campaign finance system has been further exacerbated. Add to this the new practice of a candidate’s ability to raise funds for Super PACs, but not being specific in how much they can ask for, and it is not hard to see that McCain-Feingold’s promise of breaking the link between politicians and money has not come to pass.

Millionaires One of the more bizarre additions to McCain-Feingold was its so-called Millionaire’s Amendment. It raised contribution limits to the opponents of self-funding candidates whereby they could accept, in some cases, up to $12,000 from each donor to match self-funded candidates. This provision was largely perceived as an incumbency protection measure to shield entrenched incumbent members from self-funded challengers. The provision was declared unconstitutional by the United States Supreme Court in 2008.

One side consequence of the Supreme Court decision: the logic of the Court’s opinion was applied to strike down several state laws that attempted to incorporate outside spending in the context of public funding programs. Another consequence: much of the opinion was a precursor of things to come, particularly the Supreme Court’s landmark decision in Citizens United v. FEC.

THE UGLY

Outside Spending In addition to the regulation of party spending, the other major objective of McCain-Feingold was to rein in the exploding amount of spending on “issue ads” being undertaken by outside groups that had paralleled the explosion of party “issue ad” spending since the mid-90s.

Similar to the Millionaire’s provision, this was largely seen by the law’s opponents as something passed by members of Congress who were tired of being held accountable for their various legislative positions. No incumbent wanted to be bashed with millions of dollars in spending by groups whose ads were declared by some to be craftily designed campaign ads in the guise of issue discussion. During this period, the favored vehicles of choice for this unregulated spending were groups organized under section 527 of the tax code.

In 2000, prior to the passage of McCain-Feingold, Congress hastily passed a law that required these organizations to disclose their spending. It was through this law that Congress and reformers had their first chance to shed light on the amount of spending being undertaken by these groups and the individuals, unions or corporations who were funding them. McCain-Feingold attempted to regulate issue ad spending by requiring broadcast ads shortly before an election to be disclosed within 48 hours to the FEC, and by banning such spending from corporations and unions. (Simply referencing someone who was a candidate was banned in certain instances.)

This provision did little to stem issue ad spending and these ads were prevalent during the 2004 presidential election. In addition to its failure to stop issue ad spending, the provision triggered lawsuits that would reach the Supreme Court and significantly alter the state of campaign finance.

Ultimately, in Citizens United v. FEC, the Supreme Court invalidated the issue ad spending provisions of McCain-Feingold.

Some hyperbolically claimed that it reversed a 100-year ban on express advocacy spending by corporations and unions in the process. Although not really true, the Supreme Court certainly issued a watershed opinion, which undercut or otherwise rejected much of the assumptions upon which campaign finance regulation is based. Overnight, many of the assumptions made by reform groups and regulators were swept away.

The world after Citizens United is dominated by two major developments: 1) the rise of Super PACs, which are federal PACs that are no longer restricted on how much they can raise from any source and engage in independent expenditures that can expressly advocate the election or defeat of a federal candidate without limit; and 2) the reemergence of issue advocacy, not by 527 organizations but by 501(c)(4) organizations, which are not currently required by IRS laws to publicly disclose their donors.

Some think the jury is still out on McCain-Feingold, but the evidence is pretty clear. While it had some laudable goals, the law and its aftermath have profoundly changed the landscape of campaign finance law. Today, corporations and unions are free to run explicit election ads that, if run by party committees, would still be subject to the onerous restrictions of McCain-Feingold. It makes no sense that the law now permits certain speakers to speak, yet effectively precludes others (particularly party committees, which fully disclose their activities) from doing so.

The answer to the cries and complaints about so-called “dark money” groups is not more regulation. Instead, any offered solution ought to flow from a common premise: The candidate’s voice should be the central voice in American democracy. The party committees have historically been the obvious echo chamber for the message of candidates, and they ought to be free to ensure that our voters have as much information about those candidates as possible. McCain-Feingold has frustrated this goal, and it has left the candidates untethered from their historical political party allies.

It is time to revisit McCain-Feingold. It was sold as a balance to reduce the corrupting influence of money by banning party soft money and banning certain negative advertising.

The second part has been declared unconstitutional. It is time to revisit the first part, and permit the parties to once again provide the stabilizing force to our system of government that they had historically been. As we illustrate, there ought to be bipartisan support for this.

From where we sit, the good, bad and the ugly impacts of the law, presented above, aren’t all that debatable, but you can be sure the proponents and opponents of campaign finance regulation will continue to debate (and probably litigate) its legacy for years to come.

Neil Reiff is a founding member of the law firm Sandler, Reiff, Young & Lamb, and a former deputy general counsel at the DNC. Don McGahn is a partner with the law firm Patton Boggs LLP, and is the former chairman of the Federal Election Commission.


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