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Press Release

Real Campaign Finance Reform: Smaller Government


Last week, the U.S. House of Representatives passed bipartisan legislation designed to resolve the thorny issue of money in politics. The campaign finance reform legislation, sponsored by Chris Shays (R-Conn.) and Marty Meehan (D-Mass.) offers new regulations on the flow of money in the political system. The bill is similar to a measure passed by the Senate last year; unless opponents in the Senate can successfully filibuster the bill, it will be heading to the president’s desk, where Bush must decide whether to veto the legislation. While the bill appears to be on the fast track to passage, its ability to reform campaign finance is questionable. In addition to raising legitimate First Amendment concerns, the bill does nothing to address fundamental source of the problem: an expanding government presence in the economy. For real reform, a smaller, less-intrusive government would reduce the need for businesses, unions, and other special interests to seek favor with the government.

The Shays-Meehan bill re-jiggers the flow of money into political coffers, in ways that may protect incumbents from outside challengers. For example, national parties will no longer be able to raise or spend money from labor unions, businesses or wealthy individuals. Such “soft money” in the past has been a source of funds for challengers to incumbents. State and local party organizations will be allowed to accept such money, albeit with a $10,000 cap on donations. With respect to “hard money,” or cash gifts to politicians and parties, individuals will be allowed to give up to $2,000 per candidate—twice the existing level. Total hard money donations by an individual cannot exceed $47,500, up from the current cap of $25,000. Political advertising also faces new restrictions, with unions, businesses, and advocacy groups barred from airing radio and television ads that mention a candidate’s name 60 days prior to the election. Wealthy individuals and PACs may continue to air such ads, but with significant new disclosure requirements.

While the Shays-Meehan reforms seem to address populist concerns about money in politics, the legislation may be a solution in search of a problem. In polls, voters rank pocketbook issues such as tax cuts much higher than campaign finance reform. At the same time, when political resources are put into perspective with our economy as a whole, it is not evident that a problem exists. Much has been made of the record setting $3 billion spent during the 2000 election cycle. Yet in America’s $10 trillion economy this represents only 0.03 percent of our total economy—a small sum considering the future of the world’s largest economy is at stake. In fact, Americans spend 20 times more on soft drinks than they do on politics.

Channeling money in new directions will no doubt have surprising and unintended consequences, but the reformers ignore the root of the problem, which is a government that has become an unavoidable force in our economy. By all measures, the government has expanded over the last 10 years. Regulation has increased, antitrust enforcement is on the upswing, and the federal government has turned tax policy into a menu of tax cuts for favored industries or activities. Deficits are back and congressional spending is on the rise. It is no wonder that businesses and special interests pour money into political campaigns. Politics and government have come to shape their destiny as much as providing consumers with what they want at the lowest prices. Businesses can use laws, regulations, or tax breaks to gain a competitive edge. The sad fact is that most businesses can no longer survive if they ignore government’s looming shadow.

Campaigns raise big dollars because big government prefers things that way. Special interests fight for “a seat at the table” rather than let their rivals write the rules of the game. As long as we have big government with an expanding portfolio, it will be impossible to extricate money from politics. When it is impossible to do business without government, political contributions become a wise investment.

The solution is not new rules and regulations on campaign spending. Those rules and regulations are just as susceptible to the corrupting influence of political money, and an army of lawyers and lobbyists can no doubt find the inevitable loopholes. Political reforms should focus on increasing competition. As CSE’s counselor James C. Miller, III, notes, “political markets are far less responsive to the will of the people than they could be—and the problem is monopoly power. To eliminate this monopoly power, significant steps must be taken to eliminate contrived advantages enjoyed by incumbents, and other steps must be taken to broaden opportunities for challengers and ordinary voters to participate.” (Monopoly Politics, Hoover Press, 1999)

But the most effective solution would attempt to limit the scope of government and reach of politics. This includes tax reform that sidesteps the political jockeying that riddles the current tax code in favor of a simple tax cut for everyone, and a sensible regulatory regime that puts competition squarely in the marketplace rather than the halls of Congress.