Transparent but compromised: How the American political finance system works

Washington: It may be the oldest democracy in the world, but it is also the most expensive democracy in the world.
If you want to contest presidential or Congressional elections in America, be ready to be a fundraiser par excellence; have an accounts, audit and legal team attuned with complex disclosure requirements to meet transparency norms; and possess a network of rich supporters who can spend unlimited amounts to build your profile and attack your opponents through ostensibly independent but effectively aligned groups called Super Political Action Committees or Super PACs.
In any democracy, the question of political funding requires a complex balancing act between multiple principles of transparency, accountability, liberty, and the need for a relatively level-playing field. It is here that the Indian institutional stakeholders and American institutional stakeholders — particularly the judiciary — have drawn from their own history and understanding of how political finance aligns, or does not align, with the constitutional guarantees of citizens to participate in the political process and come up with different answers.
What is striking is that while in the Indian case, the legislature (prodded by the executive) has pushed for changes that give parties more leeway to raise money and the judiciary has halted it (as in the case of the electoral bonds on Thursday), in America, the legislature, at key moments, has sought to impose restrictions on donations and expenditure, only to have the judiciary overturn it to create a more laizze-faire system.
Take two instances. After the Watergate scandal in the 1970s, the US Congress passed the Federal Election Campaign Act (FECA) which “strengthened contribution limits and disclosure requirements, established optional public funding for presidential candidates, and created the Federal Election Commission (FEC) to enforce the law”, according to Richard Briffault, a Columbia Law School professor who has worked extensively on campaign finance. But the US SC, just a few years later, overturned limits on spending on the grounds that it contravened freedom of speech under the First Amendment. The floodgates for more fundraising and more spending opened.
For the next three decades, America also saw an innovation with what was called “soft money”, cash that didn’t go directly to campaigns but aided in a party campaign efforts or was used for issue advocacy that impinged on elections. The US Congress in 2002 then passed the Bipartisan Campaign Reform Act imposing federal disclosure requirements on soft money and limiting issue-based political advertisements paid for by any corporation.
But the SC hit back again. In the Citizens v United judgment in 2010, the SC allowed unlimited corporate independent expenditures and electioneering communications once again on the grounds of free political speech. This has resulted, according to Briffault, in an “explosion of spending by outside groups, particularly Super PACs and politically active nonprofits” that can now raise and spend unlimited money, as long as it isn’t coordinated on paper with the candidate’s campaign — though it is an open secret that Super PACs are aligned. This also spawned “dark money”. outside formal disclosure requirements. As Milan Vaishnav of Carnegie Endowment for International Peace, who tracks political finance systems in both India and the US, said, “There is transparency when it comes to the little guy, and anonymity when it comes to the big guy, when it should be actually be the reverse.”
The outcome: In 2020, according to OpenSecrets which follows political money, the political spending in the joint presidential, Senate and House elections was a staggering $14.4 billion. Put together, Joe Biden and Donald Trump raised over $1.8 billion dollars directly for their campaign, with Biden getting over a billion dollars and Trump the rest. But indirectly, they benefited from another $900 million in outside efforts that aided their campaign, where Biden got close to $600 million and Trump the rest. “The presidential election drew a record $5.7 billion, congressional races saw a stunning $8.7 billion in total spending,” reported OpenSecrets based on FEC records.
So where does all of this leave the American political finance system today? Three basic questions help bring clarity.
Are political donations transparent? Yes, for some part. If you donate any amount over $50 to a candidate’s campaign directly, the campaign has to disclose the identity of the donor and amount of contribution involved to FEC. If you donate to a Super PAC too, there are reporting requirements. The grey zone is in the area of dark money where non-profit organisations can spend money without disclosing donors. In the 2020 election, for instance, it is estimated that dark money accounted for over a billion dollars.
Are there financial limits to the donations? Yes. For instance, according to the FEC’s guidelines available on its website, an individual can contribute $3300 to a candidate’s campaign committee, $5000 per year to an unconnected PAC, $10000 to party’s state, district and local committees, $41,300 to the party national committee and an additional $123,900 to the national committee. The exception however are Super PACs, which “may accept unlimited contributions”.
Who can contribute? This again depends on whether they are contributing directly or indirectly. For instance, corporates aren’t allowed to donate to candidate campaigns but can do so to PACs.
All of this has resulted in a political climate where America is relatively open about the nature of donors, quantity of contributions, and mechanics of expenditure when it comes to the candidate’s election finance. But it has also resulted in the creation of opaque, sometimes visible but often invisible, networks that have spawned corruption, provided select big donors with unparalleled political access and influence, and left those without resources with a major handicap in the electoral playing field. Transparency is clearly a necessary condition but not a sufficient condition in the making of a clean democracy.