"Soft money is a major issue in the campaign finance reform debate because such funds are generally unregulated and perceived as resulting from a loophole in the Federal Election Campaign Act (FECA). More specifically, soft money is considered to be funds that are raised and spent according to applicable state laws, which FECA prohibits from being spent directly on federal elections, but that may have an indirect influence on federal elections. This Issue Brief discusses three major types of soft money: political party soft money, corporate and labor union soft money, and soft money used for issue advocacy communications. Political party soft money is those funds raised by the national parties from sources and in amounts that FECA otherwise prohibits. In accordance with the applicable state law, it is then largely transferred to state and local political parties for grassroots and party-building activities, overhead expenses, and issue ads. Much of the recent campaign finance legislation would subject national party contributions, expenditures, or transfers, for activities that might influence a federal election, to the limitations, prohibitions, and source restrictions in FECA. Although the courts have not had occasion to address this issue specifically, it appears arguable that such restrictions on political party soft money could pass constitutional muster."
CRS Issue Brief for Congress, IB98025
U.S. Department of State: http://www.state.gov/