The Slate Gist

Presidential Campaign Finance

Campaign finance has been one of the biggest stories of the 1996 presidential race. During the past month, Republicans and journalists have questioned foreign contributions to the Democratic Party. Both parties, interest groups, political action committees, and businesses have spent record sums this year. According to one campaign-finance watchdog organization, the 1996 presidential contest will cost $800 million, nearly three times as much as the 1992 race. What are the rules of campaign finance? What rules, if any, have the campaigns broken?

Under the 1974 Federal Election Campaign Act, foreign nationals cannot make contributions or expenditures in connection with any U.S. election–federal, state, or local. Foreign nationals include foreign governments, political parties, corporations, and citizens. The ban does not apply to foreigners who are legal residents of the United States. A domestic subsidiary of a foreign corporation may make political contributions, but only if the foreign parent plays no part.

The Democratic Party is embroiled in controversy over contributions from Asians and Asian-Americans. Most of this money was raised by John Huang, the now-suspended vice chairman of finance for the Democratic National Committee. The DNC was forced to return $250,000 raised by Huang after it came out that the donation came from a Korean corporation, rather than its U.S. subsidiary. The DNC has kept a $450,000 contribution from an Indonesian couple, Soraya and Arief Wiriadinata. Soraya and Arief are the daughter and son-in-law of Hashim Ning, co-founder of the Lippo Group, a $6 billion Indonesian banking conglomerate. The DNC says that the Wiriadinatas’ contribution is valid because they were legal residents of the United States. (Since the donation, the Wiriadinatas have returned to Indonesia.) Many have questioned the propriety of the donation, suggesting that the president has been unduly influenced by a foreign corporation. Bill Clinton is a friend of James Riady, Lippo’s vice president and son of Mochtar Riady, the firm’s honorary chairman. (Clinton met James Riady when he came to Little Rock to learn American finance.) John Huang once worked for Lippo and is one of James Riady’s closest associates.

Republicans have also benefited from foreign political contributions. In 1992, James Riady’s wife, Aileen, gave $1,000 to Bob Dole. The Republican Party also has received more than twice as much money as the Democrats from American subsidiaries of foreign companies. The vice chairman of Bob Dole’s primary election-finance committee was Alfonso Fanjul, a Cuban-born sugar magnate who carries a Spanish passport but lives legally in this country. His company, Flo-Sun Sugar, has given $234,000 to the Republican National Committee this campaign, as well as thousands in direct donations to candidates.

It is against the law for corporations and labor unions to contribute money to candidates for federal office. However, they may sponsor political action committees which raise money from employees, stockholders, and members, and contribute the money to candidates. Individuals may give $20,000 per year to a national party, $5,000 to a PAC, and $2,000 to a candidate ($1,000 in the primary and $1,000 in the general election)–up to a maximum of $25,000 a year. No one may donate in another’s name, or give more than $100 in cash. The Democrats may have violated this last restriction. In April, Al Gore appeared at a Buddhist temple, an event that netted $140,000 for the party. The DNC gave up $5,000 of that money after a Buddhist nun said someone gave her $5,000 cash and asked her to write a $5,000 check to the party.

Qualified presidential candidates and political parties receive money from the federal government for primary- and general-election expenses, and national-party conventions. For the general-election campaign, Bill Clinton and Bob Dole will each receive $61.82 million from the fund. Ross Perot will receive $29 million. In exchange, Dole and Clinton cannot accept private contributions. Perot is permitted to seek private funds up to the $61.82 million limit. All presidential candidates may accept private donations during the primary season.

If the two major-party candidates are restricted to spending $61.82 million each, why the $800 million price tag for this year’s election? The cost of primaries is one reason. But there are also three major loopholes in the spending-limit rules.

Soft money. Individuals and groups–including corporations and unions–can contribute unlimited amounts to the parties for activities such as get-out-the-vote efforts that do not directly endorse specific candidates. Without violating the law, this money can be spent on highly partisan messages. In 1992, the Republicans raised $52 million in soft money and the Democrats raised $37 million. In 1996, just through June, the Republicans collected $83.9 million and the Democrats collected $70.3 million. Many companies and individuals give soft money to both parties.

Under the First Amendment, individuals and organizations can also spend unlimited amounts on political advocacy, so long as a specific candidate is not endorsed. A 1976 Supreme Court footnote listed the “magic words” that separate issue advocacy from campaign advocacy. They include: “vote for” and “vote against.” As long as your ads do not include the magic words, you can spend as much as you want on them. In 1996, the AFL-CIO plans to spend $35 million attacking the Republican “Contract With America.” Groups such as pro-term-limit organizations and the Christian Action Network have also raised and spent millions on “issue” ads, as have the political parties. It is often difficult to distinguish issue ads from campaign ads.

The Supreme Court has held that the First Amendment also protects independent expenditures. Individuals and organizations can spend as much as they want on a candidate’s behalf as long as they don’t coordinate their spending with the candidate. In 1992, PACs and individuals spent more than $11 million on independent expenditures for presidential and congressional candidates.

Last June, the Supreme Court ruled that political parties (as well as PACs, interest groups, and individuals) can make unlimited independent expenditures on behalf of candidates. This decision produced an explosion of spending by political parties, although it is not yet clear what constitutes an “independent” expenditure. According to Common Cause, the political parties are spending millions of dollars as “independent expenditures” on ads that were designed and produced by the candidates’ own campaign organizations.

Who gives? Corporations and business PACs gave $242.2 million to candidates and political parties in 1995 and the first half of 1996. Organized labor gave $35 million during the same period (in addition to the $35 million spent by the AFL-CIO on issue advocacy). The largest single contributor to Democrats is the American Trial Lawyers Association, which gave $1,747,725. The Republican champion is Philip Morris, which gave $2,131,955.