Good morning, Chairman Brady, Ranking Member Lungren and membersof the committee. I am John Samples, Director of the Center forRepresentative Government at the Cato Institute. I am the authorof The Fallacy of Campaign Finance Reform (University ofChicago Press, 2006).
I would like to offer an analysis and evaluation of H.R. 1826,the Fair Elections Now Act. The views I express are my own andshould not be construed as representing any official positions ofthe Cato Institute.
H.R. 1826 concerns the financing of congressional campaigns. Howmight that be done? At first blush, we seem to face a choice amongpublic financing, private financing, or a mixture of the two. Yetpublic revenues come from private sources, largely throughtaxation. Supporters of H.R. 1826 have identified several sourcesfor the $700 to $850 million annual needed by the program: a tax ongovernment contractors, revenues from spectrum sales, a tax onbroadcasters (the 20 percent reduce in the lowest rate foradvertising), and voluntary contributions. Supporters of the billsuggest the first two are the most important.1
Consider the incidence of these two sources of revenue. Onewould expect a tax on government contractors would be passed alongto the federal government as a higher price for goods or services.The general taxpayer then becomes the source of this revenue forH.R. 1826. The spectrum sales involve assets owned by thegovernment. However, H.R. 1826 incurs new spending. If the sales ofthose assets are used to fund public financing of congressionalcampaigns, it cannot be used to fund other spending or paying downthe government deficit. Absent some unexpected drop in spendingunrelated to this bill, the taxpayer would have to fund the federalobligations that might have been funded by the spectrum sales. Onceagain, the taxpayer would be the ultimate source of funding forH.R. 1826 (or similar spending elsewhere).
The bill tries hard to obscure these new obligations for thetaxpayer. Why obfuscate the sources of revenue? After all, H.R.1826 promises to enhance American democracy. If that is true and ifwe assume that democracy benefits us all, it would make sense thateveryone pay some share of this means to make democracy better. Wedo not, for example, try to convince voters that disfavored groupsor firms should pay for the common defense. Why not simply taxAmericans for the promised benefits of public financing ofcampaigns?
This remarkable obscurity makes political sense once you realizethat Americans have long opposed public financing of campaigns.Many people find this opposition puzzling. After all, if as H.R.1826 purports to find, private financing undermines democracy,American should support public financing. Yet surveys have longshown the opposite: a majority of Americans oppose publicfinancing. The long decline of support for presidential publicfunding also speaks to this point. Most people object, I believe,to being forced to pay taxes to support campaigns and candidatesthey do not support and may actively dislike or oppose. Suchtaxation also deprives voters of the choice of not contributing toany candidate. The logic of this concern is compelling. Ifdemocracy means choosing those who govern, how can it be enhancedby forcing (i.e. depriving of choice) citizens to supportcandidates and campaigns they oppose or feel indifference toward.Of course, supporters may deny that most Americans oppose publicfinancing.2If that is true, however, why do the same supporters obscure thesources of revenue for bills like H.R. 1826? Are they not afraidthat if most Americans were called upon to pay directly and clearlyfor this proposed program, it would be dead on arrival because ofpublic opposition?
The financing issue suggests other problems. As you now, thefederal government will be running severe deficits now and into thedistant future. H.R. 1826 proposes new spending that will in turnincur new taxes either now or for future taxpayers. Given publicdistaste for these programs, should Congress incur higher deficits(or higher taxes now) for these programs?
The sponsors of H.R. 1862 have a response. They purport to findthat private contributions influence policymaking in ways thatimpose "large, unwarranted costs on taxpayers through legislativeand regulatory distortions caused by unequal access to lawmakersfor campaign contributors." By replacing private financing withpublic money, this bill would "potentially" save billions byprecluding such "distortions." The influence of private campaigncontributions - especially those given by PACs - have beenextensively studied for several decades. Scholars can attributelittle influence over congressional voting to contributions alone,once they control for factors like the party, constituency, andideology of a legislator.3 On average, we should expect little from thisbill if enacted because its harsh judgment about privatecontributions remains at best, unproven, and at worst, simplywrong.
The same empirical point may be made about other claims in H.R.1826. Private financing is said to undermine public confidence ingovernment; replacing private financing with government revenues isprojected to restore public faith in Washington. Yet a recentleading study found that the campaign finance system had noinfluence on whether people trusted or distrusted thegovernment.4 Another study of the states found that onlydisclosure of contributions was associated with an increased senseof public efficacy.5 I do not think most Americans will feel betterabout the government once they learn their taxes have financed thecampaign of a candidate they intensely dislike.
H.R. 1826 does have several unusual features. Most campaignfinance legislation seeks an electoral advantage for incumbentmembers of the legislature, for the party that controls thelegislature, or for the marginal voter that completes the majorityneeded to enact the regulation. H.R. 1826 provides subsidies tocandidates who raise small sums through small contributions. Thesubsidies are significant: in the House, $50,000 in qualifyingcontributions would be turned into $1 million in campaign funds(including the advertising voucher). All things being equal, Iwould expect that many incumbent members of Congress would facemore and better funded challengers and that party control of eitherchamber would become marginally less certain. On the other hand,members who provide the marginal votes needed for enacting campaignfinance regulation tend to be vulnerable because they serve swingdistricts. In such districts, I would expect both candidates toavoid the public system since the since the funding will be too lowto compete with an opponent who defects to private financing. Iwould expect that incumbent members of Congress who now receivebetween 55 and 65 percent of the vote in their district willattract more challengers who have more money than in the past. Inother words, I expect H.R. 1826 would harm two groups of people:taxpayers, many of whom will be forced to support candidates not oftheir choice and a significant number of incumbent members ofCongress who now raise more money than their challengers. Thesemembers will experience a smaller gap between their campaignresources and those of a challenger. Contrary to the putativefindings of the bill, these members may well be forced to allocatemore time to fundraising than they do now to restore (or try torestore) their advantage.
Will H.R. 1826 candidates be better candidates? Here I believesome questions need to be asked. In this bill small donors identifycandidates who receive large public subsidies for their campaigns.Normally I would assume that a person who gives a small donationhas little interest in politics and pays relatively littleattention to the qualities of a candidate, certainly in comparisonto a person who gives a larger donation; the latter has more atstake and hence, more incentives to make a more careful decision.In a certain sense, however, the small donor in this bill is not asmall donor; their contribution grows by about twenty-fold thanksto the federal subsidy triggered if their donation leads to aqualified candidancy. In other words, the "small donor" isinvesting other people's money (i.e. federal revenue). They havelittle reason to be careful in their spending since their money isnot in question. Moreover, consider how this bill differs from theusual practice of the government. The federal government sometimesidentifies people to spend public money on its behalf: thePentagon, for example, has procurement specialists. Suchprincipal-agent relationships pose difficult questions: how can theprincipal be sure that the agent is acting on the interests of theprincipal and not the agent? In other cases, the federal governmentregulates the agent's choices through rules and oversight. Here theagents spending federal money are self-appointed and free ofregulation and oversight. Why would we expect these "small donors"will act on the interests of the ultimate principal here, theAmerican people? One would expect instead these individuals willspend federal money on candidates and causes that appeal to themand have little value to the larger, taxpaying public that fundsthe program. In that sense, H.R. 1826 proposes a subsidy for aspecial interest.
For many years self-styled reformers have demonized privatefinancing of campaigns and indeed, all political activity presumedto reflect self-interest. This definition of politics impliedprivate political activity corrupted government and requiredcontrols or even prohibition. On the other hand, reformers alsobelieved once self-interest was removed from politics by heavilyregulating or banning private contributions to campaigns, thepublic interest would assert itself naturally in a reformedlegislature. H.R. 1826 reflects this negative view of the privateand optimistic assessment of a public sphere cleansed of theprivate.
Yet it must be said that the hostility to the private stated inthe findings of this bill do not lead to many concrete constraintson candidates who choose to remain outside the system. They are nottaxed to support those in the system. Their contribution limits arenot lowered to make harder to raise private money. They are notsubjected to a common spending limit. This forbearance is welcome,but, I suspect, unlikely to be sustained. If enacted, publiclyfunded candidates would compete with privately-funded campaigns. Ifthe former do not win most elections, new efforts will begin tomake elections more "fair" by constraining privately-fundedefforts. It would perhaps be better to not go down the path stakedout by H.R. 1826.
On the question of public and private in politics, I find theview of the American founders more compelling. They believedgovernment had legitimate tasks to perform on behalf of theAmerican people. But, as James Madison said, the most difficultthing to do was set up a government that could do those tasks andyet also control itself. Elections were part of the solution to theproblem of controlling government. Yet elections require informedchoice which depends on information. Those in office have littleinterest in having their power constrained and often seek to limitor stop the flow of information to voters. The First Amendment wasadded to the Constitution to prevent those who hold power fromstifling political speech. Private political efforts in tandem withelections and public arguments held out the hope of controllinggovernment.
H.R. 1826 reflects a different outlook, a Progressive visionthat would substitute publicly funded politics for our currentlargely private system. In that world, where the governmentultimately funds and thereby controls the political activity of thegoverned, I believe we would sooner or later live in Madison'snightmare, a world in which the government both controls thegoverned who in turn have been deprived of the means to control thegovernment.
2Majorities have opposed public financing for some time, save forthe 1970s. See The Fallacy of Campaign Finance Reform, pp.183-185.
3Stephen Ansolabehere, John de Figueiredo, and James M. Snyder, Jr., "Why is there so little money in US politics?" Journal ofEconomic Perspectives 17(2003):105-130.
4Nathaniel Persily and Kelli Lammi, "Perceptions of Corruption andCampaign Finance: When Public Opinion Constitutes ConstitutionalLaw," University of Pennsylvania Law Review 153(December 2004):119.
5 DavidM. Primo and Jeffrey Milyo, "Campaign Finance Laws and PoliticalEfficacy: Evidence From the States." Election Law Journal5(2006):23-39.