Monday, April 11, 2016

Empowering Small Political Donors in America

It has become particularly apparent since the Citizens United Supreme Court decision that political power in the form of campaign donations lies in the hands of the wealthiest Americans who can make donations to both candidates and Super PACs that are larger than most American families earn in decades.  To counter this misuse of "big money", Democracy 21 and the Brennan Center for Justice have proposed an interesting new plan that would re-enfranchise small political donors.

The report, entitled "Empowering Small Donors in Federal Elections" opens with these paragraphs:

 "Our campaign finance system does not serve the interests of the American people.

The system’s danger to our democracy was captured by former House Member Leon Panetta, one of the nation’s most experienced and respected public officials:

“Legalized bribery has become part of the culture of how this place operates,” Panetta said on a visit to Washington.  Today’s members of the House and Senate “rarely legislate; they basically follow the money. . . .They’re spending more and more time dialing for dollars. . . .The only place they have to turn is the lobbyists.  Members have a whole list of names in their pockets at all times, and they just keep dialing.  It has become an addiction that they can’t break.""

The Brennan Center report notes that the total cost of spending by all candidates for Congress has risen from $77 million in 1974 to $1.8 billion in 2010, five times the rate of inflation over the same time period.  To get a sense of how big money has become critical in U.S. elections, here is a graphic from Open Secrets showing how much money has been raised by the remaining Presidential candidates of both parties:

Here is a list of how much money has been raised by campaign committees and outside groups (Super PACs):

Thanks to the Citizen's United decision, Super PACs have become the tool used by the wealthiest Americans to circumvent the measly $2,700 donation limit imposed by the Federal Election Commission.  This relatively small donation limit is in addition to the $5,000 per year that can be donated every calendar year to a traditional PAC and the $33,400 that can be donated to a national party committee, House campaign committee and Senate campaign committee.  Super PAC donors can donate amounts that are limited by the size of their bank balance as long as the Super PAC does not give the money directly to a candidate or co-ordinate how its spends its money with a candidate.  It is this unlimited donation mechanism that is the greatest cause for concern; after all, if a donor is willing to pony up several million dollars to a given candidate, common sense tells us that this particular donor is going to get a lot of attention from the candidate if they are elected to office.
In the 2008 cycle, less than 0.5 percent of eligible American voters were responsible for the vast majority of the money that politicians collected from individuals.  During the 2008 election cycle, House candidates received only 8 percent of their funds from donors who contributed $200 or less and Senate candidates received only 14 percent of their funds from donors who contributed $200 or less.  In contrast, House candidates received 35 percent of their funding from donors who contributed $1,000 or more and Senate candidates received 40 percent of their funding from donors who contributed $1,000 or more.  Interestingly, statistics show that residents of Manhattan's Upper East Side donated $72 million in itemized contributions during the 2008 cycle, more than the total contributions from 39 entire states! 

A strong majority of Americans believe that members of Congress are most likely to act in the interest of a group that has spent untold millions of dollars to elect them than they are to act in the public interest, in fact, a 2012 survey by Opinion Research Corporation International and the Brennan Center observed that 77 percent of American adults believed that members of Congress would would act in the interest of its donors and that 69 percent of adults believed that the new Super PAC unlimited donation rules would lead to more corruption in Congress.

Now, that we have background on the issue of campaign financing and political power broking, let's look at how the authors of the study suggest that small donors regain their electoral empowerment.  An election experiment undertaken in New York City during the scandal-plagued late 1980s reformed the campaign finance system by empowering small donors.  Small donations from average voters were matched with public funds which magnified the importance of small donations.  Currently, the first $175 donated to a candidate who elects to participate in the program is funded by the city at a six-to-one ratio, in other words, a $175 donation is worth $1,050 to a candidate.  In 2009, this small donor matching program meant that candidates who participated in the program raised 63 percent of their funds from individuals who donated less than $250 compared to only 14 percent for non-participating candidates.  As well, the small donor matching program has meant that donors come from a much broader spectrum of society with almost 90 percent of the city's census blocks having at least one small donor.  Because of the success of this program, the small donor matching model has been adopted in both San Francisco and Los Angeles.

In light of this successful model, the authors of the study propose that Congress adopt a small donor matching system for congressional races which match the first $250 of in-state contributions from individuals at a five-to-one ratio with a maximum donation of $1,250.  Additional contributions by the same donor would not be matched.  Candidates who participate in this voluntary program would have to agree to lower contribution limits in order to be eligible for the public funding with a cap of $2,500.

Here are two examples showing how the small donor matching system would work:

1.) a $250 donation at a five-to-one ratio would yield $1,250 in matching funds for a total contribution of $1,500.

2.) a $1,250 donation would be matched at a five-to-one ratio on the first $250 for a maximum of $1,250 plus the $250 donation for a total of $1,500 as above plus the remaining $1000 for a grand total of $2,500.  This smaller $1,250 donation would end up being the same as the maximum $2,500 donation to a non-participating candidate as noted above.

Here is a table showing how the matching system would work under a variety of scenarios including both in-state and out-of-state donors:

In addition to the restrictions noted above, candidates would be free to spend as much money as they wish, however, they could only use $50,000 of their personal wealth per election and there would be a cap on public funding of $2 million for a House candidate and $10 million for a Senate candidate to ensure that the program is managed responsibly.  As well, to ensure that frivolous candidates do not drain the system, House candidates would qualify for matching public funding after they raised $40,000 in contributions of $250 or less from at least 400 in-state residents whereas Senate candidates would qualify after raising a total amount equal to the quality amounts for a House race times the number of congressional districts in their home state.    At the end of the election cycle, any candidate that had surplus funds would be required to use those surplus funds (from any source) to repay the Treasury for the amount of public funding that they received.

According to an analysis by the Campaign Finance Institute, the cost of financing this new donor matching system for House and Senate races would be about $700 million per year, outweighing the costs that are associated with a government that is "for sale" to the highest bidder.  Funding could also take place using the current tax checkoff that allows taxpayers to designate $3 (an amount that could easily be raised since it was last increased in 1994) of their federal taxes to fund the Presidential Election Campaign Fund (PECF), a program that was undertaken in 1976 after the Nixon election debacle.  Here is the current up-to-date funding information for the Presidential Election Campaign Fund:

Balance as of February 2016 - $295,944,664
IRS Checkoff Rate in 2015 - 5.4 percent

When the program began in 1976, the checkoff rate was as high as 28.7 percent and in its biggest year (1994), the PECF raised $71.3 million.  Disbursements ranged from $69.5 million in 1976 to $210.4 million in 1996.  During the last presidential election cycle in 2012, the fund disbursed a rather paltry $37.7 million if disbursements from 2011 are included.
As you can see, while the Presidential Election Campaign fund is of little importance to the presidential candidates of today, such was not the case in the past.  Ronald Reagan, the only candidate who has received the maximum amount of public funding available did not hold a single campaign fundraiser for his 1984 presidential campaign.  As well, using the public financing system, Reagan almost beat an incumbent president in the 1976 Republican primary.  Every Republican presidential nominee from 1976 to 2008 used the presidential funding system to finance their general election campaigns with all but George W. Bush and John McCain using the system to finance their primary races.

While the small donor matching solution proposed by the Brennan Center may not appeal to all voters and will certainly not solve the problem that was created by the Citizens United decision, it's becoming increasingly obvious that the political power in Washington no longer belongs to the vast majority of voters but lies in the hands of several hundred of the wealthiest Americans.  This has led to voters feeling increasingly disenfranchised and a sense that Congress is acting on behalf of their wealthy puppeteers.  Something needs to change and the proposals in this study are, at the very least, a step in the right direction.


  1. This has led to voters feeling increasingly disenfranchised and confirmed that Congress as well as the presidency is acting on behalf of their wealthy puppeteers.

    That sounds more like it me.

  2. Adam Smith identified this as a problem in Wealth of Nations.