Campaign Finance Reform Meets Unintended Consequences

Oct. 17, 2008— -- Sen. John McCain says he's a problem-solver. He told the Republican National Convention about how he "battled corruption," that he "fought to get million-dollar checks out of our elections."

He did that by co-authoring McCain-Feingold. That bill, also known as the 2002 Bipartisan Campaign Reform Act, promised to curb the influence of big money on politics.

McCain promised that "the problem with money in elections can be cured to a large degree by the provisions in this bill."

At the time, 98 percent of Congressional incumbents were being reelected. With money playing a lesser role, McCain said, challengers would have a better chance.

People like the idea of campaign finance reform. Yet, campaign finance law, like all of government's laws, is subject to a still more powerful law: the law of unintended consequences.

Fines Totaling Nearly $10,000

In the last couple of elections, Ada Fisher, a retired doctor in North Carolina, ran for Congress. She ran on a shoestring budget, campaigning out of her own car, making her own signs and buttons. For staff, she relied exclusively on volunteers.

A recent college graduate volunteered to be her campaign treasurer. It was supposed to be fun and educational. But then they came up against campaign finance laws.

The entire book of rules and regulations published by the Federal Election Commission amounts to more than 500 pages of small print set in double columns.

That's typical of Washington's rules. We wanted to get an idea for how big that really is, so we taped the pages together and spread them out at Giants stadium. The laws spanned the field one and a half times.

Fisher lost both her campaigns -- and navigating that maze of regulations didn't help. Her team had trouble wrestling with all that legalese, and consequently filed some reports late. The result? They received a notice that they were being fined for failure to file. The fines totaled nearly $10,000.

"They then decide that they want to hold a candidate and a treasurer personally liable," said Fisher.

Brad Smith knows all about cases like Fisher's. He was chairman of the Federal Election Commission when it first fined Fisher.

"That's a great way to get volunteers out," Smith said dryly. "Tell them if they fail to file a form on time, they're personally liable for fines and penalties. And it's just a classic example of the way in which the law benefits insiders and those who are already established, who know the rules, who have big-time campaigns, who can afford to hire top-notch legal and accounting talent -- whereas a startup campaign, sort of a newcomer to the system, faces all kinds of obstacles there."

Clobbered With Laws?

Smith, the ex-chairman of the commission, thinks campaign finance "reform" is a disaster.

"What we've done is, we've created a system in which it's harder and harder to engage in real grass-roots activity," he said. "That's what these laws are in real-life practice."

But today's campaign finance laws go well beyond national elections. Now, state laws cover things like local ballot measures.

Becky Cornwell found that out the hard way. She opposed a Colorado ballot measure that would have annexed her little town of Parker North into a neighboring suburb. Her husband, Wes, owns a small printing shop, so they printed up a few signs to put on their lawn, reading, "No Annexation."

"We own a print shop. We make signs. That's what we do," she said.

Neighbors who agreed with her would stop by to ask where they could get them, so Becky and Wes printed up more signs.

"Pretty soon, the whole neighborhood was blooming with these signs," Becky said.

Other neighbors got involved in their own way, making T-shirts, distributing flyers or gathering signatures for a petition. Many of them had never even met before.

Neighbor Louise Schiller said, "I just volunteered to walk around and talk to neighbors."

It was the picture of grass-roots political participation.

But under Colorado's campaign finance rules, this little exercise of free speech by Cornwell and her neighbors was enough for their political opponents to slap them with a lawsuit because they didn't register as an "issue committee" and report all their expenses.

"I firmly believe that the lawsuit was used in an effort to shut us up about the annexation," Cornwell said, "to scare us enough and clobber us with these laws so that we wouldn't talk about it any more."

That's the problem. Campaign finance laws have become a tool that insiders use to silence their opponents.

Steve Simpson, a lawyer with the libertarian public interest law firm Institute for Justice, agreed to represent Cornwell and her neighbors in an effort to challenge the law.

"Nobody should ever be sued, or have to register with the government just to speak out about an issue that they care about," he said.

'It's Very Simple'

Sen. McCain wouldn't talk to "20/20" about campaign finance, but Arn Pearson of Common Cause, Cecilia Martinez of the Reform Institute, and Paul Ryan of the Campaign Legal Center did agree to speak with ABC News.

The McCain campaign's lawyer founded Ryan's group.

"That law was passed by the people of Colorado, so I think it, to some degree, reflects voter sentiment," Ryan said.

Martinez's organization was once headed by John McCain. "I think that it's great that they're trying to express their views, but there are rules on the books," she said. "And it's very simple. You go on their Web sites and check it out."

It's very simple?

Jeffrey Milyo, the Middlebush professor of social science at the University of Missouri, runs experiments to see how well a range of educated people can fill out campaign finance forms, given a hypothetical scenario similar to what Cornwell and her neighbors experienced.

"I wasn't trying to throw any curve balls here, but just to see if people can follow the instructions," he said.

ABC News asked Milyo to run the experiment again on a group of 38 people in Colorado Springs, Colo., ranging from college students to adults. "20/20" paid each participant $20 to give it a try and offered as much as $20 more if they completed the forms correctly. The result?

"No one got them all right," Milyo said.

On average, the participants only filled out about 40 percent of the forms correctly.

Milyo has run the experiment on more than 200 people using campaign finance laws from different states, and every one of them violated the law.

Participants from our experiment expressed frustration with the requirements.

One young man said, "I'd rather just not get involved in the process if I have to go through the nonsense that I had to go through today."

That's how Cornwell feels, even though she won her fight against the annexation.

As her husband Wes Cornwell said, "It would be very difficult to throw yourself under that bus again."

But did the campaign finance reform bus at least flatten the fat cats too?

No. Barack Obama backed out of public financing so he could keep attending $20,000-a-plate fundraisers in Hollywood. McCain himself has skirted his own donation limits. His campaign discovered a way to raise about $70,000 per contributor, despite the $2,600 limit that McCain-Feingold imposed.

'The System Is Rigged for Incumbents'

And the big money that was banned by McCain-Feingold and this ream of rules? Well, it's still in the game. Instead of going to candidates or parties, now it goes to outside groups that bankroll attack ads.

Even one of the Reformers, Arn Pearson, admitted that McCain's reforms don't stop big money.

"It's like squeezing a balloon. You squeeze down somewhere, and it pops up somewhere else," he said. "It addressed a specific problem, and then you get new problems that crop up somewhere else."

David Boaz of the Cato Institute argued that you can't take money out of politics.

"As long as you've got $3 trillion being taxed and spent by the federal government, people are going to want to get control of that," he said.

But did reform at least make elections more competitive? No, again. Just as many congressional incumbents are being re-elected now as were during the Watergate era.

The Ada Fishers of the world have learned that challenging the political class is hard to do.

"The system is rigged for incumbents and against challengers, because incumbents already know the game," Fisher said. "They have gamed the game to win."