How did the nature of soft money change after 1992?
The change began in the 1995-96 election cycle, when the parties began taking advantage of Buckley's issue-advocacy loophole. Recall what the Supreme Court said about issue and express advocacy. "Express advocacy" meant political ads that expressly urged the election or defeat of clearly identified federal candidates. Issue ads, on the other hand, even those that portrayed clearly identified candidates in a positive or negative light, were not political under the court's definition and could not be regulated by the FECA. Money for issue ads could be raised in unlimited amounts from corporations, labor unions, and individuals, and it did not have to be reported to the FEC.
The court knew that no one "would have much difficulty devising expenditures that skirted the restriction on express advocacy ... but nevertheless benefited the candidate's campaign"; they knew, that is, that one did not have to be unusually clever to devise ads that were effectively express advocacy yet escaped regulation as issue advocacy. The Democrats took advantage of this loophole to initiate the second phase of soft money.6
That second phase began in 1995, when the Democrats raised soft money to pay for issue ads to support President Clinton's reelection campaign. This went well beyond party building. What was being stretched now was the definition of "nonpolitical." Issue ads were supposed to be nonpolitical simply by virtue of not expressly advocating the election or defeat of a candidate. But saying that such ads were still not political even when they were financed by a political party required a very elastic reading of Buckley. Which turned out not to be a problem for either party. Although FEC auditors thought the ads should be regulated as hard money, the commissioners did not challenge their legality. Both parties tacitly agreed that even issue ads directly financed by a political party were nonpolitical.7
The parties aired a torrent of sham issue ads in 1996, and they raised nearly four times as much soft money as in 1992 to pay for them. In 2000, they ran even more ads and raised twice as much money as in 1996. Political scientists who studied those two elections concluded that the FECA regulatory structure had effectively collapsed.8
That the FECA should show signs of collapse only twenty years after it went into effect caused alarm inside and outside Congress. After the 1996 election, the Citizens' Research Foundation, the Brookings Institution, and the Committee for Economic Development, all mainstream organizations, convened groups of campaign-finance experts to study the problem of soft money; all called on Congress to ban it.9
Congress also had its say about 1996 fundraising. Senators John McCain and Russ Feingold changed the focus of their reform bill from PACs and independent spending to soft money, but this latest version, too, fell before a Republican filibuster. A congressional investigation of President Clinton's reelection campaign was almost inevitable, given press attention to such questionable practices as White House coffees, Lincoln bedroom sleepovers for big donors, and rumors of foreign money. The Senate committee chaired by Senator Fred Thompson (R-TN) got the most media attention, as Thompson was a cosponsor of the McCain-Feingold bill.10
The Senate investigation began and ended in partisan rancor, but both parties agreed, in the words of the Thompson Committee's final report, that soft money had "eviscerated" the FECA, which was "in serious need of an overhaul."11 Which is what happened when Congress eventually passed the McCain-Feingold bill in 2002.