(The following article is taken from the U.S. Department of State publication, USA Elections in Brief.)
Federal law dictates how candidates for the federal offices of president, senator, and representative – and certain of their political allies – may raise funds, as well as from whom, and in what amounts. Federal campaign finance laws are separate from state laws that regulate elections for state and local offices.
In the American system, presidential candidates raise hundreds of millions of dollars for a campaign directed at a nation of more than 100 million voters. Though in many cases the fund-raising is from private sources, the process by which they raise and spend the money is highly regulated.
A candidate for president must establish a campaign organization, called a political committee. The political committee must have a treasurer and must register with the Federal Election Commission (FEC). Notwithstanding its name, the FEC only supervises and enforces campaign finance laws; it does not actually conduct the elections. (The process of registering voters, conducting the balloting, and counting the votes is the responsibility of state and local election officials.)
Various types of political committees are registered with the FEC. In addition to the candidates, political parties must register their own committees with the agency. In addition, any group of private citizens may form a political committee. For example, groups of individuals from corporations, labor unions, and trade associations often form such committees (although use of corporate or labor union treasury funds is prohibited). These political committees are often referred to as PACs, or political action committees, and must also register with the FEC.
Once registered, political committees may start raising campaign funds. Such funds, as well as expenses, are reported to the FEC on either a quarterly or monthly basis. The reports may also be filed electronically and are available to the public on the FEC's Web site [www.fec.gov]. Numerous private organizations also maintain Web sites to monitor contributions and expenses of the candidates, political parties, and PACs. The point of this is to make it easier for the press and the voters to know which groups are giving money to which candidates and causes. There are legal limits to how much money individual citizens and individual committees can give to candidates they favor. Accordingly, a candidate for president who needs to raise hundreds of millions of dollars for a presidential campaign must attempt to find thousands of contributors.
To campaign for office, a candidate needs to hire staff; arrange for office space and travel; conduct research; issue position papers; advertise on radio and television, in publications, and on the Internet; and conduct numerous public appearances and fundraising events. A candidate for the House of Representatives will base these activities in his or her specific congressional district, while a Senate candidate will do likewise throughout his entire state. (Congressmen and senators may also conduct specific fund-raising events elsewhere, such as Washington, D.C.). Candidates for president have the daunting task of organizing their primary campaigns state by state and then, if nominated, their general election campaign throughout the nation.
Since 1976, candidates for president have been eligible to participate in a public financing system. Until the 2000 elections, all candidates nominated for president participated in this system by accepting government funds in exchange for a promise not to spend more than a specified amount. However, this system has become increasingly unappealing to candidates because the imposed spending limit is considered too low – and less than the amount that major candidates can often easily raise from private sources. Consequently, many major candidates have been opting out of public funding.
Spending invariably increases from one election to the next. In addition to candidate spending, the political parties, PACs, and other interest groups will spend money to influence elections. A recent development in funneling money for elections, for example, is the "527 political organization," named for a section of the U.S. tax code. These groups are organized primarily for the purpose of influencing the selection, nomination, election, or appointment of an individual to a federal, state, or local public office. 527 political organizations, such as MoveOn and Swiftboat Veterans for Truth, are not regulated by the Federal Election Commission or by a state elections commission, and are not subject to the same contribution limits as PACs. Critics of these and similar groups have long asserted that high spending in U.S. elections, combined with the reliance on private sources for funds, raises the specter of undue influence over public policy by wealthy donors and powerful interest groups.
Proposed reforms have been opposed by those who see election spending as proportionate with both the costs of goods and services in today's economy. In this regard, election spending is seen as the price a democracy pays for electoral competition, with large contributions and expenditures by interest groups as the contemporary expression of America's long-standing pluralism. It is hard to prove any specific connection between interest-group donations and government policy. Courts have also questioned whether further restrictions on campaign giving and spending might unduly limit donors' constitutionally protected right to free speech in the political arena. Given the immense expense of modern campaigning, certain extremely wealthy individuals simply fund their own campaigns for public office – there is no rule against it. Sometimes they win, sometimes they don't.