Wolf-PAC Money in Politics Series Part #1B: The History of Money in Federal Politics Part #2

Read Part #1 here: https://theprogressivecynic.com/2013/03/14/the-history-of-money-in-federal-politics-part1a

 

The 20th Century Fight for Reform

In the first decade of the 20th century, the public sentiment of the American people was that politics were becoming corrupted by moneyed interests and that reforms were needed. Numerous scandals involving money in politics—such as the power of the trusts, several state bribery scandals and improprieties surrounding Roosevelt’s 1904 election—had given the American public the perception that government had become too heavily controlled by moneyed interests. The perceived corruption in politics gave political reformers the ability to implement the first real campaign reforms in the history of our country.

From the beginning of the 20th century and up until the mid-1970s, the federal government of the United States passed incrementally more effective campaign finance laws; these laws focused on both limiting money in politics and ensuring that any money which was spent in elections was accounted for.

 

Pendleton Civil Service Reform Act of 1883

The Pendleton Civil Service Act was the first major federal campaign finance law in the history of the United States. In an attempt to curb the “spoils System” (see previous section), the Pendleton Civil Service Reform Act, put in place guidelines which promoted merit rather than political appointments for civil servants. By establishing guidelines and exams to determine eligibility for public service in replacement for discretion by political actors, this law made it increasingly difficult to appoint large numbers of political cronies to the federal payroll. At the higher levels, cronyism still existed (and exists today), but the passage of this law stopped a repeat of patronage at the levels of the 1828 Jackson coup.

The implementation of the Pendleton Civil Service Reform Act led to a significant reduction of patronage employees in the federal government. This reduction is important in the greater context of campaign finance in that it led to politicians to have an increased reliance on individual/corporate donations for campaign funds—without the captive donor pool that was the federal workforce, politicians needed to raise money from alternative sources. Once politicians were unable to sustain a large pool of patronage employees on the federal payroll, they were forced to seek funding from private and unaccountable interests—namely corporations (ex. railroads), individual donors, and trade groups (ex. trusts).

While the removal of the “spoils system” was a good thing for the country, the Pendleton Civil Service Reform Act did nothing to curb corporate corruption, and it was just the beginning of election reform in the United States.

 

The Tillman Act

Despite President Roosevelt’s status as a “trust-buster”, he was at the center of a major scandal which helped lead to the passage of campaign finance reform in the early 20th century. After his 1904 Presidential election, Roosevelt became embroiled in a scandal regarding corporate donations to his campaign. In order to get elected, Roosevelt had taken nearly $2 million dollars from a variety of corporate interests, including J P Morgan, steel barons and railroad tycoons. The acceptance of this money from interests created the perception of corruption in Roosevelt’s presidency and spurred him to take up campaign finance reform as a major policy during his 1904 term.

The rising public sentiment against corruption and the desire to perpetuate his image as a clean government reformer led Roosevelt to work with the legislature and to pass the first federal anti-corporate corruption laws in American history. Passed in 1907, the Tillman Act placed a blanket ban on corporations and banks donating money to political candidates and parties in the United States. The Tillman Act was intended to prevent any industry control over politics and to reduce the ability of corporations to engage in political cronyism.

Unfortunately, the Tillman Act was easily worked around and only solved part of the campaign finance problems in politics. Even with the Tillman Act preventing corporations from donating money to politicians, wealthy individuals could still donate personal funds to politicians. This loophole allowed the owners of corporations to skirt the reform by using their employees as proxies to donate corporate funds to political candidates. For example: A businessman or corporation would give a “bonus” to an employee with the expectation that the bonus was to be sent to a politician as an individual donation.

The Tillman Act was a good start for campaign finance reform legislation in our country, but it was woefully inadequate on its own. Additional legislative initiatives were passed in the decades following the passage of the Tillman Act in order to further tighten campaign finance regulations.

 

The Federal Corrupt Practices Act

In 1910, The Federal Corrupt Practices Act [FCPA] was passed in an attempt to increase the regulation of campaign funding within American politics. FCPA increased transparency in campaign funding and put into place spending limits for some federal elections. The passage of this bill marked both the first time in American history where mandatory disclosures were enforced on campaign finances and the first time that spending limits were imposed on political races. From its passage in 1910 and until its replacement in 1971, the Federal Corrupt Practices Act was the primary federal law regulating American election finances.

In its original, pre-amended, form, the Federal Corrupt Practices Act forced parties to disclose their candidate funding at the end of every election and put spending limits on House races. Parties, but not individual candidates or donors, were required to account for the money which they distributed or used during a campaign; after the election, the records of these expenses were available to the public. In addition to implementing disclosure requirements, the 1910 FCPA put an upper cap on House general election expenditures of $5,000 (modern equivalent to approximately $120,000).

Unfortunately, FCPA was riddled with holes and was completely inadequate in its initial form: it only covered general election races, it failed to cover many candidates, and enforcement was largely ineffective. In order to fix these issues, the Federal Corrupt Practices Act was amended twice—once in 1911 and another time in 1925. These amendments served to improve the law and increase its coverage to regulate every election.

In 1911, the FCPA was amended to cover a wider range of parties and races, as well as have more detailed reporting requirement:

  • Instead of applying to just House general elections, the 1911 FCPA amendment expanded the law to cover both the general and primary elections for the both House and Senate.
  • Candidates were required to follow the same disclosure and expenditure limit requirements as the parties.

These amendments to the Federal Corrupt Practices Act in 1911 made the law much more effective than it originally was and the law wasn’t altered again until 1922. In 1922, Newbury v. United States—a US Supreme Court decision challenging the constitutionality of primary campaign regulations—struck down the ability of the government to regulate primaries and non-office holding elections (ex. party chairs). This decision was based upon the fact that primaries and certain other elections are not for elected office (ex. primaries are elections to decide who get to run for elected office), thus they do not fall under the regulatory jurisdiction of the federal government.

In 1925, congress strengthened the Federal Corrupt Practices Act and attempted to close the loopholes that reduced its effectiveness; this was the last time that it was changed before it was replaced by the Federal Elections and Campaign Act in 1971. The changes to the FCPA in the 1925 amendment expanded the law to fill coverage loopholes and improved disclosure requirements.

  • Reporting requirements were improved to require all donation to politicians and parties over $100 to be reported by a 3-month basis.
  • FCPA coverage was expanded over all political parties and committees.

While the 1925-amended FCPA was stronger than any of its previous forms, it was still possible to circumvent. The law required disclosure and campaign limits, but there were no real legal paths to pursue those who failed to comply with the regulations—the law was virtually toothless. This lack of strong enforcement mechanisms made the law much less effective than it should have been. In the early 1970s the federal legislature passed the Federal Elections and Campaign Act to replace the Federal Corrupt Practices Act and fix the inadequacies in federal election law.

 

The Federal Elections and Campaign Act and the FEC

In the time between 1971 and 1974, the Federal Elections and Campaign Act was passed to replace existing campaign finance laws and amended to become stronger than any previous regulations. Originally passed in 1971, the FECA was intended to consolidate existing campaign finance law into one act as well as to advance the implementation of publically funded elections. The Federal Elections and Campaign Act is still the major campaign finance law on the books today, but it has been severely circumscribed by several Supreme Court decisions that have struck down portions of the law (ex. Citizens United v. FEC).

The 1971 FECA incorporated the disclosure and campaign fundraising limits of previous bills with a few updates and incremental changes. The updates to campaign finance law found in the FECA, as it was originally passed, were not qualitative changes to the law as much as they were quantitative—few new provisions were enacted, but existing regulations were consolidated and updated. For example:  under FECA, all political donations and expenditures over $200 are required to be reported to the government at regular intervals and corporations/unions were prohibited from spending money in elections.

While there were few entirely new provision in campaign finance laws to be enacted by the passage of the 1971 FECA, one such provision was the creation of the matching funds program for elections. This component of FECA created a new tax revenue stream attached to the income tax which allowed for the start of publically funded elections.  Candidates could opt into the matching funds program in order to receive financial assistance in funding their campaigns. This effort was intended to increase the ability of candidates to fund their campaigns independent of large numbers of donors; by being able to rely on public matching funds up to a point, candidates with fewer donors gain the ability to compete with better-funded candidates on a more even footing.

The 1972 election scandals of the Nixon campaign illustrated to both the public and the legislature the holes in the original FECA, and led to it being amended in 1974. The Nixon campaign of 1972 took large amounts of illegally-raised corporate money in order to fund its operations. In exchange for campaign payments, the Nixon administration promoted policies and initiatives which benefitted their donors. For example: the dairy group Associated Milk Producers Incorporated illegally donated $2 million in corporate funds to Nixon and were rewarded with an increase in the milk subsidy that would benefit their business.This donation-for-policy arrangement was confirmed by the Watergate Tapes. Such blatant bribery of a high-ranking public official helped spur the Congress to action in passing significant reforms to FECA

The 1974 amendments to the Federal Elections and Campaign Act shaped American campaign regulations for decades and many of them are still in place today. Of the major reforms passed in the 1974 amendment to FECA, the most important were the creation of the Federal Elections Commission, the implementation of campaign contribution limits, and the creation of the Political Action Committee loophole.

Since the first disclosure laws were implemented in the United States there was always an issue with centralizing reporting and punishing campaign violations—even the most strict campaign disclosure laws are irrelevant without a strong ability to enforce them. Before the 1974 amendment to FECA, there was no centralized agency for disclosure to be run through, but this changed when the FEC was created. The Federal Election Commission exists for the sole purpose of ensuring that election laws are followed and is an absolutely vital agency to the integrity of our elections. They handle all disclosure data and act as the centralized hub of all campaign finance information. By creating the FEC and allocating funding for its operations, the FECA helped ensure that not only are there election laws on the books, but that those laws are enforced with consequences. Without the FEC, many federal election laws and campaign finance regulations would be absolutely toothless and ineffective

The 1974 amendment to the Federal Elections and Campaign Act implemented donation limits for individuals for the first time in American history. Individuals were allowed to donate money to any politician or party of their choice, but the amounts were limited by the amended FECA. Originally, when combined with the corporate and union bans on spending, these limits sought to control the spending in elections and prevent money from having an undue influence in politics. The limits created with the 1974 amendment have been updated for inflation.
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Unfortunately, the Buckley v. Valeo and Citizens United v. FEC decisions destroyed the donation limits created by FECA and have led to a reentry of money through unlimited, big-money donations into American campaigns. This deregulation is a very important issue to our country’s political system and is one which will be covered in the third edition of this article series.

 

Conclusion

In the 130 years since the passage of the Pendleton Act, Americans have sought to reform and control the role of money in politics on a federal level. Corruption has been met with regulations and inadequacies in the laws have been met with reforms. During the early years of our country, there were no regulations on money in politics and our country suffered for it—corruption became a severe issue and money began to dictate policy. In reaction to this corruption, our legislature acted and passed legislation which governed our elections, first through disclosure laws and then with restrictions on money. Over the decades, these laws have been refined and honed to the point where they became gradually more effective and more able to safeguard our federal elections from corruption.

Unfortunately, decisions by our Supreme Court and the concerted work by big-money activists have led to recent attacks on the regulatory regime that protects our elections from corruption. These attacks have drastically weakened the regulations which govern our elections and have let money back in.

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