Congress responded with the Tillman Act of 1907, which prohibited banks and corporations from making donations to campaigns for federal office. A follow-up law in 1910 law required the disclosure of campaign contributions. But the law had no teeth to it.
The Teapot Dome scandal of 1921 prompted Congress to codify all existing campaign finance laws in the Federal Corrupt Practices Act of 1925. The ban on corporate contributions was extended to include labor unions in the Smith-Connally War Labor Disputes Act of 1943. However, nothing prevented companies and unions from funding political action committees (PACs) to solicit "voluntary" contributions from employees and members. Congress officially recognized this practice-prohibiting only PACs formed by government contractors-in the Federal Election Campaign Act of 1971.
The second great wave of campaign finance reform followed the Watergate scandal and the disclosure of "secret funds" used to re-elect President Richard Nixon in 1972. Congress amended the Federal Election Campaign Act in 1974 to: (1) establish public financing of presidential elections; (2) limit contributions by individuals and PACs to candidates for federal office; (3) limit expenditures by candidates seeking federal office; (4) limit spending by individuals on their own election to federal office; and (5) establish a Federal Elections Commission (FEC) to administer the law. This act also repealed the ban on PACs formed by government contractors.
The 1974 Amendments had two major consequences. While the Supreme Court upheld the limits set on campaign contributions, it struck down the limits on candidate spending as restrictions of free speech (Buckley v Valeo, 1976). Moreover, the 1974 act gave a green light to PACS, which expanded in number from 608 in 1974 to 4,123 by mid-1991.
Amendments to the Federal Election Act in 1979 opened the door to the use of "soft money" in federal elections. The 1979 Amendments allowed local and state party organizations to spend unlimited funds for "party-building" activities, voter registration, and get-out-the-vote drives for all federal candidates. ("Hard money" refers to individual and PAC donations, which are limited by law.) The 1996 election campaign is witnessing unprecedented growth in the use of "soft money."
Still another conduit for money in politics is "independent spending." A group (or an individual) can spend money to defeat a candidate it opposes, as long this is done without the "collusion," meaning knowledge or cooperation, of the candidate it favors.
To date, efforts to control the flow of money in politics seem like the proverbial finger in the dike; just as one hole is stopped up, the money starts leaking through somewhere else.