Competition and the Alleged Leadership PAC “Loophole”

July 31, 2006   •  By Brad Smith   •    •  
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The Proposal and Reformist Criticism:

Self-annointed “reform” organizations launched a pre-emptive strike last week against a rumored proposal in Congress to eliminate limits on the amounts that a “leadership PAC” can transfer to a national party committee.  A press release and letter from the Campaign Legal Center, Common Cause, Democracy 21, the League of Women Voters, U.S. PIRG, and Public Citizen employs the usual barrage of adjectives, conclusory allegations, and unenlightening hysteria: “sham lobbying reform bill,” “massive loophole,” “undemocratic, abusive, back-door,” “eviscerating limits,” “funds…laundered,” “undermine … the foundation of the nation’s campaign finance laws,” “evading and circumventing,” “destructive.”

But there is something new, as well.  These organizations, which have for years ignored evidence that contribution limits harm challengers and reduce competition, see e.g. LaRaja & Kousser, “Campaign Finance Laws Shape Fundraising Patterns and Electoral Outcomes,” and which pooh-poohed the plaintiffs’ arguments in McConnell v. FEC, challenging the constitutionality of the McCain-Feingold law in part on the grounds that it involved much incumbent self-dealing, are suddenly worked up about the effect of these laws on competition.  They argue that the provision will, “provid[e] an enormous advantage for congressional incumbents over their challengers…. as a practical matter it is congressional incumbents who will benefit from this massive loophole, and not their challengers. It is congressional incumbents who have leadership PACs… .”

What in fact is going on here?  Are the so-called “reform” organizations correct?  Is this a “loophole,” and more importantly, is it anti-competitive?  The answer is possibly, but probably not.

Background: The Current Law

First, some background.  An individual is limited to contributing $2100 to a campaign, per election (the primary and general elections are considered separate elections, so all told an individual can contribute $4200 to a candidate’s campaign committee in an election cycle).  Additionally, an individual can contribute up to $5000 to a Political Action Committee, or PAC, per year, subject to a complicated set of aggregate giving caps that could limit this amount further, depending on how much the contributor gives to other PACs, parties, and candidates.

For many years, members of Congress have established what are called, “Leadership PACs.”  These organizations must be run separately from the member’s campaign committee, and may not spend money on the member’s campaign.  After years of allowing leadership PACs through informal rulings and advisory opinions, in 2003 the Federal Election Commission (FEC) codified this practice.  (Note: As FEC Vice-Chairman at the time, I opposed this, based on my belief that the best reading of the statute prohibited leadership PACs.  I was unable to persuade a majority of my colleagues that this was the proper reading of the statute, and recognizing that the statute was unclear and could be interpreted to allow leadership PACs, and being of the belief that clear rules would be an improvement over the ad hoc policy that had reigned until then, I joined the Commission majority in voting for the FEC’s Leadership PAC rules).  For most purposes, Leadership PACs are treated the same as any other PAC.  They make contributions to other campaigns and to political parties, subject to legal limits; engage in independent expenditures and get out the vote activities; and in many cases pay for travel to make public appearances and the like.  Most members of the Congressional leadership in both parties, and a growing number of rank and file members, now operate leadership PACs.  An individual can give up to $5000 per year to a leadership PAC.  The PAC is not allowed to accept corporate or union contributions.

Like any other PAC, a leadership PAC is limited to contributing $15,000 to a national political party committee each year.  The proposal would repeal this limit, allowing Leadership PACs to make unlimited contributions to national political party committees.

Analyzing the Reformers’ Criticisms

The organizations opposing this proposal make several allegations that deserve scrutiny.

First, they argue that if the proposal became law, incumbents would raise money through their Leadership PACs, and these PACs would then make unlimited contributions to the parties.  The parties could then turn around and spend the money to support the member’s campaign.  Thus, they argue that this proposal would, “seriously undermine the effectiveness of longstanding contribution limits which serve as the foundation of the nation’s campaign finance laws.”

This is, we think, more than a mild bit of hyperbole.  First, it should be made clear that this proposal would not allow any unregulated money (sometimes called “soft” money) into the system.  Leadership PACs are prohibited from receiving any corporate or union contributions, All contributions to Leadership PACs come from individuals in amounts regulated by the law – i.e., they are all “hard money.”  So no money is allowed into the system that is not already allowed into the system, whether in source or amount.  We hardly think that this “undermines… the foundation of the nation’s campaign finance laws.”

Second, it must be understood that national political parties may already spend unlimited amounts of hard money to support members’ campaigns.  Under the law as it is now, parties may spend a limited amount of money on “coordinated expenditures,” that is in express collaboration with the candidate or at the candidate’s request.  That will not change under this proposal.  Second, in addition to these limited “coordinated expenditures,” parties may spend unlimited amounts of hard money to support a candidate’s campaign, so long as they do so independently of the campaign.  Under this proposal, that will not change.  Thus, the ultimate sources and amounts of party funds will not change, and the ability of parties to spend money to support a member’s re-election will not change.

Next, the regulatory organizations argue that:

The loophole-opening leadership PAC provision being considered as an addition to the lobbying bill, however, would repeal the current $15,000 annual limit on the amount a leadership PAC can give to a national party committee, and thus allow leadership PACs to give an unlimited amount to national party committees. The party committees could then turn around and spend these leadership PAC funds on the Members’ campaigns, either as coordinated or independent expenditures. …

An individual, for example, could give the maximum allowable contribution to a Member’s campaign committee ($4,200) and separately give the maximum allowable contribution to a Member’s leadership PAC ($10,000 during a two-year House election cycle or $30,000 during a six-year Senate election cycle).

The Member would end up using both sets of contributions for the Member’s campaign, thereby evading and circumventing the contribution limits. Instead of an individual donor being limited to contributions totaling $4,200 for a Member’s campaign, the donor would be able to give a total of $14,200 for a House Member’s campaign and $34,200 for a Senator’s campaign.

This analysis is misleading, at best.  First, a contribution to a party cannot be earmarked for a particular candidate campaign.  If it is, it is considered a contribution to that campaign – and as we have seen, Leadership PACs cannot contribute to the member’s campaign.  Second, as we have also already seen, under the current law there is no restriction on how much a party may spend as independent expenditures in support of a member’s campaign, and in addition the parties may spend a limited amount on coordinated expenditures.  Moreover, an individual is already allowed, legally, to give substantially more than $30,000 to a political party during a six year senate cycle, or more than $10,000 to a party during a two year House cycle.  So an individual who wants to already can, under current law, contribute $4200 directly to the member’s campaign committee, and another $30,000 to the party, which in turn may spend that to support the member’s reelection.  As we’ve noted, whether  donor gives to the party or to the Leadership PAC, the donor cannot earmark his contribution to a particular candidate without running into a host of much lower contribution limits.  Eliminating the size limits on Leadership PAC contributions to parties does not in any way change the amounts that the donor can give, either to the party, or to the Leadership PAC, or to the campaign.  So the proposal really doesn’t change the possibilities for contributors.

Will the Proposal Benefit Incumbents?

Finally, the regulatory organizations invoke the competition argument: “as a practical matter it is congressional incumbents who will benefit from this massive loophole, and not their challengers. It is congressional incumbents who have leadership PACs… .”  It is not clear, however, how this benefits incumbents, for as we have seen, it actually has no effect on how much parties can spend to support incumbents, or how much donors can give.  The argument, therefore, seems to rely on the notion that as money is transferred to parties from Leadership PACs, the parties will spend it on the same incumbents who operate those Leadership PACs, and not on challengers.  Historically, however, political parties spend a higher percentage of their funds on challengers than do individual donors or PACs.  Thus, if one wants to help challengers raise the money to be competitive, it actually makes sense to get more money into the parties.

In fact, the regulatory organizations seem oblivious to what is really going on.  Historically, the key financial number in a campaign is not incumbent fundraising, or even the difference between candidates, but the amount raised by a challenger.  If the challenger can raise enough money, incumbent spending is relatively unimportant.  But raising hard money is more difficult for challengers than for incumbents, for a variety of reasons.  Parties are the one group with a major interest in funding challengers and the ability and resources to target those challengers most likely to be in competitive races.  For many years, political parties helped make up the difference in challenger “hard money” fundraising, through “soft money” spending, which did not explicitly support candidates but could be used to fund voter turnout efforts or to run “issue ads” critical of an incumbent’s stances on major issues.  Since Federal contribution limits were enacted in 1974, they have not kept up with inflation.  Although McCain-Feingold raised the limits on individual contributions to candidate campaigns and parties (but not to PACs), it did not do so nearly enough to account for the full effect of inflation.  Additionally, McCain-Feingold deprived the parties of “soft money.”  The national parties have been able to make up much of the lost soft money, but doing so has required a major effort.  One consequence has been increased pressure on incumbent officeholders to raise hard money, primarily to contribute directly to challengers and endangered incumbents, or to support the national parties to support challengers.  Leadership PACs are an effective way to do this.  Most of the largest leadership PACs belong to party leaders and others with little chance of losing – Steny Hoyer, Nancy Pelosi, John Boehner, Eric Cantor, Dennis Hastert, John McCain – and it beggars the imagination to think that the goal of removing the cap on transfers from their Leadership PACs to the party is so that they can spend more money on their own campaigns.

In other words, the proposal to eliminate restrictions on Leadership PAC transfers to party committees is primarily intended to help parties raise funds to support challengers and endangered incumbents.  It is an effort to solve a problem that itself was the result of earlier “reforms;” it is an effort to get cash out of Leadership PACs and into the parties, where it will be focused on competitive races and if history is our guide, more than individual or PAC contributions, used to support challengers.


Contrary to the impressions left by the pro-regulatory groups, removing caps on Leadership PAC contributions to political parties would not increase the amount that a donor can give to a party, to a Leadership PAC, or to a candidate – even “as a practical matter.”  It would not increase or even change the amounts that a party could spend to support a candidate, either directly through “coordinated expenditures” or indirectly through independent expenditures.

Finally, whether it would benefit challengers or incumbents depends on how the parties would use the money.  The money is there already, and Leadership PACs are using it to make contributions to other candidates and to support their respective members’ travel and speaking and other political activity.  If instead they give increased sums to the political parties, that is actually less money directly in control of incumbent members.  And to the extent that political parties continue to be, as they have historically been, a major source of funding for challengers, moving the money from Leadership PACs to political parties is likely to assist, not harm, congressional challengers, resulting in more, rather than fewer, competitive races.


Brad Smith

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