Campaign finance

Campaign finance is a field of law governing the spending of money on political elections. Federal law defines the rules for federal elections, and the Federal Election Commission is the regulatory body that oversees complaints and disputes in financing federal campaigns. State law dictates the rules for state elections.

There are two types of funds: hard money and soft money. In simple terms, hard money consists of donations to campaigns, while soft money consists of other expenditures that do not "expressly advocate" the election or defeat of a candidate.

Federal law prohibits corporations and unions from donating directly to a candidate for him to spend on his campaign, but most states allow for some types of corporate donations. Small corporations that satisfy the "MCFL" exception are allowed to donate to candidates. Instead, corporations and unions establish political action committees (PACs) for raising money for the purpose of donating to campaigns.

Incumbents have an incentive to restrict the ability of challengers to raise money, and also to prevent independent groups to spend money criticizing the incumbents. Repeatedly legislators have passed limitations on campaign spending, but some of those restrictions have been declared unconstitutional under the Free Speech Clause of the Constitution.

The McCain-Feingold Campaign Finance Act imposed strict prohibitions on issue ads by any person or entity other than the candidates with two or three months prior to an election. President George W. Bush signed it into law even though he had spoken against it in his campaign, and even though he declared in his signing statement that he considered parts of it unconstitutional under the First Amendment. The U.S. Supreme Court eventually declared an application of this law to be unconstitutional. The Supreme Court is currently (as of January 15, 2010) considering other parts in the case Citizens United v. FEC.