The law, signed by President Bush earlier this year, would bar national political parties from taking or soliciting unlimited donations for use in party building, issue advertising and get-out-the-vote efforts.
A lawyer for the Republican National Committee said the law has forced the party to prepare to layoff as much as 40 percent of its staff, because it can no longer afford to pay them. And he contended that the law limited free speech, while doing little to remove corruption from politics.
"By saying that we can no longer have political parties raise money for issue advertising, all we are doing is removing the middleman, because special interest groups will continue to raise that money and spend it (on advertising,)" Bobby Burchfield said.
"American politics is more free of corruption than at any point in its history," he told the three-judge panel.
The U.S. Court of Appeals for the District of Colombia is hearing the case, which by law automatically will be appealed to the U.S. Supreme Court regardless of the lower court outcome.
The case highlights some of the best legal minds in the nation. Such famous jurists as former federal judge -- and Clinton impeachment architect -- Ken Starr, and top media attorney Floyd Abrams are arguing against the law, while attorneys for the Federal Election Commission defend it.
When the case goes to the Supreme Court, U.S. Solicitor General Ted Olsen will argue for the law, while Starr will argue against it. While Starr served as independent prosecutor during the Clinton administration, Olsen served as his personal attorney.
In his opening statement, Starr said the law served as a "dragnet" on such cherished liberties as freedom of speech and association and violates the constitutional right of the states to run elections free of interference from the federal government.
The opposition consists of Republican lawmakers -- led by Sen. Mitch McConnell of Kentucky -- as well as special interest groups from the National Rifle Association to the American Civil Liberties Union, who oppose its limits on the advertising they can run during elections.
Abrams was representing television broadcasters, who oppose the limits put on paid advertising by parties and candidates.
Richard Baider, assistant general counsel to the FEC, made the defense argument that the limit on so-called "soft money" donations protects the integrity of the political process, even if it merely helps maintain the appearance of propriety.
"(Special interest groups) give the money to candidates because it's a calling card to gain access to lawmakers," he said. "It opens the door so they can talk to members of Congress, and it serves as a competitive advantage over those who do not."
The court is expected to hear the case for 2 days and could rule early next year.