The terms “hard money” and “soft money” can be defined in a variety of ways. The context in which you define them determines how you define them.
In economics, the terms “hard money” and “soft money” are used to characterize different types of currency. Coins are referred to as hard money, whilst paper cash is referred to as soft money.
Clients can also pay their brokers or financial services providers using hard or soft money. In this context, hard money refers to payments made directly for services delivered (brokerage commissions), whereas soft money refers to payments made indirectly, such as settling a costly error by providing free research. Soft money transactions are prevalent in the financial industry, but they are rarely disclosed to stakeholders and authorities.
However, the terminologies play a role in politics as well. In the United States, they are used to refer to political contributions. Hard money is money that is given directly to a candidate, whereas soft money is money that is given indirectly via political parties and political action groups. It’s critical to understand the difference between hard and soft money contributions to politics.
Donors, for example, are subject to the following restrictions during the 2019–2020 election cycle: A nonconnected committee that qualifies as a multicandidate committee can give each candidate $5,000 per election. Donating in excess of the federal limitations to a candidate or candidates can result in criminal prosecution, including fines and jail time for breaking campaign finance regulations.
|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|
|$2,800||$35,500||$10,000 (combined limit)||$5,000|
A “soft money” contribution is cash given to a political party or political action committee with no limit on the amount that can be received. As with “hard money,” the funding can originate from people and political action groups, but they can also come from any other source, including corporations.
A “hard money” contribution is one that is made directly to a political candidate in cash. These contributions can only come from an individual or a political action committee (PAC), and they must adhere to the Federal Election Commission’s rigorous guidelines (FEC).
Soft money contributions can be unlimited since they are a type of free expression protected by the First Amendment, according to the 2010 Supreme Court case Citizens United v. Federal Election Commission, though this ruling has remained controversial. 4
Political action committees (PACs) that receive limitless soft money cannot be directly linked to or directed by the political candidate or candidates they support. This is an important point because if a person is deemed to be deciding what message or television ad the PAC or Super PAC will broadcast, they are considered to be directly effecting how the money is spent, effectively turning it into a hard money contribution—and thus breaking campaign finance laws.
Hard Money and Soft Money Contribution Rules
Because the laws governing the two sorts of contributions differ, it’s a good idea to double-check them before making a contribution. The Federal Election Commission (FEC) website has more information on these rules.