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Proposal: Counter Big Donor Influence with Small Donor Tax Credits

Our campaign finance system makes fundraising skills and connections to Big Donors – not good policy ideas, desire for public service, or strong connections to constituents – the most important qualification for being elected. If you think that’s bad for American democracy, then explore one way to help solve the problem.

The Issue

Problem Defined

Our campaign finance system skews public policy outcomes by serving Big Donors at the expense of regular citizens.  

Increasing campaign costs cause members of Congress to spend more time fundraising than serving the interests of their constituents and to focus their fundraising on a tiny slice of voters. Many people don't get involved with political campaigns because they feel they can't make an impact – 42% of eligible Americans voted in a Congressional election in 2014, but only 13% contributed to political campaigns.* The current system also discourages qualified candidates who lack access to Big Donors from running.

* Sources: US Census Data, Pew Research Center 

Background
Expand all bullets
1.
1. Fewer than 0.5% of eligible voters accounted for 65% of individual campaign contributions in 2014

The most efficient way for candidates to raise the multi-million dollar war chests needed to win an election is to focus on Big Donors.

* Sources: US Census Data, Pew Research Center

2.
2. Incumbents have a huge advantage over challengers in raising money

Incumbent Senate candidates raised $9.8 million on average to the challenger's $1.4 million. Incumbent House candidates raised $1.6 million on average to the challenger's $0.3 million.

Incumbent politicians have built relationships with wealthy donors and special interest groups and are in a position to deliver the results they want.

3.
3. 90% of Congressional incumbents were re-elected in 2014 despite Congress' 14% approval rating

4.
4. Fundraising is a barrier to entry for potentially great new candidates

Our current system makes fundraising skills – rather than a desire for public service, qualifications, or the right solutions for the people of their district – the primary factor to win an election. 

Incumbents' ability to raise money cements their existing advantages, making it difficult for anyone without money to mount a successful challenge.

5.
5. Our campaign finance system results in skewed policy outcomes

Big Donors – individuals, corporations, unions and special interest groups – disproportionately influence which candidates run for office. 

Candidates who spend the bulk of their time raising money from Big Donors get a narrow – and often distorted – view of the general public's priorities. 

In addition to campaign contributions to elected officials and candidates, companies, labor unions, and other organizations spend billions of dollars each year to lobby Congress and federal agencies, further skewing political outcomes. Lobbying spending has more than doubled in the last 15 years, from $1.4 billion in 1999 to $3.2 billion in 2014.*

Once in office, lawmakers spend more than 50% of their time fundraising. So, who's doing the "work of the people?" 

Source: Center for Responsive Politics

6.
6. There is federal and state precedent for giving tax credits for political contributions

7.
7. Key campaign finance definitions and court rulings

Citizens United v. Federal Election Commission: This 2010 Supreme Court decision repealed certain sections of the Bipartisan Campaign Finance Reform Act of 2002 that forbade independent expenditures on candidates and ads that named candidates with the intent of swaying voters 60 days before an election. Citizens United allows corporations and unions to spend unlimited amounts of money on elections provided that they are made "independently" from a candidate's campaign itself (e.g., through Super PACs)

Political Action Committee (PAC): An organization that pools campaign contributions from members and donors and then gives that money to politicians' campaigns. PACs cannot take donations from corporations or unions and have limits on how much they can contribute to parties and candidates. PACs act as extra fundraisers for candidates.

Super PACs were created by the Federal Election Committee (FEC) following the Supreme Court's ruling in Citizens United v. FEC (see above). The key difference between a Super PAC and a PAC is that Super PACs are independent expenditure-only committees. They cannot give money to any candidate or party directly. They can, however, raise unlimited contributions from any person or organization (e.g., corporations and unions).

McCutcheon v. Federal Election Commission: This 2014 Supreme Court decision eliminated the aggregate limit of $123,000 on individual contributions to national party and federal candidate committees during a 2-year campaign cycle that was established by the Federal Election Campaign Act (FECA) of 1971. Individuals are still limited to giving:

  • $2,600 per candidate per race
  • $5,200 total for an individual candidate's primary and general election campaigns
  • $5,000 per year to a PAC
  • but there is no longer an aggregate giving cap limiting the total an individual can give to multiple candidates or committees during an election cycle
Go deeper
2.
The Money Chase: Moving from Big Money Dominance in the 2014 Midterms to a Small Donor Democracy

Adam Lioz, Karen Shanton, Emma Boorboor, Michael Russo and Dan Smith - PIRG Report (2015)

http://uspirg.org/sites/pirg/files/reports/TheMoneyChase-Report_0.pdf

Analysis of the cost of running a competitive race in the 2014 Congressional elections and the source of these funds. Authors profile seemingly qualified candidates from both major parties who are not serving in DC today in part due to having been out-raised by their opponents.

3.
Taxes and Political Contributions

Take Back Our Republic - Take Back Our Republic Educational Paper (2015)

http://takeback.org/educational-papers/#taxes

Recommends tax credits for political contributions as a way to encourage more people to become involved in the political process and at the same time remind candidates that the source of their power is the people.

5.
Toward a Small Donor Democracy: The Past and Future of Incentives for Small Political Contributions

Thom Cmar - PIRG Report (2004)

http://www.uspirg.org/sites/pirg/files/reports/Toward_A_Small_Donor_Democracy_USPIRG.pdf

The report discusses money's impact on elections and recommends providing public incentives for small political contributions to help average Americans play a more meaningful role in growing the pool of individuals with resources to get elected. 

6.
Affluence and Influence: Economic Inequality and Political Power in America

Martin Gilens - Affluence and Influence: Economic Inequality and Political Power in America (2013)

http://press.princeton.edu/titles/9836.html

Affluence and Influence, written by a professor of politics at Princeton, explores how political inequality in the United States has evolved over the last several decades and how this growing disparity has been shaped by interest groups, parties, and elections. The book won the 2013 Woodrow Wilson Foundation Award.

7.
Political Action Committees

Center for Responsive Politics - (2015)

http://www.opensecrets.org/PACS/

The Center for Responsive Politics is a premier research group tracking money in U.S. politics and its effect on elections and public policy. Nonpartisan, independent and nonprofit, the organization aims to create a more educated voter, an involved citizenry and a more transparent and responsive government.

Expert Authors

US PIRG (PUBLIC INTEREST RESEARCH GROUP) protects American consumers by standing up to powerful interest groups when they threaten our health and safety, our financial security, or our right to participate fully in our democratic society.  Since 1971, PIRG has worked to counter the influence of big banks, insurers, chemical manufacturers and other powerful special interests. PIRG's researchers uncover the facts; their staff brings the findings to the public; and their advocates bring the voice of the public to the halls of power.

TAKE BACK OUR REPUBLIC believes that individual participation in the American political system is the best way to preserve and strengthen our liberty. They engage in research, education, and advocacy about returning political power to individuals and ending the system of escalating campaign contributions by corporations, labor unions and special interests that fuels government spending. Take Back believes politicians should be responsible to the people, not to self-serving, moneyed interests seeking government subsidies and special treatment at taxpayers 'expense.

Andre Delattre
Executive Director - US Public Interest Research Group

A resident of Chicago, Andre Delattre has served as Executive Director of US PIRG since 2007; he also heads the US PIRG Education Fund and is the National Campus Director for the Student PIRGs.

Previously, Mr. Delattre served as the National Campus Director for the Student PIRGs. During his tenure, the campus program grew in both scope and impact. Ninety staff currently work with more than 1,200 student interns and 12,500 volunteers on more than 100 campuses. Since 1997, the PIRGs have added chapters at nine campuses, increased funding for the program through student membership dues, and attracted grant support from such foundations as The Pew Charitable Trusts, the Carnegie Corporation of New York and the Open Society Institute.

Under Mr. Delattre’s leadership, PIRG campus chapters have also launched several new initiatives, including the New Voters Project, Make Textbooks Affordable campaign, the Affordable Higher Education campaign, and the Energy Service Corps. The New Voters Project alone has achieved enormous success, resulting in 3.4 million new young voters in 2008. Intensive follow-up studies confirm that the Project also helped boost young voter turnout.

Early in his career, Mr. Delattre served as organizing director for California PIRG (CALPIRG). From 1993 to 1997, he helped build the organization’s student membership to 38,600 people at seven schools, while overseeing CALPIRG’s many student programs and projects, including efforts on campaign finance reform, recycling, clean air and forest preservation.

Mr. Delattre is a 1989 graduate of the University of California at Berkeley. While attending the school, he volunteered with CALPIRG and was elected chair of CALPIRG’s student board of directors in 1986.

Richard Painter
Professor - University of Minnesota Law School

Richard W. Painter is a member of the board of directors of Take Back Our Republic.

He received his BA summa cum laude in history from Harvard University and his JD from Yale University, where he was an editor of the Yale Journal on Regulation. Following law school, he clerked for Judge John T. Noonan Jr., of the US Court of Appeals for the Ninth Circuit and later practiced at Sullivan & Cromwell in New York City and Finn Dixon & Herling in Stamford, Connecticut.

He has served as a tenured member of the law faculty at the University of Oregon School of Law and the University of Illinois College of Law, where he was the Guy Raymond and Mildred Van Voorhis Jones Professor of Law from 2002 to 2005.

From February 2005 to July 2007, he was Associate Counsel to the President in the White House Counsel's office, serving as the chief ethics lawyer for the President, White House employees and senior nominees to Senate-confirmed positions in the Executive Branch. He is a member of the American Law Institute and is an advisor for the new ALI Principles of Government Ethics. He has also been active in the Professional Responsibility Section of the American Bar Association.

Professor Painter has also been active in law reform efforts aimed at deterring securities fraud and improving ethics of corporate managers and lawyers. A key provision of the Sarbanes-Oxley Act of 2002 requiring the SEC to issue rules of professional responsibility for securities lawyers was based on earlier proposals Professor Painter made in law review articles and to the ABA and the SEC. He has given dozens of lectures on the Sarbanes-Oxley Act to law schools, bar associations, and learned societies, such as the American Academy of Arts and Sciences. Professor Painter has on four separate occasions provided invited testimony before committees of the US House of Representatives or the US Senate on securities litigation and/or the role of attorneys in corporate governance.

His book, Getting the Government America Deserves: How Ethics Reform Can Make a Difference, was published by Oxford University Press in January 2009. He has written op-eds on government ethics for various publications including the New York Times, the Washington Post and the Los Angeles Times, and he has been interviewed several times on government ethics and corporate ethics by national news organizations, including appearances on Lawrence O'Donnell (MSNBC), Anderson Cooper 360 (CNN), CNN News, Fox News, National Public Radio All Things Considered, and Minnesota Public Radio News. In 2011, he testified before the U.S. House Government Oversight Committee on partisan political activity by government officials and reform of the Hatch Act. Professor Painter has also given expert testimony in cases involving securities transactions and the professional responsibility of lawyers. He testified as a defense witness in SEC. v. The Reserve Money Market Fund (SDNY, November 2012), a jury trial of an SEC enforcement action against the founders of the world's oldest money market fund that ended with a defense verdict on all of the fraud counts.

Professor Painter is the author of two casebooks: Securities Litigation and Enforcement (with Margaret Sachs and Donna Nagy; West 2003; Second Edition, 2007; Third Edition 2011) and Professional and Personal Responsibilities of the Lawyer (with Judge John T. Noonan Jr.; Foundation 1997; Second Edition, 2001; Third Edition 2011). He has written dozens of articles, book reviews, and essays, including a series of papers and a forthcoming book with Minnesota colleague Claire Hill on the personal responsibility of investment bankers.

During the 2014-15 academic year, Professor Painter was on leave as a fellow at Harvard University's Safra Center for Ethics where he worked on a book on campaign finance reform.

John Pudner
Executive Director - Take Back Our Republic

The oldest of 9 children growing up in a 3-bedroom house in inner city Richmond, VA and now the father of 9 children, John Pudner learned at a young age the importance of timing, negotiating and diplomacy. More importantly, he learned how to live on a shoe-string budget.

John's early life lessons helped put him on the national political scene when in the 2014 primaries, he jump-started the campaign of Dave Brat, who unseated US Majority Leader Eric Cantor in one of the most unprecedented upsets in political history. Later in the general election of the same year, John helped defeat a 32-year incumbent state senator in Alabama’s general election. He managed campaigns for almost three decades.

John's strategy of outsmarting instead of outspending the opposition was born out of a hobby of extrapolating statistical data on sports teams. With an affinity for numbers and grassroots initiatives, John became known as the go-to guy to help upstart candidates lacking financial backing.

John earned his BS in political science and journalism at Marquette University.

During his career, he won 3 out of every 4 races in which he was involved. But through all his successes, John Pudner saw first-hand the influence of money on politics—the manipulation of the system and the loopholes that didn’t favor a transparent election— one in which only select major corporate donors and union bosses were the true winners. Wanting to recreate the system instead of circumventing it, John Pudner now leads a team of ex-political wonks to help change the very industry in which they once thrived.

Dan Smith
Democracy Campaign Director - US Public Interest Research Group (US PIRG)

As Democracy Campaign Director for US PIRG, Dan Smith coordinates federal and state level campaigns to curb the corrosive effect of big money on our democracy, including US PIRG’s Democracy for the People campaign to amplify the voices of ordinary citizens through a small donor public financing system. Based in Washington, DC, he develops and provides support for democracy program field campaigns, lobbies elected officials, analyzes policy, and works with the media to promote solutions to the problem of big money in politics.

Smith previously worked as US PIRG’s tax and budget advocate where he organized support both inside and outside of Congress to end special-interest giveaways, increase budget transparency and accountability, eliminate waste, ensure that subsidies and tax breaks serve the public, and close corporate tax loopholes.

As tax and budget advocate, he co-authored several reports including Offshore Shell Games, a study documenting the widespread abuse of tax haven loopholes by many large US companies, Representation without Taxation, exposing companies that spent more to lobby Congress than they paid in taxes, and Toward Common Ground,a report coauthored with the National Taxpayers Union that put forth one trillion dollars’ worth of deficit reduction recommendations that garnered support from across the political spectrum.

His opinions have appeared in the New York Times, Washington Post, Wall Street Journal, CBS News, Bloomberg, Fox Business, and many other news outlets. Smith graduated summa cum laude from Cornell University with a bachelor’s degree in Government.

The Solution

Proposed Recommendations
Expand all bullets
1.
1. Offer a $100 federal tax credit to individuals for federal political contributions

Although such a tax credit will not solve our entire campaign finance problem, it represents one positive step to empower American voters and increase their participation in our political system.

Note: If an individual is already owed a tax refund, the refundable credit will be added to the amount of the individual's refund. 

2.
2. Make it easy for people to claim the tax credit

Create a line item on the federal tax form, accompanied by a simple form for filers to submit to collect their tax credit, for federal political contributions up to $100.

3.
3. Ensure all Americans are aware of the tax credit

The government, political candidates and parties need to communicate the value of the small donor tax credit and encourage voters to actively engage in the democratic process and support the candidate or party of their choice.

Expected Results
Expand all bullets
1.
1. The percentage of citizens contributing to political campaigns will increase

In Minnesota, the state's tax credit program led to the percentage of small donor funding increasing from 34% in 1990 to 69% in 1998.

2.
2. These new "investors" in candidates will follow and talk about the candidates more

In addition, the acquaintances of these new donors may vote in greater numbers due to hearing more dialogue.

3.
3. Candidates will focus more on their constituents who are giving in greater numbers

As the number of local constituents contributing to their campaigns increases, candidates will turn their attention from out-of-district donors to their constituents.

4.
4. The public will benefit from a wider pool of qualified candidates in political races

An increase of contributions by small donors will enable candidates who lack access to large donors to participate and compete more effectively. 

5.
5. Politicians' policies would better reflect the American public

As the percentage of campaign funds contributed by small donors grows, the balance of power will shift from the few to the many.

Budget
Budget Impact

Estimated cost: $852 million per election cycle, based on the following numbers and assumptions:

- 142 million registered US voters

- 8% of registered voters take advantage of tax credit (highest rate achieved in Oregon)

- Average contribution: $75 (per Malbin/Campaign Finance Institute)

Net Present Value

TBD

The Conversation

a month ago
Representatives should be required to spend a majority of their time working for their constituents and not raising money. Limit not just the amount, but the time they can spend raising money and "meeting" with donors who are not their constituents. A representative should only represent the people who can vote for them and not those outside their electoral area and not corporations.
a month ago
We should absolutely take corporate money out of politics. If offering a tax credit would help regular people contribute to politicians/causes they believe in I would be in favor of that.
5 months ago
As a person who lives on SSDI, I am not required to file a tax return and I have not for several years. I believe this proposal would leave out the poorest and most vulnerable in the US.
David Fridley
President
6 months ago
Even if people could get a tax credit of $100 and they knew about it, and it was easy to get, it's won't make a difference. Elected federal representatives need to raise so much money that they focus their time on those who can go much much higher.

We need a bigger, more innovative solutions:

What if we required the candidates to only raise money from their constituents
What if we put in term limits (like 1 or 2). After representatives have reached the limit, they don't have to worry about raising money any more, and then they wouldn't need to focus their time listening to big donors.
What if we put in limits on when representatives could collect contributions to XX months before the election.
What if we made a rule where candidates couldn't spend money trying to get elected - everything had to be volunteer or through free social media.

I'm not saying any of these are good ideas, but I'm saying we should engage the innovative juices of America in finding solutions that will make much more difference. $100 is too small to make a difference, lets think outside the box.




George Schramm
Outreach Marketing
7 months ago
Is there a reason the Senate and House have such a varied level of finance support, other than Senate seats being rarer?
7 months ago
Based on the precedents, offering tax credits seems like an effective way to encourage small donors. But why is there only a few precedents?
Claire Kopsky
College Student
8 months ago
Offering the tax credit is a step and a decent incentive for the American people, as we live in a world that oftentimes requires an incentive to act. To make the tax credit effective in the goal of helping the visibility of candidates, the communication of the tax credit in a fair and even way across all demographics of our country is crucial. If the communication is prioritized, the tax credit might be effective.
Don Hemedes
11th Grade Student
a year ago
A key problem outlined is that the incumbent tends to outspend the challenger. I think there should be a donation cap for out-of-district donors and big entities, and an overall spending cap for campaigns. Elections are supposed to be about a candidate's platform, integrity, and intellectual ability; not the amount of money spent on a campaign.
9 months ago
Agreed. If candidates spend so much time on the amount of money they spend then how will they ever have time to think of the people and base decisions on what's best for the people.
2 years ago
Why does it seem like the small donors have had much more influence than the large donors and the super PACs this primary season? Has Citizen United really created as much influence for the super wealthy as I feared it would?
Lisa Goldman Forgang
Chief Policy Officer
2 years ago
Why did the federal government stop offering the tax credit in 1986?
John Pudner
Executive Director
2 years ago
It was part of the budget deal that threw out all kinds of credits. Some who were there said most regretted this one being removed since it encouraged participation, not preferential treatment for certain groups like some tax credits, but to get the deal done they signed off.
2 years ago
This visibly demonstrates to each citizen that their contributions, their voices can play a role in deciding who gets to be elected. It's a very grassroots idea!
David Wolfson
Retired Engineer. Travel Agency Owner
a year ago
As noted, we've been through the tax credit idea before and it was stopped. Regrets aside we need to be doing something different than further complicating the tax system. We should be simplifying,not complicating. Also this solution nibbles at the symptom rather than get at the core issue. The reason why candidates need so much money in the first place needs to be addressed. I'd be in favor of limiting the time advertising or advocating for a candidate or party - similar to how it works in Britain.
2 years ago
I don't think a $100 tax credit will be enough to entice voters to donate. Maybe we could increase the tax credits?
Claire Kopsky
College Student
7 months ago
What about a percentage of the donation as the tax credit?
2 years ago
In my state, the NRA continues to support John McCain even though he switched stances on gun rights and restrictions. He received over $500,000 from them between 1989 and 2012. If that's not a case of special interest groups preferring incumbents then I don't know what is. I'm a gun rights advocate by the way.
Jackie Sanders
Kindergarten Teacher
2 years ago
I live in a small rural town where we don't have publicly financed elections at any level. I tried to challenge our state representative, but I couldn't even get 10% of votes in my own district because voters weren't familiar with my name. He ended up winning in my district even though he has a very low approval rating.
Don Hemedes
11th Grade Student
a year ago
What is the most challenging aspect of running against the incumbent state representative?
9 months ago
This issue is important and shows the need to why more and more individuals need to be informed and engage in local political figures no matter how small or big a place it.
Zack Mercer
Mechanic
2 years ago
In 2004 I voted for George Bush, but my union donated hundreds of thousands of dollars to John Kerry. I wish there was something we could do to keep our union leadership from going against our individual political interests?
2 years ago
I remember tax credits in the 1980s. I donated $80 to Reagan's campaign and received a $40 refund. It really helped citizens like me beat PATCO!
Stephanie Luster
Lead Architect
2 years ago
Citizens United allows corporations and unions to spend unlimited amounts of money on elections provided that they are made "independently" from a candidate's campaign itself. In a way, don't many union contributions consist of small donors anyway? Small donors could contribute to a candidate indirectly, through union memberships, and directly, through a donation that will be refunded.
2 years ago
If I donate to a single campaign over a 2 year period, will I receive one lump-sum refund?
John Pudner
Executive Director
2 years ago
You can only use it once per year. In states like Oregon that have it now, there is a big rush by candidates and causes to see if like minded constituents will give to them first after the new year starts, since that is the only tax deductible one unless you break it into several $10 donations.
2 years ago
What if big donors just respond to more small donor participation with even larger contributions that increase campaign costs even further?
Felicia Obermayer
Head Curator
2 years ago
In 2008 I donated $80 to Barack Obama's campaign. A month later he "personally" e-mailed me again asking for another donation. I contributed $30 more dollars and I received another e-mail 3 weeks later requesting another donation. Small donors will have to run their pockets dry to actually compete against PACs.
7 months ago
I agree. Those 0.5% people have such deep pockets. I don't think small donors can counteract the influence of wealthy people.
Troy Williams
Photojournalist
2 years ago
Campaign costs are increasing because big donors are increasing their contributions in elections. Maybe the solution lies not in directly empowering the small donor with expensive tax credits but in further limiting the contributions that PACs and committees can make.
2 years ago
Congress might have a 14% approval rating, but is that the average approval rating of those congressmen individually or as one political body?
Tseren Zurganov
Junior Policy Analyst
a year ago
The 14% approval rating figure assesses the performance of Congress as one political body.

http://content.gallup.com/origin/gallupinc/GallupSpaces/Production/Cms/POLL/3i2fahnvdk6tzlt1c0go9g.png
Deborah Devedjian
Founder & Chief Citizens' Officer
10 months ago
Definitely the body politic! Ironically, and in general, constituents will say that their particular member of Congress performs far better than Congress as a whole.
Maria Anderson
Executive Director
2 years ago
Many incumbents receive generous donations from big donors even when they're running unopposed. I think this has to be outlawed as much of that money is spent on opulent lifestyles.
Charlie Fort
Senior Vice President of Production
2 years ago
How about a constitutional amendment to overturn the Supreme Court's Citizen United decision instead of waiting for new Supreme Court judges who will be committed to its repeal? A tax credit for small donors simply won't be enough.
Ruth Melian
Community Volunteer
2 years ago
We have to start somewhere. This should be the beginning of many more steps to be taken. Plus, you can't make huge changes at one time because it won't be palatable to the general public.
Andrew Guthridge
Board Chairman
2 years ago
Can something more be done against Super PACs? Small donor contributions will not be able to match the power of Super PACs even after the tax credit incentives are enacted.
Andrea Meyers
President
2 years ago
Perhaps we could tax Super PACs on the contributions they receive and use those funds to finance the tax credits.
2 years ago
It's interesting concept. This actually makes the tax credit even more progressive. Even redistributive -- as wealthier folks contribute more to Super PACs, more is made available to those on the lower end of the income spectrum.

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