Mar 11, 2022

Money and Politics: Part 1

Regulated Campaign Financing Tips the Scales in Favour of the Wealthy in the United States and Canada

Money Everywhere by Online Trading Academy, licensed under CC BY-SA 2.0

It’s common knowledge that in politics, more money equals more power. However, the many ways in which the wealthy exploit loopholes and use money to influence political outcomes frequently goes unnoticed. In North America, a primary pathway for influencing policy-making is through campaign donations.

While more money does not always guarantee a candidate will win, it undoubtedly helps. Access to substantial funding places a candidate at an advantage, as they can pay for more promotional rallies, events, materials, etc. than their opponent. Even money indirectly supporting campaigns, such as advertisements (paid for by nonconnected wealthy individuals or corporations) can increase a candidate's chance of winning. In the 2020 US federal elections, the top campaign spenders won 87.71% of House of Representatives and 71.43% of Senate elections.

In a two-part blog series, we discuss the pathways in which money flows from wealthy individuals and corporations to campaigns. In the context of our analysis, contributions can be organized into two broad categories: (1) regulated and (2) unregulated financing. Whereas regulated financing is subject to strict federal laws, unregulated financing exists largely outside of these laws. This blog (Part 1) covers regulated contributions to political campaigns—and how this differs between Canada and the United States (see Figure 1). Part 2 discusses the less straightforward world of unregulated campaign financing.

Figure 1: a simplified flowchart of campaign financing. Regulated methods appear in colour, with the unregulated financing of Part 2 shown in grey. Blue boxes represent the sources of money and their destination; green boxes identify the means or middleman. SSF stands for separate segregated funds and PAC stands for political action committee (see below).

Who Can Donate and How Much?

In the complex world of campaign financing, it can be hard to pinpoint who can contribute and how much. While the “who” in Canada and the United States largely mirror each other, the “how much” differs more substantially.

Who can donate?

In Canada, regulated political donations to federal elections are restricted to citizens and permanent residents. The rules in the United States are slightly broader. Contributions are limited to citizens, certain companies (i.e. separate segregated funds, see below), and some political action committees, among others.

Regulations in both Canada and the United States exclude corporations, trade unions, and associations from contributing to federal campaigns. However, this ban only applies to the federal level in both countries. Some provinces and territories in Canada allow for corporate donations to local elections (i.e. for municipal councils). Similarly, non-federal elections in the United States (i.e. for governor) are determined by each state. In some states, corporations and unions can contribute directly to non-federal campaigns.

How much can one donate?

Canada

In Canada, the federal government has placed caps on the dollar amount that can be contributed to federal campaigns (see Table 1).

This limit is only for a single party. For example, an individual can contribute $1,650 to the Liberal Party or its candidates as well as $1,650 to the Conservative Party and for each of the other registered parties if they desire. This also applies to local electoral districts (“ridings”) and leadership contestants (contestants for leadership of federal parties) of each registered party within a riding.

These limits only apply to federal elections. Each province and territory has separate donation limits for their provincial and local elections. Some even have no limits at all. In total, six provinces and territories allow for unlimited donation amounts to non-federal elections, many of which overlap with the regulations authorizing corporate donations.

United States

In contrast, the United States has federal contribution limits that are noticeably higher than those in Canada (see Table 2).

In the US, annual amounts from an individual to a single federal party is $363,500 plus an extra $2,900 per candidate and $10,000 to local parties. While the presidential primary and general elections are considered one election for financing purposes, the Congressional (Senate and House of Representatives) elections are separate, meaning an individual can contribute $2,900 twice to the same Congressional candidate.3 With 100 members of the Senate and 435 members of the House of Representatives, the total amount an individual can contribute increases dramatically.

As with Canada, non-federal elections in the United States operate under different regulations than that of federal elections, determined by the state’s government. Eleven states currently do not place limits on campaign financing for non-federal elections.

Political Action Committees

If you are familiar with politics in the United States, you may have heard the term “PAC” (political action committees) thrown around. PACs are organizations created to raise funding which can be donated to a particular party or candidate. There are multiple types of PACs, but here we discuss Separate Segregated Funds (SSFs), and Nonconnected Traditional PACs. Both of these are more strictly regulated than the other PACs and can legally donate to campaigns (stay tuned for Part 2 for Super and Hybrid PACs).

An SSF is a type of PAC that is directly created—and sponsored—by a corporation. While SSFs cannot use money derived from the corporation’s operations, they are permitted to solicit money from prominent members of the SSF to donate to campaigns. Because of this, SSFs are an appealing avenue for corporate funding to flow to campaigns. Nonconnected PACs, as the name suggests, cannot be connected to corporations or labour organizations. In simpler terms, this means that corporations cannot contribute to Nonconnected PACs.

The Canadian equivalents of PACs, called “Third Parties,” are individuals and organizations independent from political parties who engage in registered partisan activity for or against a party (excluding charities and nonprofits, who cannot legally participate in partisan activity). Third party activity is highly regulated and they cannot make direct contributions; however, their ability to voice support for or against a party has the potential to play a key role in swaying public opinion and influencing elections.

Despite these corporate bans, individuals working for companies are allowed to donate in both countries, though still subject to federal limits. This enables a surge of donations from executives and high-up members of companies.

What This Means for Sustainability

While progress has been made to restrict the power of money in campaigns, it is not enough to prevent undue political influence of the rich. The relaxed restrictions and loopholes in both Canada and the United States open the door to extensive contributions from wealthy individuals tied to industries, especially when some non-federal elections allow for unlimited donations. By aiding in the election of the officials and parties on their payroll, they work to ensure the passing of policies favouring their interests, often countering sustainability efforts.

Local Election Reforms take big Money out of Politics by Province of British Columbia, licensed under CC BY-NC-ND 2.0

As vested interests infiltrate decision-making, already-large income inequalities expand. The substantial power of the wealthy creates an unequal playing field, diminishing the ability of the less-wealthy to participate meaningfully in decision-making. This ultimately creates a feedback loop that further worsens socio-economic divides and tips the scale in favour of the wealthy—both in Canada and especially in the US. This widening inequality also reduces the ability of the less-wealthy to access sustainable alternatives to socially and environmentally detrimental practices, exacerbating socio-ecological crises (see Leverage Point 4, Inequalities).

To make matters worse, regulated campaign financing only accounts for half of the story. Unregulated campaign financing results in an almost unlimited flow of funds from wealthy individuals and corporations to political parties. Stay tuned for Part 2 of this blog series to find out more about what underground methods of campaign financing persist today and how they operate.