Soft money s fast becoming the biggest loophole in the federal campaign finance laws. It works this way. Suppose you are a big contributor, easily capable of giving more than the current maximum contribution. Or you're a labor union or a corporation, barred from contributing anything to federal candidates but easily capable of writing big checks. Soft money gives you a way to contribute perhaps $100,000 to the political party of your choice. And you don't have to disclose it to the Federal Election Commission. Any disclosure will cover only part of the money and will be made in scattered state capitals across the country.

If you thought the federal campaign finance laws of 1971 and 1974 were supposed to prohibit such practices, you were right. Unfortunately, a 197 amendment has been interpreted by the FEC, and regulations have been written, to allow such contributions. The original amendment was intended to strengthen state parties by allowing contributions legal under state law to be used partially for so- called party-building activities -- those understood to benefit federal as well as state candidates. But the actual effect has been to increase the overall amount of money going to the benefit of candidates for federal office and to allow corporate, union and unlimited personal contributions in states that permit them for candidates for state office.

Narrowing this loophole requires two actions. The first is centralized reporting and disclosure. The national parties collect soft-money funds, which are then disbursed to appropriate state parties. National party officials know who contributed, and how much, but under present regulations they have no obligation to tell anyone else. The Republicans have been more forthcoming than the Democrats in volunteering this information, incidentally. The FEC should write effective disclosure regulations.

The second action needed is the writing of proper allocation rules. What percentage of soft- money contributions are counted as direct contributions to federal candidates? Politicians have an incentive to write formulas that will attribute most of the contributions to state candidates, even though the typical soft-money contributor is sending his money in to help candidates for president and Congress. The FEC should write a formula that reflects this reality.

On Nov. 7 the FEC will hold its first public discussion of a petition for tougher soft-money rules that was filed by Common Cause last winter. The matter is central to the integrity of the campaign finance laws. The existing loophole mocks the federal disclosure requirements, contribution limits and prohibitions on union and corporate contributions -- the heart of current campaign finance laws. The FEC ought to narrow it.