Overview of This Week’s Report: “Campaign Finance Reform”

Sen. John McCain has faced withering criticism during his rise to presumptive GOP presidential nominee, but one barb stands out: condemnation by conservatives in his own party for his role in the eponymous McCain-Feingold law, which sought to curb the influence of money in political campaigns.

Reform advocates hail the 2002 law, which in part cracked down on so-called soft money – unregulated contributions to political parties – as an incomplete but welcome step toward fixing a broken campaign finance system. Critics, on the other hand, view the law as a misguided assault on free expression.

“For a lot of conservatives,” interviewer Chris Wallace of the Fox News channel told the Arizona senator last fall, campaign finance reform is “your original sin.” An unapologetic McCain said, “If anybody thinks that we need more special-interest money in Washington, I’d like to meet them.”

The exchange was a small hint at a much bigger ideological contest over campaign finance regulation, one that is putting not only the McCain-Feingold law to the test this year but is shaking up a political reform movement that stretches back more than three decades to the dark days of the Watergate era.

And it’s not just McCain who is challenging the tradition of raising money from special interests. In early June, right after becoming the presumptive Democratic presidential nominee, Illinois Sen. Barack Obama – who frequently tells supporters Washington lobbyists “won’t run my White House . . . when I am president” – made history by announcing that the Democratic National Committee would no longer take contributions from federal lobbyists or political action committees. The new policy was an extension of the rules he had set for his own campaign last year.

Obama clearly is planning to try to compete with McCain for the “reformer” title on campaign finance. But despite their rhetoric, both men have been accused of accepting special-interest money, and several of McCain’s top advisers had to leave the campaign after reports of their ties to lobbying and special interests.

In addition to the controversies over special interests, the world of campaign finance regulation is confronted by several other challenges:

* The McCain-Feingold law faces an uphill battle in the Supreme Court, where a conservative majority has already chipped away at it, and new cases are in the wings. The law – officially the Bipartisan Campaign Reform Act of 2002, or BCRA (pronounced “bick-rah”) – survived a 2003 Supreme Court challenge over free speech and other issues. But since then the court’s majority has shifted to the right. That shift concerns reform advocates, who fear a basic tenet of campaign finance regulation – that it is constitutional to limit campaign contributions – could be at risk.

* The system of public funding for presidential campaigns, begun in the 1970s and paid for with a $3 voluntary checkoff on income-tax forms, is teetering. Critics say the system is grossly underfunded and needs updating if it is to be effective in an era of long primary seasons and expensive media campaigns. Democratic nominee Obama is poised to be the first major-party presidential candidate to forgo public financing for a general election since the system began in 1976.

* The Federal Election Commission, charged with enforcing campaign finance laws, was without a quorum and paralyzed during this year’s campaign because of partisan bickering over appointments. The deadlock has spurred debate about the best way to regulate money and politics in the future.

One positive development has occurred, however: Spurred partly by McCain-Feingold and the shortcomings of the public-funding system, candidates are turning more then ever before to grassroots donors making small contributions. This year’s three leading presidential contenders – Obama, Sen. Hillary Rodham Clinton, D-N.Y., and McCain – raised nearly $200 million in contributions of $200 or less through April 2008, according to the Washington-based Campaign Finance Institute.

The swirl of issues surrounding campaign finance is complex and volatile, and BCRA is in the eye of the storm. McCain co-sponsored the law with Sen. Russ Feingold, a liberal Wisconsin Democrat, in a hard-fought struggle in Congress. For more than 50 years corporations and unions had been prohibited from making political contributions and expenditures but were nevertheless funneling millions of dollars into federal elections via soft-money donations and sham issue ads.

BCRA had two chief aims. One was to stanch the flood of unlimited and virtually unregulated “soft” money flowing to national political party committees, some of which ended up going to individual campaigns. Before BCRA, corporations, labor unions and wealthy individuals were fonts of such largesse, which politicians themselves sometimes solicited from donors with business pending before the government.

By most accounts, BCRA stopped the geyser of soft money to the parties, but critics say it did nothing to reduce the overall amount of special-interest dollars washing through politics via nonprofit groups organized under Section 527 of the tax code, and other avenues.

BCRA’s other main goal was to curb what some saw as abusive “electioneering communications” – partisan attack ads thinly disguised as “issue ads” that shadowy corporate and union groups broadcast in the weeks and days before elections.

But a year ago, in a case involving ads run by the advocacy group Wisconsin Right to Life, a conservative majority led by Chief Justice John Roberts, appointed to the court in 2005, sharply undercut that provision. The court said unless the ads explicitly urged people to vote for or against a particular candidate, censoring the ads violated the constitutional guarantee of free speech.

While the full impact of the ruling is not likely to be known until this year’s general election draws nearer, some expect a cascade of so-called issue ads paid for by nonprofit political advocacy groups.

Another part of BCRA was before the court this spring: a provision widely known as the “Millionaire’s Amendment,” which lets opponents of wealthy, self-financed House and Senate candidates accept more in contributions than the law normally allows. Supporters of the provision say it levels the playing field in congressional races. But critics say it infringes on the free-speech rights of self-funded challengers and unfairly protects incumbents.

Legal issues aren’t alone in shaking the campaign finance ground this year. Tectonic shifts also are changing how candidates shoulder the multimillion-dollar cost of running their campaigns, and the public-financing system is at the center.

In the primaries, the federal public-financing system matches the first $250 in contributions from individual donors, but candidates must agree to stick to national and state spending limits. Critics argue the system is inadequate, not only because the amount available for primaries – about $42 million this year – has not kept pace with campaign costs but also because the money isn’t available early enough in an election cycle to help serious candidates mount effective campaigns.

In the general election, candidates who accept public financing must forgo private contributions, and the amount they can receive – $84.1 million in this year’s general election – can easily be eclipsed by both campaign costs and the amount candidates may be able to raise on their own.

“It’s underfunded,” says Jay Mandel, an economics professor at Colgate University who has studied the system. “It was indexed to 1976. In real terms, campaigns have become much more expensive than that.”

Obama and Clinton opted out of public financing for the primary season. McCain abandoned it in the primary but has increasingly indicated he will use it in the general election. The system is “creaky,” Obama has said. Former Democratic congressman Bob Edgar, president of the liberal advocacy group Common Cause, says while the system is not dead yet it’s “on life support.”

With McCain-Feingold putting a squeeze on soft money and the public-financing system collapsing, it’s not surprising that candidates are turning more and more to small donors for financial help.

To be sure, big donations still rule. In this year’s primaries, donations of $200 or less made up only about a third of total fundraising, about 7 percentage points more than in the comparable period in the 2004 presidential race, according to the Campaign Finance Institute (CFI). Under BCRA, individual donations per federal candidate are capped in 2008 at $2,300 for the primaries and separately at $2,300 for the general election.

Even though large contributions remain the lifeblood of campaigns, however, small donors are emerging as one of the big stories of the 2008 race. Obama, for example, culled $121 million in donations of $200 or less from January 2007 through April 2008, compared with $88 million in contributions of $1,000 or more, according to the CFI.

And many of those small contributors went to work as campaign volunteers, staffing phone banks and staking yard signs. “The most healthy aspect of the small-donor phenomenon,” says CFI Executive Director Michael Malbin, is “people who tend to do more than just give.”

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