Electoral Reform- Part 9: Campaign Finance Reform

In the previous entry, I noted that the main motivation behind proposals to either reform or eliminate the Electoral College, especially the most recent proposals, is predicated by the Liberal/Democratic assertion that George Bush stole the Presidency in 2000. Yet for all the disdain for the Court’s decision in Bush v. Gore, there is another recent Supreme Court decision that really, really just makes your average liberal apoplectic with rage- Citizen’s United.

Before looking at proposals for “reform,” a little history of campaign finance is in order. Prior to the Civil War, our Founders were silent on the issue even though the alleged roots of the problem began early in our history. With the 1828 election of Andrew Jackson, a populist president, the spoils system was founded. This was a system of political patronage where various supporters of the winner were appointed to government positions. This was the case until the civil service system was formed late in the 19th century. This was the case until another populist president- Theodore Roosevelt- proposed a ban on corporate donations to political candidates which culminated in passage of the Tillman Act in 1907. It was all part and parcel of the anti-big business, trust-busting populism that swept Roosevelt into office. The 1940s saw more restrictions placed on donations. Unions were prohibited from direct contributions which led to the formation of the first political action committees. Individual contributions were regulated and federal contractors were banned from making donations.

Mainly in response to the Watergate scandal, the Federal Election Commission was formed and there was greater regulatory oversight of campaign donations, disclosure and expenditures. This legislation was knee-jerk, feel-good “reform” and very reactionary. What was Nixon’s crime? He had a secret slush fund to conduct dirty tricks. All the law really managed was to enhance the role of PACs in the process.

Parts of that law were struck down by the Supreme Court in 1976 in the decision, Buckley v. Valeo. The most important part of that decision was that political donations are a form of political speech and that any regulation had to be narrowly tailored to serve a compelling state interest. Although it let stand certain regulations, it became apparent then that the Court from 1976 onwwards would view these laws with suspicion since they infringed on fundamental First Amendment rights.

This all culminated in the passage of McCain-Feingold and almost immediately the law was challenged. When Obama stands before the Nation and tells us that the Supreme Court overturned over 100 years of campaign finance reform in Citizens United, he was not telling 100% of the story. He, like most liberals, focused on the Roosevelt years. However, there was a slow chipping away of that law since the 1950s. In fact, the more recent Buckley decision laid the constitutional framework for Citizens United by equating political donations with political speech or advocacy. In short, they determined that the government was stifling political speech. The Roberts Court simply brought the issue full circle.

Regardless, one needs to look at the alleged “scandals” that brought this whole issue up in the first place. FECA was passed in response to Watergate. There was the six-figure check from a Texas billionaire, a New Jersey investor (Robert Vesco) who donated $200,000 in order to avoid a fraud investigation, and cash being passed at an Illinois game preserve. In four weeks in 1972, $20 million was brought in by the Nixon campaign. This was done in order to avoid requirements under a new law that was set to go into effect later in 1972. The rationale of the reform is that there would be less tendency to engage in dirty tricks if there was less money. This stems from the populist belief that money necessarily corrupts the system.

To a large extent, McCain-Feingold was enacted in response to Chinagate during Clinton’s 1996 run for reelection. Here it was alleged that a Little Rock restaurant owner had “laundered” campaign contributions to Clinton from Chinese nationals. Foreign donations have always been illegal and rightfully so. Most of the convictions in the wake of Watergate were for attempts to circumvent disclosure laws while Clinton’s sins were certainly more egregious.

The most recent scandal involves Florida Congressman Vern Buchanan. He is accused of using his business- a car dealership- to funnel funds to his campaign. In essence, his employees would make donations up to the maximum limit then be reimbursed from the business. None of this would be a crime if he was permitted to use his business funds for campaign contributions. There is also the very obvious case from West Virginia where Massey, a mining company, used its funds to finance the campaign of a judge who eventually won and overturned a $50 million settlement against the company. But, incidences like that of Massey are the exception, not the rule.

Where this becomes a problem is when the donation either comes with strings attached (in which case it could be bribery), or to gain some influence with the candidate should they win. However, a 2002 MIT study showed that campaign contributions from various corporate sources or even unions had no effect on congressional voting records, sponsorship of bills, or favoritism towards donors. They determined that the biggest factors were party affiliation and wishes of the person’s constituents. A 2005 study from Princeton on the Senate indicated that they are more responsive to the top 33% of the wealthiest constituents. However, the study is silent on whether these people even donated to a campaign.

Clear cut examples of pay-to-play should be investigated and made public if true. But, the blanket statement that money automatically means corruption, undue influence, favoritism or dirty tricks is better left to the analytical minds of the likes of John Dean. They are totally off the mark. In fact, those who champion campaign finance reform are, I believe, mistaking this with lobbyists who enjoy no constitutional protections.

Donors will contribute to the candidate where they believe their interests will best be served whether those donors are individuals, unions, corporations, or a collection of people. If a candidate stands before the public and announces their support for card check, do we really expect corporations to donate to these people? If a candidate states their support for offshore oil drilling, do we really expect the renewable energy sector to donate? One needs to distinguish what a candidate’s position is and then determine if that position changes as a result of donations from any particular segment of business. Obviously, if there is a switch, there may be something to the warnings of campaign finance reform proponents. However, this writer believes that in the overwhelming majority of cases the donation is following the position, not the position following the donation.

And consider this: are these escalating campaign costs and outside spending such a bad thing in the end? As Scalia has stated, the more information the better, even if it is misinformation. To paraphrase Mitch Daniels, I think many would realize that the voter understands the differences. In the 2008 election- before Citizens United- when an incumbent lost, the challenger spent more than the incumbent only 33% of the time. After the decision in the 2010 election, challengers who spent more won only 14.3% of the time. That is, while the Left is decrying the influx of money as a reason for the Republican wave of 2010, candidate expenditures actually played less of a role in determining the winner.

In open races, before Citizens United, the candidate who received more support in outside spending won 55.6% of their races. However, after the decision, that percentage dropped to 49%. Again, even with this influx of money and a greater congressional turnover rate in 2010, the success of these outside groups in determining winners was under 50%. Obviously, incumbents enjoy a natural advantage in fundraising and name recognition. Yet, after Citizens United, the candidate who spent more money or who received more outside help actually performed worse than before the decision. The great scandal predicted by the likes of John McCain never materialized. The reason is probably akin to voter fatigue; the more the listener was bombarded with these messages, the more people tuned them out.

In the most recent 2012 elections, excluding the presidential run, we can give a cursory look at campaign expenditures. Please note that all the data is not in as far as reports to the FEC, but most information is up to date through end the end of October. First looking at only 12 Senate races- 11 open races and one where an incumbent lost- the candidate who raised and spent the most money from traditional donors whether big or small won 67% of the time. In fact, 82% of the winner’s money came from donors with another 13% from political action committees and the remainder from personal finances. Incidentally, using one’s own largesse is generally a recipe for defeat. Winners spent, on average, $9.25 million to win that race while losing candidates spent an average $9.67 million. When outside spending is figured into the mix, these groups spent an average of $8.42 million on winning candidates and $8.36 million per race on losing candidates. As was mentioned, those who spent the most from donations from individuals and PACs won 67% of the time. The success rate for the candidate who received the most outside group support was exactly 50% meaning that outside spenders have a 50/50 chance in Senatorial races of siding with the eventual winner. Now, when you add the two together, we find that the candidate who spent the most between donations and outside groups won only 33.3% of the time. How this can then be interpreted to mean that expenditures by outside groups influence electoral outcomes boggles the imagination. If anything, these groups- Liberal and Conservative alike- “waste” money 50% of the time.

In congressional races, the dynamics are slightly different. Here, I looked at only open races and those where an incumbent lost for a total of 68 races. Overall, the candidate who raised and spent the most from traditional donors like PACS and individuals won 63% of the time. For outside expenditures, I eliminated races where the total between the two candidates did not exceed $50,000. That eliminated 20 races to leave a pool of 48 congressional races involving open seats or ones where an incumbent lost with outside expenditures exceeding $50,000. Here, the candidate that received the most aid from outside groups won 62.5% of the time. Taken together- traditional donations plus outside help- the candidate that “spent” the most won 73.5% of the time.

But even that does not tell the full story since there are three classifications within this 68 race pool- open races, races in newly created districts, and those where incumbents lost. In fact, outside groups spent the most money defeating incumbents. In those races, there was a total of $4.9 million spent between the two parties almost evenly split (slight advantage to ultimate winning candidate). Here, outside expenditures certainly had an effect. In these races, the candidate who raised and spent the most from traditional donations only won 31.6% of the races. Yet, when looking at outside expenditures, the party that received the most support in this area won 57% of their races. Overall, when they are added together, they won 47.4% of the time. Obviously, the incumbent has a huge fundraising advantage over a challenger. However, these outside group expenditures- the bane of the Liberal establishment- actually serve to even out that playing field.

In the open races, the amount spent by outside groups shows a huge drop from that total $4.9 million figure to slightly over $1 million per race on average with the losing candidate having the slight advantage. In fact, in these races, the candidate that received the most outside group help won a mere 4.9% of the time. However, the candidate who received and spent more money from traditional donations won 70.7% of the time. One can conclude that outside group expenditures play a minimal role in deciding the outcome of elections for open House seats, at least in 2012.

Finally among the newly created congressional districts, one would expect the figures to fall somewhere between these other two classes. In fact, the amounts spent by outside groups in these races between the two parties averaged $2.3 million per race. The candidate that raised the most money through the traditional route won all their races. However, although outside group expenditures were above truly open races but below competitive races where incumbents lost, the candidate that received the more outside expenditures only won 25% of the time. Again, one can argue that the allegedly bad influence of outside expenditures is not backed up statistically.

What this all means is that the expenditures by outside groups has its greatest effect in defeating incumbents since it evens out the advantage with which the incumbent enters the race. In 2010, Democrats were crying the blues because it was Democratic incumbents who suffered the most defeats. Not accepting responsibility for their own shortcomings or those of Obama’s policies, they naturally blamed outside group expenditures as being responsible for their electoral defeats. This time around, they did a better job mobilizing liberal and Democratic outside groups towards defeating incumbents and enjoyed success in doing so. It remains to be seen, in light of these facts, if they are so adamant about reigning in outside group expenditures and advocacy. Likewise, the great scandal predicted by John McCain, a champion of campaign finance reform in the Senate on the Republican side, failed to materialize. It should also be noted that although Republicans and conservatives may decry this year’s scenario and outcomes, any call for reform must be tempered with an eye towards the future. Simply put, conservative groups did a terrible job targeting races (especially in the Senate) and the blame lies squarely at the feet of these groups, not the system. Remember that both parties are playing within the same system the Supreme Court laid before them. Let us admit our mistakes and simply give kudos to the Democrats for learning quickly what Republican and conservative groups took advantage of in 2010.

There are or were several proposals at reform in light of this decision, the most notable being the proposed DISCLOSE Act. Its purported job was to make independent group expenditures more transparent. Specifically, they would have to disclose their sources of donations and publish them. Opponents correctly note that this would have a chilling effect on political participation. The Court did note in Citizens United that disclosure would likely survive constitutional muster. However, these outside groups are set up under the tax code, not finance reform, in order to defend donor confidentiality. A DISCLOSE Act may be somewhat constitutional, but more importantly it would require a change in the tax code.

Another interesting idea is that every voter receives $25-50 from the government to donate to the candidates of their choice. There would be no other sources of funding. Again, this is the denial of political participation by organized groups like unions and corporations alike. This is a silly utopian waste of money and unconstitutional.

Yet another proposal would be specific to House races. Here, the only donors would have to be constituents of the congressional district. There would be no controls over independent expenditures and it denies a voice to potential constituents.

The main vitriol of proponents of campaign finance reform is directed at these outside groups who receive funding from unnamed sources. Although unnamed, the media has done a decent job of unearthing names. What they have not been good at, however, is reporting this on a fair and balanced nature. While they decry the Koch brothers, people like George Soros and Norman Lear go unmentioned. What they also fail to understand is that translating that spending into electoral success falls considerably below 100% and is closer to a 50/50 proposition.

In short, campaign finance laws seek to address a perception, not a reality. Spending by outside groups may have somewhat coarsened political discourse recently, but it in no way compares with that in our past, or in other countries. These people act as if dirty campaigns are something new when they occur. Furthermore, its effect on electoral outcomes is suspect at best. The bottom line is whether we should dare compromise a very important and fundamental constitutional right- that of free political speech- in order to address what is essentially a perception.