What is Hard and Soft Money?

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Definition:

Hard and soft money are two different types of financial contributions in a political campaign.

🤔 Understanding hard money and soft money

Hard money and soft money are terms used in campaign finance to describe different types of contributions. Hard money refers to donations that go directly to support or oppose a candidate running for federal office. Federal law limits how much hard money donors can contribute and what it can be spent on. Soft money, on the other hand, describes contributions outside the federal limits to a state or local candidate or party or to an outside interest group. Campaign finance laws limit the amount of hard money someone can donate to a candidate, but there are fewer limits when it comes to soft money. Proponents of campaign finance reform often see soft money as a loophole that allows parties and candidates to circumvent limits on spending.

Example

Suppose you decide to run for office to represent your community in Congress. You start campaigning and ask community members to donate. Thanks to federal limits on hard money, people can only give a limited amount to your campaign directly ($2,800 in 2020). But they can give more to a political action committee to register voters that are likely to support you or run issue ads that align with your platform. In practice, these donations can benefit your campaign.

Takeaway

Hard money and soft money are like two rivers flowing into the same lake…

Picture two rivers that feed into a large lake. Regardless of where the water starts, it ends up in the same place. The rivers are sort of like hard money and soft money, while the lake represents the efforts of a particular political candidate or party. Contributions can go to different candidates or organizations, but end up supporting the same goals.

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What is hard money and soft money?

Hard money and soft money are the two different types of donations that help fund political campaigns. Hard money refers to funds that donors give to a candidate or organization to try and directly sway the outcome of a federal election. These campaign contributions are regulated by the federal government.

Soft money, on the other hand, refers to contributions outside of the federal limits to a state or local candidate or party or to an outside interest group. This money isn’t subject to federal campaign finance law, since it doesn’t go to a specific candidate. Instead, it can be used for general “party building” or “get-out-the-vote” activities. In practice, it can still help a specific candidate get elected.

Regulations around hard and soft money in campaigns have shifted over the years. The Federal Election Commission sets campaign contribution rules for federal elections. For example, individuals can only donate a limited amount to each political candidate, and candidates must file reports with the FEC to prove they aren’t accepting donations over the legal limit.

Hard and soft money in politics can be a controversial topic. Some argue that political spending is a form of free speech for both individuals and corporations, and that there should be no limits at all. Others believe soft money allows donors, candidates, and organizations to skirt campaign finance regulations and have an outsized influence in politics.

What is the difference between hard money and soft money?

Hard money helps candidates directly, while soft money can help them indirectly. Hard money consists of funds that people donate either to the campaign of a specific political candidate or to an organization to help elect a specific candidate. Soft money, on the other hand, allows political parties and political action committees (PACs) to do things like fund issue ads and party-building activities.

The two types of money are subject to different regulations. There are strict contribution limits and spending rules for hard money, whether you’re donating it to a candidate, PAC, or political party. But many soft money contributions are unlimited and unregulated. Federal campaign finance law doesn’t apply to soft money, even though it can help elect candidates in a roundabout way.

What is hard money?

Hard money refers to the regulated funds that donors contribute to political candidates running for federal office. Donors can include individuals or political action committees (PACs), and the money can go to a candidate, party committee, or another PAC for use in a federal election. The Federal Election Commission sets limits on hard money contributions and spending. This money can pay for ads, yard signs, mail campaigns, and other forms of communication that mention a specific candidate.

Hard money isn’t just a term used for political contributions — It’s also a type of loan you can use to buy real estate. Hard money loans are a type of asset-based financing, meaning the person taking out the loan borrows against a piece of property. Rather than coming from a bank, the cash for hard money loans often comes from private investors.

These loans usually come with a higher interest rate than traditional mortgage loans. However, they might be easier to qualify for and don’t have the lengthy approval process that you might face going through a traditional lender. Because of their short term (they often last just a few years at most), they’re ideal for flippers, or people who don’t plan to hold onto a property long.

What is soft money?

Soft money refers to political contributions outside of the federal contribution limits. It goes to a state or local party, a state or local candidate, or an outside interest group, like a political action committee. While this money can benefit political candidates in practice, it doesn’t go directly from the donor to a political candidate. Instead, it helps pay for party-building activities, voter registration programs, and get-out-the-vote efforts.

An example of soft money at work would be an issue ad that a PAC runs. Suppose a PAC was working to elect candidates who would advocate for school choice. As long as the PAC doesn’t mention specific candidates, it can spend unlimited cash running ads encouraging voters to support candidates who stand for school choice.

Just like hard money, the term soft money can also refer to a type of loan. A soft loan is one that has especially favorable terms for the borrower. Such terms might include lower interest rates, interest holidays, and longer repayment periods. A bank could use a soft loan when it wants to establish a good relationship with a particular borrower. Government agencies, not banks, are most likely to offer soft loans.

What are the hard and soft money contribution rules?

As of 2020, the contribution limits to a candidate committee for federal elections are:

  • Individual: $2,800 per election
  • Candidate committee: $2,000 per election
  • Political action committee (multi-candidate): $5,000 per election
  • Political action committee (one candidate): $2,800 per election
  • State, district, or local party committee: $5,000 per election (combined)
  • National party committee: $5,000 per election

In many cases, donors can give a lot more money to PACs and party committees than they can to political candidates. For example, each year individuals can donate $5,000 to a PAC; $10,000 combined to a state, district, or local party committee; and $35,500 to a national party committee as of 2020.

Prior to 2014, there was an aggregate limit on the amount of money that one individual could donate each election cycle to political causes, including donations to candidates, PACs, and political party committees. As a result of the 2014 Supreme Court decision McCutcheon v Federal Election Commission, this limit no longer exists.

But individuals and interest groups can have a much larger influence through unlimited soft money contributions. There is no limit on how much candidate committees can donate to party committees, nor on how much party committees at all levels can transfer to each other.

Consider an election for a Senate seat in a swing state. Because it’s a seat that either party could win, both are planning to devote a lot of resources to the race. Individuals can donate only $2,800 each directly to the committee working to elect a candidate or $10,000 a year to the state party committee. But other donors are contributing to local and national party committees all over the country. These state and local committees can then funnel unlimited amounts of funding to each other. In the end, the national party committee can then send unlimited amounts of funding into the area where the contentious race is taking place.

What is the history of hard and soft money?

The concept of hard money and soft money started with the Federal Election Campaign Act of 1971 (FECA), which required the reporting of political contributions and created the basis for political action committees. A 1974 amendment to the FECA established the Federal Election Commission, which oversees compliance with campaign finance laws. The amendment also created contribution and expense limits for candidates and political committees trying to affect federal elections (the Supreme Court later struck down the spending limits).

In 1979, Congress amended the act to allow using donations to political parties instead of candidates. In 1996, the Supreme Court ruled that soft money could be spent on things like TV ads. The use of soft money increased dramatically by the 1990s.

In 2002, the Bipartisan Campaign Reform Act placed limits on soft money. The law prohibited soft money contributions to national political parties and banned interest groups from spending soft money on issue ads that mentioned a specific federal candidate close to an election.

In 2010, in the case Citizens United v. Federal Election Commission, the Supreme Court ruled that the 2002 limits were unconstitutional and that corporations and unions could spend unlimited amounts on ads directly related to a specific candidate. This controversial decision helped shape the way political campaigns in the US look today.

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