In The Know

Campaign financing is essential to the success of political campaigns, allowing candidates to spread their message, connect with voters, and run effective advertisements. Be that as it may, not all campaign contributions are the same. In the U.S., campaign funds are generally classified into two different categories: hard money and soft money.

If you are involved in campaign financing as a donor or if you are tasked with generating funds for your candidate, understanding the subtle differences between hard money and soft money is essential. Here’s everything you need to know.

What Is Hard Money?

Hard money refers to contributions made directly to a candidate’s campaign. For instance, let’s say you were to give $50 directly to a candidate’s campaign. That would be deemed a hard money donation. As hard money is contributed directly to a candidate, it is seen as an explicit endorsement of that person and their platform. 

These funds are strictly regulated by the Federal Election Commission (FEC) by way of a multitude of reporting requirements, as well as through limits on how much individuals and groups, such as political action committees (PACs), can donate. There are individual contribution caps per election cycle, and all donations must be reported to the FEC, thereby creating a record that is accessible to the public.

What Is Soft Money?

Soft money refers to funds contributed to political parties or committees for “party-building activities,” as opposed to directly to a candidate’s campaign. For instance, it is often used to support party-wide activities like voter registration or general “Get out the vote” efforts.

Soft money contributions aren’t subject to the same FEC regulations. However, recent reforms have limited its influence, especially in federal elections. Soft money-based funds can be spent on activities that benefit a party or its general mission, but they cannot explicitly support a federal candidate. 

For example, funds raised by party committees to support issue ads or voter outreach campaigns are typically considered soft money, seeing as the funding does not directly benefit an individual candidate. 

Pros and Cons of Hard Money

Here’s a look at the good and bad of hard money for campaign financing: 

Advantages

Since hard money contributions can go directly to a candidate’s campaign, they are likely to make an immediate difference.

Perhaps the most significant benefit of hard money, though, is its transparency, which itself is a result of the FEC’s reporting laws. It means voters can see which individuals and groups are supporting a candidate, as well as the exact ways in which they are funding their campaign.

Disadvantages

Though the clarity they provide is an unmistakable quality, the FEC’s regulations are complex, which can sometimes make reporting tedious and time-consuming. And their stringent contribution limits restrict how much money one can donate directly to a campaign. 

Pros and Cons of Soft Money

Like its counterpart, soft money has its share of notable upsides and drawbacks: 

Benefits

Soft money’s greatest advantage is that it can be raised in larger amounts and used for a wider range of activities without being held back by strict regulatory limits. Individual donors can give virtually unlimited amounts of money to specific causes or parties. 

Drawbacks

Similar to how hard money’s primary benefit was also the source of its weakness, soft money contributions offer less transparency because they aren’t subject to the FEC’s reporting requirements. As a result, it can be difficult to track who is funding particular activities. And since soft money can’t be directly spent on federal campaigns, its use is ultimately limited to those focused on specific candidates. 

Reforms Impacting Campaign Financing

The Bipartisan Campaign Reform Act of 2002 (BCRA), also commonly referred to as the McCain-Feingold Act, was one of the most sweeping changes to campaign financing in recent history. It placed significant restrictions on the use of soft money in federal elections, aiming to reduce its influence by banning it in federal campaigns and limiting its role in election ads.

Hard money regulations, on the other hand, have seen fewer widespread changes. Nevertheless, the FEC periodically adjusts donation limits to keep pace with inflation. Current donor limits are quite low, though, which minimizes the impact of any single person or entity. 

The Role of Super PACs

The BCRA kicked off a chain of events that ultimately led to the landmark Citizens United v. FEC Supreme Court ruling. The 2010 ruling facilitated the rise of a new type of PAC, the “independent expenditure-only political committee,” which is colloquially known as the “Super PAC.”

Super PACs can receive unlimited contributions from labor unions, other PACs, corporations, and individuals. They can use funds for independent expenditure ads, which are ads that are planned, created, and run without input or coordination with any candidate or their designee. However, they cannot contribute directly to candidates and are subject to some FEC reporting requirements. 

Super PAC spending represents a middle ground between hard and soft money, reshaping the American political landscape and opening the door for super donors. 

How You Can Generate More Money for Your Cause 

To achieve your financial fundraising goals, you’ll likely need to rely on a combination of soft and hard money donations. Connecting with donors and maintaining compliance with FEC reporting requirements requires timely, relevant data and the right technology tools. 

Aristotle can assist with both. As a leader in political data, we can help you target potential or existing donors and provide insights necessary to achieve its fundraising goals. We also offer consulting services to help your organization or group develop its fundraising strategy and filing services to make sure your organization is compliant with FEC regulations.  Whatever your fundraising goal or strategy, Aristotle is here to help. Schedule a demo to learn more.