Time for Real Campaign Finance Reform: The Flat Tax

This year, the US federal government is going to raise and spend close to two trillion of our tax dollars. That’s a lot of money—enough to make anybody spoil for a fight. And while you might not know it from most media coverage, the current struggle over the Shays-Meehan campaign finance bill is really a political fight over taxes and the budget—over "who gets what, how, and when."

The proposers of the bill admit this. In fact, they embrace it as a main reason for sponsoring it. According to Representatives Shays and Meehan, the problem with the way campaigns are financed is that big contributors end up with disproportionate power over how the budget pie is divided up, especially by getting favorable treatment through loopholes, exceptions, and subsidies in tax bills. They point to Enron’s $250 million in tax breaks as exhibit one, and they say that it’s time to hand power back to the people.

The argument seems to have worked this time, propelled over the top by the Enron mess. As a result, the Shays-Meehan bill will almost certainly sail through the Senate and become the first significant federal campaign finance bill to land on a president’s desk since 1974.

In its basics, the bill doubles the amount of money that individuals can give directly to politicians every election cycle (so-called "hard money"). At the same time, it significantly restricts the amount of previously unlimited "soft money" that can be given by individuals, corporations, and labor unions to state and federal parties. It also forbids independent groups (e.g., NRA, AFL-CIO) from running media ads criticizing those running for office in the weeks leading up to an election.

Despite some studied ambiguity, President Bush will most likely sign the bill. He doesn’t like it, but he wants to avoid a distracting political fight while he is trying to win a much bigger war. Besides, as David Broder has written, Bush probably benefits from the bill by being able to match his Democratic opponents in soft money while far exceeding them in new hard money contributions (as Republicans always do). The president knows that he will have the advantage, and so he will cut his losses, sign the bill, and take some credit for "reform."

But will there be any reform? The truth is that Shays-Meehan rests on some convenient fictions which—because they are fictions—are especially lovable to politicians, who have an insatiable need to look like they are doing something.

First, the bill is a constitutional fiction: the federal courts will strike down its restriction on pre-election expenditures by independent groups as the unconstitutional infringement of free speech that everyone—even its supporters—knows it is.

Second, only in a fictional world could anyone believe that crafty incumbents will not learn how to exploit the new rules. In reality, Democrats will get around the soft money restriction by leaning even more heavily on labor unions and other friendly groups for in-kind services such as voter "education" and get out the vote drives. And since contributions to independent groups are not and could not constitutionally be restricted, both Republicans and Democrats will simply divert big money contributors away from federal and state parties toward independent groups (the very “special interests” so often attacked by reformers). These groups will then end up financing a large share of expensive media ads.

All of this means that money will still be spent, but it will be done outside of the political accountability provided by the party structures. Shays-Meehan clearly won’t stop political manipulation of the tax code to benefit the undeserving. It will only create a host of unintended, uncontrolled consequences—just as the 1974 campaign "reform" brought us to the current situation decried by today’s reformers.

So what is the answer to the campaign finance conundrum? Ineffective half-measures aside, there are two solutions. One is a complete takeover of campaigns by the federal government: it could ban all independent political groups, estimate the value of all contributions (money and in-kind services) according to a centralized rule, and not permit any candidate to receive and spend (directly or indirectly) any more than allowed by a set limit. This would be fine—if we lived in the old Soviet Union.

There really is only one possible, lasting help: a flat tax on all incomes with no exceptions. As George Will has noted, as long as the federal government uses the budget to engineer how wealth is created and distributed in our society, there will always be pressure on representatives and senators to create loopholes, exceptions, and subsidies for certain groups over others. While it might not eliminate pork-barrel spending, a flat tax is fairer, more conducive to freedom, and certainly would take away the opportunity for politicians to give into political pressure for their own political benefit. As far as taxes go, the only political struggle would then be over how to define "income"—a difficult task, but one far less susceptible to factional pressure than the current system.

In the end, the problem with campaign finance "reform" is that it changes the rules of the Washington game, but it doesn’t change the game. As long as the federal budget (and especially the tax code) is a means of favoring some groups over others, all groups will find (and fund) politicians who will carve out their piece of someone else’s pie. Until taxes and spending are about revenue, not social engineering, campaigns will care about money more than ideas.

Representatives Shays and Meehan are right about one thing: it is time for some real campaign finance reform. It is time for President Bush to follow up on his tax cut victories and lead the charge for an uncorrupted and uncorrupting tax code. It is time for the flat tax.

Jeffrey Sikkenga is an Assistant Professor of Political Science at Ashland University and an Adjunct Fellow of the Ashbrook Center for Public Affairs.