A Look at H.R. 1826 and the Public Financing of Congressional Campaigns

July 30, 2009 • Testimony

Good morning, Chairman Brady, Ranking Member Lungren and members of the committee. I am John Samples, Director of the Center for Representative Government at the Cato Institute. I am the author of The Fallacy of Campaign Finance Reform (University of Chicago 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 and should not be construed as representing any official positions of the Cato Institute.

H.R. 1826 concerns the financing of congressional campaigns. How might that be done? At first blush, we seem to face a choice among public financing, private financing, or a mixture of the two. Yet public revenues come from private sources, largely through taxation. Supporters of H.R. 1826 have identified several sources for the $700 to $850 million annual needed by the program: a tax on government contractors, revenues from spectrum sales, a tax on broadcasters (the 20 percent reduce in the lowest rate for advertising), and voluntary contributions. Supporters of the bill suggest the first two are the most important.1

Consider the incidence of these two sources of revenue. One would expect a tax on government contractors would be passed along to the federal government as a higher price for goods or services. The general taxpayer then becomes the source of this revenue for H.R. 1826. The spectrum sales involve assets owned by the government. However, H.R. 1826 incurs new spending. If the sales of those assets are used to fund public financing of congressional campaigns, it cannot be used to fund other spending or paying down the government deficit. Absent some unexpected drop in spending unrelated to this bill, the taxpayer would have to fund the federal obligations that might have been funded by the spectrum sales. Once again, the taxpayer would be the ultimate source of funding for H.R. 1826 (or similar spending elsewhere).

The bill tries hard to obscure these new obligations for the taxpayer. Why obfuscate the sources of revenue? After all, H.R. 1826 promises to enhance American democracy. If that is true and if we assume that democracy benefits us all, it would make sense that everyone pay some share of this means to make democracy better. We do not, for example, try to convince voters that disfavored groups or firms should pay for the common defense. Why not simply tax Americans for the promised benefits of public financing of campaigns?

This remarkable obscurity makes political sense once you realize that 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 long shown the opposite: a majority of Americans oppose public financing. The long decline of support for presidential public funding also speaks to this point. Most people object, I believe, to being forced to pay taxes to support campaigns and candidates they do not support and may actively dislike or oppose. Such taxation also deprives voters of the choice of not contributing to any candidate. The logic of this concern is compelling. If democracy means choosing those who govern, how can it be enhanced by forcing (i.e. depriving of choice) citizens to support candidates and campaigns they oppose or feel indifference toward. Of course, supporters may deny that most Americans oppose public financing.2 If that is true, however, why do the same supporters obscure the sources of revenue for bills like H.R. 1826? Are they not afraid that if most Americans were called upon to pay directly and clearly for this proposed program, it would be dead on arrival because of public opposition?

The financing issue suggests other problems. As you now, the federal government will be running severe deficits now and into the distant future. H.R. 1826 proposes new spending that will in turn incur new taxes either now or for future taxpayers. Given public distaste 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 find that private contributions influence policymaking in ways that impose “large, unwarranted costs on taxpayers through legislative and regulatory distortions caused by unequal access to lawmakers for campaign contributors.” By replacing private financing with public money, this bill would “potentially” save billions by precluding such “distortions.” The influence of private campaign contributions — especially those given by PACs — have been extensively studied for several decades. Scholars can attribute little influence over congressional voting to contributions alone, once they control for factors like the party, constituency, and ideology of a legislator.3 On average, we should expect little from this bill if enacted because its harsh judgment about private contributions remains at best, unproven, and at worst, simply wrong.

The same empirical point may be made about other claims in H.R. 1826. Private financing is said to undermine public confidence in government; replacing private financing with government revenues is projected to restore public faith in Washington. Yet a recent leading study found that the campaign finance system had no influence on whether people trusted or distrusted the government.4 Another study of the states found that only disclosure of contributions was associated with an increased sense of public efficacy.5 I do not think most Americans will feel better about the government once they learn their taxes have financed the campaign of a candidate they intensely dislike.

H.R. 1826 does have several unusual features. Most campaign finance legislation seeks an electoral advantage for incumbent members of the legislature, for the party that controls the legislature, or for the marginal voter that completes the majority needed to enact the regulation. H.R. 1826 provides subsidies to candidates who raise small sums through small contributions. The subsidies are significant: in the House, $50,000 in qualifying contributions would be turned into $1 million in campaign funds (including the advertising voucher). All things being equal, I would expect that many incumbent members of Congress would face more and better funded challengers and that party control of either chamber would become marginally less certain. On the other hand, members who provide the marginal votes needed for enacting campaign finance regulation tend to be vulnerable because they serve swing districts. In such districts, I would expect both candidates to avoid the public system since the since the funding will be too low to compete with an opponent who defects to private financing. I would expect that incumbent members of Congress who now receive between 55 and 65 percent of the vote in their district will attract more challengers who have more money than in the past. In other words, I expect H.R. 1826 would harm two groups of people: taxpayers, many of whom will be forced to support candidates not of their choice and a significant number of incumbent members of Congress who now raise more money than their challengers. These members will experience a smaller gap between their campaign resources and those of a challenger. Contrary to the putative findings of the bill, these members may well be forced to allocate more time to fundraising than they do now to restore (or try to restore) their advantage.

Will H.R. 1826 candidates be better candidates? Here I believe some questions need to be asked. In this bill small donors identify candidates who receive large public subsidies for their campaigns. Normally I would assume that a person who gives a small donation has little interest in politics and pays relatively little attention to the qualities of a candidate, certainly in comparison to a person who gives a larger donation; the latter has more at stake and hence, more incentives to make a more careful decision. In a certain sense, however, the small donor in this bill is not a small donor; their contribution grows by about twenty‐​fold thanks to the federal subsidy triggered if their donation leads to a qualified candidancy. In other words, the “small donor” is investing other people’s money (i.e. federal revenue). They have little reason to be careful in their spending since their money is not in question. Moreover, consider how this bill differs from the usual practice of the government. The federal government sometimes identifies people to spend public money on its behalf: the Pentagon, for example, has procurement specialists. Such principal‐​agent relationships pose difficult questions: how can the principal be sure that the agent is acting on the interests of the principal and not the agent? In other cases, the federal government regulates the agent’s choices through rules and oversight. Here the agents spending federal money are self‐​appointed and free of regulation and oversight. Why would we expect these “small donors” will act on the interests of the ultimate principal here, the American people? One would expect instead these individuals will spend federal money on candidates and causes that appeal to them and have little value to the larger, taxpaying public that funds the program. In that sense, H.R. 1826 proposes a subsidy for a special interest.

For many years self‐​styled reformers have demonized private financing of campaigns and indeed, all political activity presumed to reflect self‐​interest. This definition of politics implied private political activity corrupted government and required controls or even prohibition. On the other hand, reformers also believed once self‐​interest was removed from politics by heavily regulating or banning private contributions to campaigns, the public interest would assert itself naturally in a reformed legislature. H.R. 1826 reflects this negative view of the private and optimistic assessment of a public sphere cleansed of the private.

Yet it must be said that the hostility to the private stated in the findings of this bill do not lead to many concrete constraints on candidates who choose to remain outside the system. They are not taxed to support those in the system. Their contribution limits are not lowered to make harder to raise private money. They are not subjected to a common spending limit. This forbearance is welcome, but, I suspect, unlikely to be sustained. If enacted, publicly funded candidates would compete with privately‐​funded campaigns. If the former do not win most elections, new efforts will begin to make elections more “fair” by constraining privately‐​funded efforts. It would perhaps be better to not go down the path staked out by H.R. 1826.

On the question of public and private in politics, I find the view of the American founders more compelling. They believed government had legitimate tasks to perform on behalf of the American people. But, as James Madison said, the most difficult thing to do was set up a government that could do those tasks and yet also control itself. Elections were part of the solution to the problem of controlling government. Yet elections require informed choice which depends on information. Those in office have little interest in having their power constrained and often seek to limit or stop the flow of information to voters. The First Amendment was added to the Constitution to prevent those who hold power from stifling political speech. Private political efforts in tandem with elections and public arguments held out the hope of controlling government.

H.R. 1826 reflects a different outlook, a Progressive vision that would substitute publicly funded politics for our current largely private system. In that world, where the government ultimately funds and thereby controls the political activity of the governed, I believe we would sooner or later live in Madison’s nightmare, a world in which the government both controls the governed who in turn have been deprived of the means to control the government.

1 See “Summary of the Fair Elections Now Act” at www​.com​mon​cause​.org.

2 Majorities have opposed public financing for some time, save for the 1970s. See The Fallacy of Campaign Finance Reform, pp. 183–185.

3 Stephen Ansolabehere, John de Figueiredo, and James M. Snyder, Jr. , “Why is there so little money in US politics?” Journal of Economic Perspectives 17(2003):105–130.

4 Nathaniel Persily and Kelli Lammi, “Perceptions of Corruption and Campaign Finance: When Public Opinion Constitutes Constitutional Law,” University of Pennsylvania Law Review 153(December 2004): 119.

5 David M. Primo and Jeffrey Milyo, “Campaign Finance Laws and Political Efficacy: Evidence From the States.” Election Law Journal 5(2006):23–39.

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