Commentary: The Real Truth About Campaign Cash

When Christine Todd Whitman suddenly decided to bow out of the race for a Senate seat, the New Jersey Governor blamed money--or the lack of it. Whitman dreaded the thought of having to raise $12 million in 12 months.

What a shame, cluck campaign-finance reformers, that the money chase is keeping such talented public servants from running for office. And isn't it too bad that the political system is awash in money, reformers lament, as they point fingers at Republican Presidential front-runner George W. Bush, who has upped the ante by bringing in a record $50 million. Altogether, Presidential hopefuls raised $105 million as of June 30 for the 2000 primaries. That puts them on pace to reach $210 million--64% more than was raised in '96.

"TRIVIAL" HIKE. But is there really too much money sloshing around the political system? No doubt, the booming economy is making it easier to find campaign contributions. But when adjusted for the New Economy's wealth effect, the amount of campaign giving over the past few election cycles isn't even keeping pace with ballooning household assets. The rising value of stocks and bonds in personal portfolios dwarfs the jump in congressional campaign giving. And when further adjusted for increases in such factors as voting-age population and the cost of buying TV time, the growth in campaign donations looks minor. "The increase is trivial considering what's at stake," says John R. Lott Jr., a Yale University visiting scholar who studies campaign giving.

Putting fund-raising figures in a New Economy context is like viewing those old budget deficits as a percentage of GDP: As the economy grew, budget shortfalls became less and less worrisome. The $208 billion '83 deficit, for example, came to 6.1% of GDP. A decade later, the '93 gap was even higher at $255 billion, but only 3.9% of GDP. In the same vein, the gross amount of campaign contributions is less of a worry when viewed next to the tremendous growth in personal wealth.

So is the campaign-finance-reform movement misguided? Absolutely not. But the focus needn't be on the total amount of money going into elections. Rather, it should be on the fact that business execs and other groups in search of special favors are the source of nearly all contributions and are able to use that leverage to skew government actions in their favor. The House already addressed part of the problem when it voted 252-177 on Sept. 14 to ban soft money--unlimited donations that are supposed to go to political parties but that increasingly benefit individual campaigns. And Congress can take several other steps, including giving donors a tax credit of up to $200 to broaden the contribution base and weaken the grip of special interests. Further, Congress could raise the $1,000 cap on individual donations to $3,000 to reduce the time candidates spend raising money.

Then maybe Congressional fund-raising will catch up with the New Economy. In the 1989-90 election cycle, House and Senate candidates received $428 million from individual donors. Eight years later, congressional candidates took in $673 million, for a 57% increase. But in the same period, according to the Federal Reserve Bank of New York, the value of household assets jumped a slightly higher 71%, from $20 trillion to $36 trillion. And the value of stocks and bonds in household portfolios rose 219% from 1990-98, making the amounts that went to House and Senate campaigns look puny.

Individual campaign contributions to Presidential primary contestants (all party nominees have so far accepted federal funds for general elections) more closely track the economy. In 1991-92, Arkansas Governor Bill Clinton, President George Bush, and nine others seeking the nominations of the two major parties raised a total of $82 million. If 13 Presidential hopefuls raise $210 million, as expected, by the end of this year, that's a 156% jump--about even with the 154% increase in the value of household securities between 1991 and the first quarter of this year.

Only soft money has outpaced the wealth buildup. In 1992, when this loophole really came into use, soft money totaled $86 million. By 1998, it had exploded to $224 million, for a 161% increase. That's far more than the 54% increase in household assets and the 122% increase in household stocks and bonds in that period.

It's not just growth in wealth that seems to be driving campaign giving, though. While household assets were appreciating nicely--by 71% between 1990 and 1998--the number of eligible voters grew by 9.5%, to 201 million. That means there are many more potential donors. The flip side is that candidates must pay to reach these new voters.

Indeed, when campaign fund-raising is spread over the voting-age population, the numbers look trifling. Had Whitman stayed in the Senate race and raised $12 million, for example, she would have spent a mere $2.72 apiece to reach New Jersey's 4.4 million voters.

NONSTOP BEGGING. It's also a lot more expensive to keep a modern campaign humming. The price tag for a TV ad has skyrocketed--and some 80% of campaign expenditures go toward buying TV time. According to Karen Sheridan, an executive vice-president at media buyers SMY Media Inc. in Chicago, the cost of reaching 1,000 homes with a 30-second late-night ad has risen from $8.50 in 1990 to $12.85 last year--a 51% increase. That's part of the reason candidates spend unseemly amounts of time begging for money. With many Senate races now costing $5 million, incumbents and challengers must bring in $16,000 apiece every week for six years.

What to do? First, Congress must close the soft-money loophole that lets fat cats evade federal limits on direct giving to candidates. According to the pro-reform lobby Public Campaign, some 95% of givers are white, 80% have annual incomes exceeding $100,000, and almost half are over 60.

And Congress should go further. Lawmakers can broaden the base of donors, and at the same time weaken the grip of special interests, by creating a tax credit for contributions up to $200. As the Internet entices thousands of political novices to participate in campaigns, a tax break would encourage millions more to contribute. It's as easy as giving a credit card number on a Web site now that the feds have O.K.'d matching funds for e-donations.

Finally, Congress should raise the individual contribution cap of $1,000 per election to $3,000. That roughly correlates to the 363% increase in inflation since 1974, when the limit was set. This way, candidates can spend more time meeting voters and less time dialing for dollars.

Reformers have a good story to tell. But they weaken their case by complaining about the gross amount of money candidates are raising. If anything, there may be too little money in the federal election system. The problem is that most of it is coming from industries or organizations with an agenda--not public-spirited citizens trying to be part of the process.

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