Campaign Finance Reform

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Thank you, Mr. Chairman and Members of the Committee forinviting me to testify before you today. Campaign finance reform isone of my highest priorities and one where the truth lies far belowthe surface.

I would like to take this opportunity to commend both theChairman and the Speaker for having the political courage to standup against the status quo and take the unpopular - but correct -positions on campaign finance reform.

As you know, we at Cato regularly criticize the Republicanleadership when they compromise the right positions for the easy orstatus quo positions. I commend you today, Mr. Chairman, and theSpeaker, for taking the tough and unpopular position, for erectinga fire wall between the legislative process and the hypocriticalone-sided hysteria fanned by Ross Perot, Common Cause, and Rep.Linda Smith.

They are wrong. Their reforms are wrong. The reforms theysupport will do nothing but enhance the power of millionaires,incumbents, and the media. They will restrict, if not cut offentirely, the free flow of information to the voters.

At last count, there were 23 separate campaign finance reformbills before this committee. Most contain the same basic elements,just arranged in somewhat different combinations.

Many of these reforms, including PAC reforms that we arediscussing here today, raise serious Constitutional questions. I amnot a Constitutional scholar - although we have one of thecountry's finest at the Cato Institute. I respectfully suggest thatthe Chairman consider a separate hearing to address theconstitutionality of the proposed reforms.

We are here today to discuss PACs. PACs, as we know them today,are a creation of the 1974 campaign finance laws. It isappropriate, after 20 years, to take a look at PACs and assesstheir impact:

What real effect have they had on the American political scene?What are the real and/ or perceived problems we need to correct?What evidence and examples do we have of earlier reforms goneawry?

Why does the American public seem to hate PACs? If you listen toRoss Perot and the mainstream media, PACs "control" Congress, PACsare elite procurers of influence. Nothing is further from thetruth.

I suggest to you that what we have is a case of theEmperor's New Clothes. There is a conspicuous lack ofevidence that a problem exists - much less as portrayed in themedia or in popular rhetoric. There are no examples of abuse orscandal involving PACs. PACs have in fact, brought millions ofAmericans into the political process, and, with the full disclosurerequirements, brought them in under the full light of day.

If you want campaigns financed by small contributors, you wantPACs. Estimates are that 12 million Americans across the countrycontribute an average of $12 a month to PACs. Tens of thousands ofAmerican teachers, firemen, and letter carriers give less than $30a year. PACS enable millions of voters to become involved in thepolitical process in a meaningful way. Writing a check for $25 to acampaign quickly disappears - the candidate has no idea why anindividual is giving, what issues are important to him or her.

By giving to a PAC, small contributions gain meaning, power andattention. PACs monitor candidates voting records, questioncandidates on their beliefs on issues of interest to theirmembership and pass all this information along to theircontributors. Small contributors gain access to information theywould not have easy access to otherwise, information not availablethrough traditional media, information on the issues that they havedecided are important to their lives.

Every election cycle, every one of your campaigns is besieged bya flurry of questionnaires and ratings. The ones that matter to youare the ones that reflect your constituency.

That's why the NRA is so powerful. That's why the pro-lifemovement and the Christian Coalition are so powerful. Theyrepresent huge numbers of Americans in many many districts.

I suggest to you today that much of the negative press on PACsexists because the establishment media simply doesn't share thebeliefs of the millions of Americans who are pro-gun, or pro- life,or openly religious. The media's bias on this issue obscures theplain facts.

That's also why the NFIB, the Grocery Manufacturers and theRealtors are so powerful. They also represent millions of Americansin industries in districts all across the country.

There are two types of influence relevant to our discussion: theinfluence of campaign contributions on elections and the influenceof campaign contributors on the legislative process.

Cato recently released the signature study on these issues,Campaign Finance Regulation: Faulty Assumptions and UnintendedConsequences by Capital University Law Professor Bradley A.Smith. Two of Prof. Smith's key findings answer the question ofbuying votes and influence.

First, on the issue of money controlling the outcomes ofelections - PAC spending does not buy elections. Money can only geta candidate's message out. There is no guarantee that people willlike what they hear. Freshman Republicans who beat incumbentDemocrats were outspent on average by one-third. And history isfull of millionaire big-spenders who lost.

Money does matter - and matters most to challengers. What isimportant is that challengers spend enough to have their messageheard. Prof. Smith found money positively correlated betweenchallenger spending and performance but found no connection betweenincumbent spending and performance.

Second, to the question of money buying legislative votes, Prof.Smith found that campaign contributions do not, repeat, do notaffect many votes in the legislature. In fact, empirical researchshows the primary factors affecting legislative votes are ideology,party agenda and public opinion - not money.

Therefore, contrary to the popular myth that PACs dictate viewsand votes, PACs have power only when they represent members'constituency. Members of this committee have, most likely, refusedchecks from PACs when they don't want to be associated with thatparticular PAC's agenda. More to the point, many PAC checks simplydo not arrive when your views and voting records don't match thePAC's agenda.

If anything, we should be looking for ways to bring more smallcontributors into the political process, not restrict or remove aneffective means of engagement.

One reform I support as a means of bringing more smallindividual contributors into the process is tax deductibility ofpolitical contributions.

Ideally, and, hopefully, in the not too distant future, we willbe rid of tax deductions forever as we replace the current taxsystem with a retail sales tax (or flat tax). That, however, is aseparate set of issues for another day.

Until that time, however, I suggest that tax deductibility wouldmean more to potential small contributors that to the wealthy. Willthe wealthy give more? Almost certainly. But, as the Speaker soaccurately put it, the problem with political campaigns is not thatwe spend too much money, but that we spend too little. As our studyshows, all that money can do is make sure information gets out,that a message is heard. There is no guarantee that people willlike what they hear.

Throughout this debate there is an underlying current that moneyis evil, that somehow, we just have to get the money out ofpolitics. Keep all those terrible lobbyists and special interestsaway from our weak-willed Members of Congress.

Ladies and gentlemen, this is nonsense. The last thing we needis cloistered legislators, removed from valuable sources ofinformation and opinion. Every member of Congress knows howvaluable lobbyist and PAC information is to the legislativeprocess. Members cannot be expected to know the technical impact onevery industry and interest group of each legislative provision.And large numbers of congressional staff have never worked anywherebut the Hill.

The question then becomes: where does education and informationdissemination end and influence peddling begin? The short answeris: nobody knows.

The answer also lies in a PAC balance of power - there arealways well-funded lobbies on both sides of a legislative issue.Members concerned about re-election rarely support unpopular billsin exchange for a campaign donation. The nature of oppositionresearch in politics today exposes fatal flaws and assuresaccountability. The heat from exposure and lost faith at home isjust not worth $5,000.

Banning or limiting PAC contributions is also driven by a desireto decrease the amount of money spent in elections. But campaignspending is not out of control. More money was spent to syndicate"Seinfeld" than we spend on a presidential election. Total directcampaign spending for all congressional races averages out to $3per eligible voter. PAC spending adjusted for inflation decreasedin the '94 cycle. And all 1993-1994 PAC contributions for all raceswould barely have covered Kevin Costner's production costs forWaterworld.

More importantly, there is a very dangerous precedent set byacting on this hysterical desire to take money out of politics. Thepeople in this country have a constitutional right to petitiontheir government.

If we succumb to this misinformed, misguided hysteria, is thenext step to take the media out of politics to stop all thoseobnoxious ads? To not let the press report on politics becausewe're sick of reading all the horse-race stories?

Money will remain in politics. Money must remain in politics. Asissues become more complicated and technology more complex, evenmore money will be needed to ensure an open political system.

Limiting PACs will distort the political debate. Driving moneyout of the campaign gives a powerful advantage to candidates withpowerful friends such as celebrities and unions.

Limiting PACs will similarly enhance the power of the media.When candidates cannot raise or spend the money needed to speakdirectly to the voters, political discourse will move away from adirect conversation between candidate and voter, and we willsurrender to the institutional media's power to mediate politicaldebate.

Katharine Graham of the Washington Post can editorialize infavor of certain candidates, or shape news coverage to reflect herphilosophical perspective. Garry Trudeau can promote Bill Clintonby devoting his comic strip to bashing George Bush and Dan Quayle.Talk show host Rush Limbaugh can do the same in favor of hiscandidates.

I also caution all members, especially the freshmen, againstpassing reforms that further entrench the power of incumbents. Whencombined with the failure of term limits, you become vulnerable tocharges of "now that you're here, you want to be sure to stayhere."

Term limits are the best campaign finance reform of all.

In summary, I recommend the following:

  1. Pass Term Limits;
  2. Resist the temptation to ban or further restrict PACs;
  3. At a minimum, index existing limits for inflation;
  4. Tax deductibility for individual contributions;
  5. Full disclosure.

In closing, I encourage the members of this committee to examinethe evidence. The fervor to ban or limit PACs is based onimpressions created by those who have the most to gain from theirdemise. Further restrictions on PACs will only increase the powerof incumbents, millionaires, and the media, distort politicaldebate and infringe on First Amendment rights. Millions ofAmericans will have their right of free association trampled andsee valuable and irreplaceable sources of informationevaporate.

Historically, the most controversial First Amendment issues havecentered on whether certain types of speech, such as commercialspeech, licentious speech, and symbolic speech are protected by theamendment. What has been undisputed is that the First Amendmentprotects political speech.

Indeed, as the Supreme Court's Buckley v. Valeodecision made clear: "dollars are not stuffed in ballot boxes...themediating factor that turns money into votes is speech...Advocacycannot be proscribed because it's effective." Since a ban on PACcontributions affects the intensity and frequency of politicalspeech, the measure will infringe on our First Amendmentrights.

Additionally, no one would deny that journalists, editors, andpundits influence politics through their outlook and choice oftopics. But why should they have the opportunity to be importantfigures in the political debate while other Americans are excludedbecause they choose a career other than the media? Indeed, withoutPACs, how are Americans with limited time and resources to offsetthe editorial impact of the national media? What is more, thenotion that the government, through a ban on PAC giving, canexclude certain types of individuals or organizations fromcontributing in a meaningful way to the political debate shouldalarm everyone who believes that "Congress shall make nolaw...abridging the freedom of speech."

Our Founders recognized that although there may be suboptimaloutcomes in a free society, they pale in comparison with theoutcomes associated with turning over to government jurisdictionjudgments independent citizens should properly make themselves. AsThomas Jefferson put it: "I know of no safe depository of theultimate powers of the society but the people themselves; and if wethink them not enlightened enough to exercise their control with awholesome discretion, the remedy is not to take it from them, butto inform them of their discretion by education."

Thank you for this opportunity to share my thoughts on thisimportant matter with the Committee.

Edward H. Crane

Committee on House Oversight
United States House of Representatives