Topic: Government and Politics

Rent-Seeking Weasels

We’ve all heard about how actor-director Rob Reiner sponsored an initiative in California in 1998 to raise cigarette taxes to fund preschool programs. Reiner then became chairman of the state agency created by the initiative. And then he funneled $230 million of state spending through the ad and PR agencies that had worked on the initiative. And then he spent another $23 million of state money to support Proposition 82 this spring, to create universal preschool programs. He had to resign from his position, and voters turned down Prop 82.

But he’s not the only person sponsoring an initative that would benefit himself, his family, or his friends. A wealthy real estate developer who thought stem cell research would benefit his diabetic son spent $3 million of his own money to get Californians to create a $3 billion taxpayer-funded stem cell research organization, which he then became chairman of.

And now comes Vinod Khosla, a founder of Sun Microsystems and former partner in the fabulously successful Silicon Valley venture capital firm Kleiner, Perkins, Caufield and Byers, and recently number 1 on Forbes magazine’s Midas list of “the people who most successfully use venture capital to create wealth for their investors.” He’s been the subject of two admiring profiles in the Washington Post (one reprinted from Slate) in the past two days for his latest venture: ethanol. If Vinod Khosla says ethanol is a good investment, don’t bet against him. Or against fellow Silicon Valley megamillionaire Bill Gross, who says that “reinventing energy … dwarfs any business opportunity in history.”

But if it’s such a good investment, why is Khosla ”supporting an initiative on this fall’s ballot in California that would tax oil companies to generate $4 billion to help encourage the use of alternative energy,” as Slate writer Daniel Gross notes? Khosla told Post columnist Sebastian Mallaby that he wants just a little help from the federal government, too: “Khosla wants government to require auto companies to make more flex-fuel cars that run on gasoline or ethanol… .  Khosla wants government to require big gasoline distributors to install ethanol pumps at a tenth of their gas stations.” Oh, and a better subsidy.

Taxing your competitors to subsidize your industry is a rent-seeker’s dream. Usually you have to be more subtle about it. But if you have a “green” business idea, you can get liberal journalists to write gushing stories about you without even stopping to ask, “Hey, aren’t you going to benefit from these initiatives and laws you’re pushing? Isn’t that sort of like, you know, corporate welfare? Like we’re always accusing the oil industry of?”

We shouldn’t bet against Khosla. But if his latest investment is really such a great business opportunity, we should feel free to vote against subsidizing it.

The DLC Moves Left?

By teaming up with the Democratic Leadership Council, is Hillary Clinton moving to the center in preparation for a presidential run? Or is the DLC moving left to get closer to the front-runner? Yesterday Senator Clinton released a DLC plan, the “American Dream Initiative,” a laundry list of government transfers and handouts.

The New York Times called the programs “modest” and “relatively small-scale.” Taxpayers might have a different view if they read the Washington Post, which noted that DLC president Bruce Reed estimated the cost of the programs at $500 billion over 10 years – and taxpayers have learned by now that government entitlement programs often cost far more than their advocates estimate in advance. (Remember when Medicaid was projected to cost $1 billion a year? Oops.) And the DLC promises to raise taxes to cover the costs.

There are millions of libertarian-leaning voters disgruntled with the Republicans’ social conservatism, soaring spending, and ill-fated war. And Democrats are doing everything they can to discourage those voters from switching parties.

The Future of Campaign Finance Restrictions?

Last week the Campaign Finance Institute published a working paper on nonprofits and campaign finance. CFI styles itself as the moderate to conservative wing of the “reform community.” This paper, however, makes a radical proposal.

First, here’s some political context for the paper:

McCain-Feingold largely outlawed soft money contributions to the political parties. In the 2004 election, erstwhile Democratic soft money contributors used 527s as a vehicle for their political efforts. The Republican party by and large did not use 527s. So after the election, the GOP has naturally tried to eliminate the 527 vehicle. Democrats (and a few Republicans) have resisted that effort, and Congress seems unlikely to do anything about 527s this year. The effort to restrict political activities (i.e. “campaign finance reform”) has gotten bogged down for the moment.

The CFI paper tries to broaden the thinking of Congress and thereby the power of the government over free speech. It studies how 12 interest groups used political action committees, 527s, and nonprofit groups in the 2000, 2002, and 2004 elections. (The federal tax code puts nonprofits in the 501c section; they are allowed to engage in education efforts that involve political advocacy).

The sample relied on by the study should give pause. The study seeks to influence public policy, and campaign finance policy covers everyone involved in elections. Ideally, a study of interest groups in elections should be representative of all groups involved in elections. The CFI study does not try to show that their sample is broadly representative. That’s not surprising. It is highly unlikely that the CFI sample can be generalized. The interest groups chosen for the study will be familiar to students of American elections and policymaking; they are well-funded and highly organized. They are outliers and not a good foundation for making public policy that covers everyone.

The sample does have some interesting characteristics. It is evenly divided along partisan and ideological lines. Since the study looks at well-funded and highly organized groups, it thus examines potent threats to members of Congress on both sides of the aisle.

However, if Congress restricts only 527 spending, Democrats would be harmed more than Republicans. The CFI authors say that Republicans use the 501c groups more than the Democrats. The CFI study thus intimates that new restrictions on the political activities of 527s and nonprofits could be a good bipartisan compromise: Republicans would be rid of the 527 threat while Democrats would gain relief from the GOP nonprofits.

Yet upon further examination, the deal looks like more of a hit to the Democrats. The CFI data show that Democratic 527s spent many times what the GOP nonprofits expended in 2004. (The CFI authors contend public data underestimates spending by nonprofits because of inaccurate reporting to the IRS). So the CFI authors are essentially asking the Democrats to sign on to a bad deal.

Politics aside, the CFI study poses larger and more disturbing questions, too.
Preventing corruption has long been the primary legal justification for regulating campaign spending. To prevent corruption courts have allowed Congress to regulate campaign contributions and to treat spending at the behest of candidates as a contribution. The interest groups studied by CFI abide by these laws by using their political action committees to contribute to campaigns.

The focus on corruption also erected a wall between elections and politics. If you give money to a candidate, the thinking goes, you might bribe him and hence, your contribution should be regulated. If you didn’t give money to a candidate but wanted to spend whatever sums advancing your ideas independent of his campaign, that fell under free speech and enjoyed constitutional protection.

527s and nonprofits, on the other hand, spend money on elections and politics but cannot give to candidates. As they CFI study shows, much of this spending involves groups communicating with their members or trying to persuade the public in general. The 527 and nonprofit spending thus falls under free speech.

The CFI authors suggest otherwise. They argue that 527 and nonprofit spending could corrupt representatives. Members of Congress, they say, do not distinguish spending by legal category; PAC contributions, 527 efforts, and nonprofit work are all understood to be payments to a candidate, presumably prompting legislative favors in response.

If such spending risks “corruption,” it may legally be brought under the restrictions of campaign finance law, primarily mandatory disclosure of sources and limits on donations. Those strictures would eliminate all significant 527 spending and many small nonprofits.

The CFI authors provide no evidence that representatives see spending by 527s and nonprofits as quid pro quo contributions. They are also strikingly indifferent to the consequences of their proposal for the rights of their fellow citizens.

For CFI, the distinction between elections and politics and between contributions and free speech has outlived its usefulness. Not surprisingly, the CFI authors do not mention an unmistakable implication of their proposal: in the future, all spending on political advocacy sooner or later will be subject to campaign finance laws. The CFI authors do not mention how this extension of state power comports with the freedom to engage in politics promised by the U.S. Constitution.

Perhaps that’s because it doesn’t.

Working to Cut the Deficit

In an online fundraising letter, President Bush (or someone authorized to sign his name) writes, “Republicans are also working to cut the deficit. The best way to reduce the deficit is to keep pro-growth economic policies in place, and be wise about how we spend your money – which is exactly what Republicans are doing in Washington.”

Just how high would spending be if the Republicans weren’t being wise about how they spend our money?

Political Graffiti

Yesterday, the Senate Appropriations Committee approved a bill that would name a future federal courthouse after Senate Majority Leader Bill Frist.

As National Journal reports:

The panel even named a yet-to-be-built courthouse after Senate Majority Leader Frist, unusual for a sitting member of Congress. That was a compromise forged after Senate Transportation-Treasury Appropriations Subcommittee Chairman Christopher (Kit) Bond, R-Mo., could not spare enough funds within his limited allocation to build the Nashville courthouse that Frist requested, a committee aide said.

So it seems that appropriators are not only shamelessly slapping the names of sitting senators on federal buildings; they are also using the naming rights to encourage additional spending.

It is too early to know if this provision will remain in the final version of the spending bill, but for what it’s worth, the Rules of the House of Representatives state:

It shall not be in order to consider a bill, joint resolution, amendment, or conference report that provides for the designation or redesignation of a public work in honor of an individual then serving as a Member, Delegate, Resident Commissioner, or Senator.

Rules, however, are meant to be broken. And broken again.