Solving Campaign Finance Problems Through The Tax Code

Brad Crate CEO, Red Curve Solutions
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The politicians may think so, but political campaigns are not charitable endeavors, and thus, political contributions are not currently deductible under the federal tax code. Lots of things are tax deductible. Business expenses. Mortgage interest. In the recently passed tax extender package, Congress reauthorized dozens of special tax breaks for varied interests. Some people are surprised when they find out that political contributions aren’t deductible. Many people complain about campaigns being dominated by big donors and about not enough good people jumping into the political ring. Good candidates are concerned that they won’t raise enough money and be left with tens or even hundreds of thousands of dollars in debt.

The tax code is a political animal and reflects policy priorities and preferences. Some activities are encouraged and others are discouraged. Rather than silly ideas such as cash vouchers for campaign contributions or public financing, here’s a new idea that would encourage broader political participation by low-dollar donors as well as encourage new candidates to get in the ring. The tax code should be amended to allow certain political contributions to be tax deductible. 1) Any contribution (up to federal contribution limits) that goes towards debt retirement for a losing campaign should be deductible. 2) Any contribution $1,000 or less that ended up going to a losing campaign, regardless of the existence of debt, should receive retroactive tax deductibility effective the date of the election results being certified.

The main concern about money in politics and the driving rationale for the Federal Election Campaign Act (FECA) was quid pro quo corruption. Campaign finance laws are designed to prevent both corruption and the appearance of corruption. This proposal seeks simply to promote broader political participation without raising the specter of “corruption” while at the same time not infringing on First Amendment concerns that arise from public financing schemes that some on the left propose.

With these two changes, there would be incentives for more individuals to donate to any candidate they support. It would reduce individual tax liabilities. It might even encourage more small dollar donations to candidates, enabling more candidates to get a message out. Liberal proponents of campaign finance reform complain that large donors have a larger microphone in which to speak politically. This proposal would likely amplify the volume of small donors without the risk of corruption concerns. Since in the end, if these contributions went to a losing candidate and the donor receives deductibility, there is no risk of quid pro quo corruption. The candidate is not in office.

Moreover, this small adjustment to the tax code would encourage donors to contribute to political newcomers that might make good leaders but who currently lack financial backing or name recognition. In the best case scenario, the candidate wins and government has a fresh face. Then, the donations wouldn’t be tax deductible under my plan, but would still be within federal election limits. Worst case, the new candidate loses, and the donors will be able to deduct their contributions.

Finally, some new candidates who take a chance and throw their hat in the ring end up losing with tremendous amounts of debt. They need to keep their campaign committee open and file periodic reports until all debts are paid. The FEC still needs to review and maintain the committee’s filing information. A lot of time and money is wasted because few donors want to contribute to a losing campaign. My proposal would solve this problem by encouraging donors to retire that debt with deductibility up to the current federal contribution limits.

The tax code is already incorrigibly complex. This small tweak would not add much to the complexity. But at the end of the day, it would encourage more individuals to contribute to their candidates of choice, it would encourage more candidates to get in the ring, and it would help reduce the tax liability of Americans who choose to be politically active. That sounds like a winning idea to me.