Hard money and soft money are terms that can be understood in various contexts. In economics, it is often used to describe (hard) coin money and (soft) paper money, respectively. These terms can also be used to refer to political contributions in the United States, which can be made directly to a specific candidate (hard money) or indirectly to political parties and political action committees (soft money). The rules governing the two types of contributions differ, and it may be prudent to check these rules in detail before making a contribution. More information on these rules can be found on the Federal Election Commission (FEC) website. Hard and soft money can also refer to how clients pay the brokers or financial services providers, where hard money refers to direct payments for services rendered (e.g. brokerage commissions) and soft money to payments for indirect items (e.g. in settling a costly error by providing free research). Soft money arrangements in the financial industry are common, but are must usually disclosed to stakeholders and regulators.
In this short article, we will clarify the distinction mainly between the political contributions in the form of hard and soft money.
The Difference Between Hard Money And Soft Money
When cash is contributed directly to a political candidate, it is known as a "hard money" contribution. These contributions may only come from an individual or a political action committee, and must follow the strict limits set forth by the Federal Election Commission (FEC). For example, during the 2017-2018 election cycle, donors were subject to the following limits: $5,000 per candidate, per election, from a non-connected committee that qualifies as a multi-candidate committee. Donating to a candidate or candidates in excess of those federal limits can result in criminal charges including fines and jail time for violating campaign finance laws.
|To each candidate or candidate committee per election||To national party committee per calendar year||To state, district & local party committee per calendar year||To any other political committee per calendar year|
|$2,500||$30,800||$10,000 (combined limit)||$5,000|
When cash is contributed to a political party or political action committee (PAC) with no limits attached to the amount that can be received, this is known as a "soft money" contribution. The funds can come from individuals and political action committees as with "hard money," but they can also come from any other source, such as corporations. The law says this money can only be used for "party-building activities" such as advocating the passage of a law and voter registration, and not for advocating a particular candidate in an election. The supreme court case Citizens United says that soft money contributions can be unlimited in that they constitute a form of free speech that is protected by the First Amendment, although this ruling has remained controversial. PACs that receive unlimited funds as soft money cannot be directly linked to or directed by the political candidate or candidates that they support. This is an important caveat, since if it is found out that a candidate is dictating what message or television ad the PAC or Super PAC will air, they are considered to be directly influencing how the money is used, making it a hard money contribution—and violating campaign finance laws.