In a fractured set of opinions, justices said they were not sweeping aside 30 years of election finance precedent but rather finding only that Vermont's law — the strictest in the nation — sets limits that unconstitutionally hamstring candidates.
The majority took issue with Vermont legislators for "constraining speech" by telling candidates and voters how much campaigning was enough.
President Bush's two appointees to the court — Chief Justice John Roberts and Justice Samuel Alito — sided with the majority in overturning Vermont's law.
In one of six separate opinions, Justice Stephen Breyer said a majority of justices found Vermont's limitations on contributions and spending was unconstitutional.
"That is to say, they impose burdens upon First Amendment interests that (when viewed in light of the statute's legitimate objectives) are disproportionately severe," Breyer wrote.
"As with many of these campaign-finance cases, the justices were scattered all over the place," said CBS News legal analyst Andrew Cohen, "but there was a consensus that Vermont's legislators simply went too far under First Amendment law both in restricting spending to candidates and in restricting the use of that money."
Cohen says this decision won't end state-by-state efforts to regulate campaign finance, but "it gives a tiny bit more guidance in the area. And eventually some state is going to figure out the magic formula that both regulates campaigns better but also passes the First Amendment test. Clearly, Vermont's attempt failed."
In 1997, Vermont passed its campaign finance law, placing a $300,000 spending cap on gubernatorial candidates and lesser limits for other state political contests. Contributions to state campaigns were limited to as little as $200 per election cycle for state House races.
Several justices wanted to overturn a 1976 high court ruling in Buckley v. Valeo but for different reasons.
Justices Anthony M. Kennedy, Clarence Thomas and Antonin Scalia have long wanted to overturn the case that they blame for much of the confusion in campaign finance rules nationally.
But Justice John Paul Stevens said the 1976 ruling needs to be revisited because it did not deal squarely with the constitutionality of expenditure limits in campaigns.
The 1976 ruling made a distinction between limiting contributions and curtailing spending. The court in that case said contributions to candidates' campaigns could be capped without infringing freedom of speech but that spending could not be limited because it could improperly reduce discussion of key issues.
Three lawsuits were filed challenging Vermont's limits by groups that included the Vermont Right to Life Committee, the Vermont Libertarian Party and the Vermont Republican State Committee.
Advocates for the Vermont law, considered one of the nation's strictest, argue that big-money contributors and unlimited campaign spending corrupt the political process.
Critics, however, said the limits on contributions and spending benefit incumbents. But Vermont's lawyers disagreed, saying the law allows challengers to spend slightly more than incumbents.
During arguments in February, Vermont's attorney general, William Sorrell, said the limits help politicians focus on campaign issues and their legislative duties rather than on raising large amounts of money.
In other rulings handed out Monday, the Supreme Court whether the Bush administration must regulate carbon dioxide to combat global warming, setting up what could be one of the court's most important decisions on the environment. And, new Supreme Court Justice Samuel Alito broke a tie in a ruling that affirmed a Kansas state death penalty law, which also revealed the court's deep divisions over capital punishment.