Campaign Finance Reform

November 16, 1995 • Testimony

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

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

As you know, we at Cato regularly criticize the Republican leadership when they compromise the right positions for the easy or status quo positions. I commend you today, Mr. Chairman, and the Speaker, for taking the tough and unpopular position, for erecting a fire wall between the legislative process and the hypocritical one‐​sided hysteria fanned by Ross Perot, Common Cause, and Rep. Linda Smith.

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

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

Many of these reforms, including PAC reforms that we are discussing here today, raise serious Constitutional questions. I am not a Constitutional scholar — although we have one of the country’s finest at the Cato Institute. I respectfully suggest that the Chairman consider a separate hearing to address the constitutionality 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 is appropriate, after 20 years, to take a look at PACs and assess their 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 gone awry?

Why does the American public seem to hate PACs? If you listen to Ross Perot and the mainstream media, PACs “control” Congress, PACs are elite procurers of influence. Nothing is further from the truth.

I suggest to you that what we have is a case of the Emperor’s New Clothes. There is a conspicuous lack of evidence that a problem exists — much less as portrayed in the media or in popular rhetoric. There are no examples of abuse or scandal involving PACs. PACs have in fact, brought millions of Americans into the political process, and, with the full disclosure requirements, brought them in under the full light of day.

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

By giving to a PAC, small contributions gain meaning, power and attention. PACs monitor candidates voting records, question candidates on their beliefs on issues of interest to their membership and pass all this information along to their contributors. Small contributors gain access to information they would not have easy access to otherwise, information not available through traditional media, information on the issues that they have decided are important to their lives.

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

That’s why the NRA is so powerful. That’s why the pro‐​life movement and the Christian Coalition are so powerful. They represent huge numbers of Americans in many many districts.

I suggest to you today that much of the negative press on PACs exists because the establishment media simply doesn’t share the beliefs of the millions of Americans who are pro‐​gun, or pro‐ life, or openly religious. The media’s bias on this issue obscures the plain facts.

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

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

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

First, on the issue of money controlling the outcomes of elections — PAC spending does not buy elections. Money can only get a candidate’s message out. There is no guarantee that people will like what they hear. Freshman Republicans who beat incumbent Democrats were outspent on average by one‐​third. And history is full of millionaire big‐​spenders who lost.

Money does matter — and matters most to challengers. What is important is that challengers spend enough to have their message heard. Prof. Smith found money positively correlated between challenger spending and performance but found no connection between incumbent spending and performance.

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

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

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

One reform I support as a means of bringing more small individual contributors into the process is tax deductibility of political contributions.

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

Until that time, however, I suggest that tax deductibility would mean more to potential small contributors that to the wealthy. Will the wealthy give more? Almost certainly. But, as the Speaker so accurately put it, the problem with political campaigns is not that we spend too much money, but that we spend too little. As our study shows, all that money can do is make sure information gets out, that a message is heard. There is no guarantee that people will like what they hear.

Throughout this debate there is an underlying current that money is evil, that somehow, we just have to get the money out of politics. Keep all those terrible lobbyists and special interests away from our weak‐​willed Members of Congress.

Ladies and gentlemen, this is nonsense. The last thing we need is cloistered legislators, removed from valuable sources of information and opinion. Every member of Congress knows how valuable lobbyist and PAC information is to the legislative process. Members cannot be expected to know the technical impact on every industry and interest group of each legislative provision. And large numbers of congressional staff have never worked anywhere but the Hill.

The question then becomes: where does education and information dissemination end and influence peddling begin? The short answer is: nobody knows.

The answer also lies in a PAC balance of power — there are always well‐​funded lobbies on both sides of a legislative issue. Members concerned about re‐​election rarely support unpopular bills in exchange for a campaign donation. The nature of opposition research in politics today exposes fatal flaws and assures accountability. The heat from exposure and lost faith at home is just not worth $5,000.

Banning or limiting PAC contributions is also driven by a desire to decrease the amount of money spent in elections. But campaign spending is not out of control. More money was spent to syndicate “Seinfeld” than we spend on a presidential election. Total direct campaign spending for all congressional races averages out to $3 per eligible voter. PAC spending adjusted for inflation decreased in the ’94 cycle. And all 1993–1994 PAC contributions for all races would barely have covered Kevin Costner’s production costs for Waterworld.

More importantly, there is a very dangerous precedent set by acting on this hysterical desire to take money out of politics. The people in this country have a constitutional right to petition their government.

If we succumb to this misinformed, misguided hysteria, is the next step to take the media out of politics to stop all those obnoxious ads? To not let the press report on politics because we’re sick of reading all the horse‐​race stories?

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

Limiting PACs will distort the political debate. Driving money out of the campaign gives a powerful advantage to candidates with powerful 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 speak directly to the voters, political discourse will move away from a direct conversation between candidate and voter, and we will surrender to the institutional media’s power to mediate political debate.

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

I also caution all members, especially the freshmen, against passing reforms that further entrench the power of incumbents. When combined with the failure of term limits, you become vulnerable to charges of “now that you’re here, you want to be sure to stay here.”

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 examine the evidence. The fervor to ban or limit PACs is based on impressions created by those who have the most to gain from their demise. Further restrictions on PACs will only increase the power of incumbents, millionaires, and the media, distort political debate and infringe on First Amendment rights. Millions of Americans will have their right of free association trampled and see valuable and irreplaceable sources of information evaporate.

Historically, the most controversial First Amendment issues have centered on whether certain types of speech, such as commercial speech, licentious speech, and symbolic speech are protected by the amendment. What has been undisputed is that the First Amendment protects political speech.

Indeed, as the Supreme Court’s Buckley v. Valeo decision made clear: “dollars are not stuffed in ballot boxes…the mediating factor that turns money into votes is speech…Advocacy cannot be proscribed because it’s effective.” Since a ban on PAC contributions affects the intensity and frequency of political speech, the measure will infringe on our First Amendment rights.

Additionally, no one would deny that journalists, editors, and pundits influence politics through their outlook and choice of topics. But why should they have the opportunity to be important figures in the political debate while other Americans are excluded because they choose a career other than the media? Indeed, without PACs, how are Americans with limited time and resources to offset the editorial impact of the national media? What is more, the notion that the government, through a ban on PAC giving, can exclude certain types of individuals or organizations from contributing in a meaningful way to the political debate should alarm everyone who believes that “Congress shall make no law…abridging the freedom of speech.”

Our Founders recognized that although there may be suboptimal outcomes in a free society, they pale in comparison with the outcomes associated with turning over to government jurisdiction judgments independent citizens should properly make themselves. As Thomas Jefferson put it: “I know of no safe depository of the ultimate powers of the society but the people themselves; and if we think them not enlightened enough to exercise their control with a wholesome discretion, the remedy is not to take it from them, but to inform them of their discretion by education.”

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

About the Author