Soft Money: What it is, How it Works, History

What Is Soft Money?

Soft money is money that is donated to political parties where the purpose is not to promote a specific candidate. Soft money is largely unregulated, and there is no cap on it. Political parties can essentially spend it on whatever they want as long as it fits a generic objective to "increase the vote." Soft money is often called "nonfederal" contributions.

Another definition of this term used in finance refers to the idea that paper currency or fiat money is considered soft money, as opposed to gold, silver, or some other coined metal, which is considered hard money—having a tangible form beyond paper.

Understanding Soft Money

Soft money became more prominent after the Federal Election Campaign Act (1974) restricted the number of hard money individuals and political action committees could donate. 

Donations to individual candidates are often called hard money. Hard money has firm restrictions and is highly regulated when it comes to how much can be donated, where it can be spent, and on what.

Soft money has no such restrictions and, as a result, became a prominent form of political giving. Soft money is given to the party and not the candidate—The Act says that soft money cannot be used by the party to promote a particular candidate.

While soft money is donated to political parties, and can't be used to support federal candidates, it can be utilized for party-building activities. And the line between party building and supporting federal candidates can be very thin.

History of Soft Money

Since the Federal Election Campaign Act, the amount of soft money campaign parties received and used skyrocketed. During the 1992 election, about $100 million in soft money was used by political parties. By the 2000 election, this amount surpassed $400 million.

In the Bipartisan Campaign Reform Act (BCRA) of 2002, soft money was officially banned. However, since the passage of the BCRA, there have been numerous Supreme Court decisions gutting the bill.

A Supreme Court decision in the 2014 case, McCutcheon v. Federal Election Commission, allowed for new forms of soft-money donating, which have, according to a report by Politico, resulted in "parties...more aggressively and successfully courting a small number of deep-pocketed donors, giving the wealthy another way to exert their ever-growing influence over politics" and national parties becoming "once again flush with burgeoning amounts of cash whose origins can be difficult to divine."

The common practice nowadays of campaign contribution bundling further exacerbates the problem since, through the practice of soft money donations, bundlers have more avenues to direct their donations.