Small Donor Tax Credits Would Boost Parties

This week, the Brennan Center proposed a new tool to strengthen both parties — an easy-to-claim tax credit for small political contributions.

June 20, 2017

Former rivals Hillary Clinton and Bernie Sanders agree on at least one thing — the Democratic Party is in bad shape. Just last month, Hillary Clinton told a tech conference in California that when she became the Democratic nominee for president in 2016 and took over the Democratic National Committee (DNC), she inherited “nothing.” According to Clinton, the party was “bankrupt,” its data was bad, and she had to inject money into it to keep it afloat. Sanders, meanwhile, recently told  an audience at MIT that “the Democratic Party is extremely weak and incapable of organizing.”    

This week, the Brennan Center proposed a new tool to strengthen both parties — an easy-to-claim tax credit for small political contributions. Under this proposal, individuals would be entitled to a credit for contributions up to 50 dollars to political parties or candidates from their state. Such a proposal could provide parties a broad base of financial support and bring them back in touch with average voters.

But how could a major political party have so little infrastructure in the first place? In part, a series of Supreme Court decisions, Citizens United included, have allowed for the explosion of political spending by groups outside the party structure — making candidates and individuals less reliant on parties to shape and support political campaigns. According to the Center for Responsive Politics, super PACs and dark money groups spent as much on federal elections as all arms of the national Democratic Party did in 2016 — close to 1.3 billion dollars. That’s not to mention state and local races. 

While political parties are often a punching bag for Americans unhappy with the state of our democracy, the transfer of power from parties to outside groups is troubling for two reasons. First, these outside groups are not transparent in the way political parties are, they are able to accept unlimited contributions without disclosing the true source of those funds. Secondly, these outside groups do not have the long-term stake in our political system that parties do. Because political parties aim to win elections across the country and over a long period of time, they must be sure to remain credible with a broad swath of the public. Outside groups pop up for one election, and then can choose to disappear or simply adopt a new name.

Political parties with broader, more transparent support and a need to safeguard a reputation across generations are essential to strengthening our representative democracy.  The Brennan Center has long called for responsible campaign finance policies to move in that direction. These policies include public financing for party activities and reducing some restrictions and burdens on their fundraising.

A tax credit is hardly a new idea – from 1972 to 1986, there was a federal tax credit for small political contributions. At its most generous levels, the credit allowed tax filers to receive 50 dollars if they made a 100 dollar contribution to an eligible candidate, party, or PAC. Several states including Oregon, Minnesota, Ohio, and Arkansas still offer even more generous tax credits and refunds today.

Reviving and revamping these tax credits for the modern era could revitalize political parties with a new base of small donor support. The Brennan Center proposes that every registered voter should receive two distinct 50 dollar credits — one for contributions to candidates and one for contributions to political parties — to expressly encourage support for parties. Such a credit must also take advantage of the internet to make it easy for small donors to assign the value of their tax credit to the party or candidate of their choice without having to take out their wallet or wait for tax day to get their money back. Finally, if a person doesn’t use their credit, we propose that they be able to use that credit in the next election cycle. This will give persons less likely to make political donations greater spending power in future years — making it more likely that parties and candidates will think it worthwhile to reach out to less politically-active citizens.

If tax reform does move forward this fall, Congress can take the opportunity, as they have before, to use the tax code to strengthen democracy by way of the political parties. State legislatures can do the same. If anything deserves a tax subsidy during trying political times, it’s our democracy.

(Image: Flickr.com/Beverly & Pack)