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Taxpayer financing of campaigns

North Carolina has a public (i.e., taxpayer) campaign financing system for appellate court judges and for three Council of State positions: Auditor, Commissioner of Insurance, and Superintendent of Public Instruction. Not only does this campaign finance system lack public support, but also it is almost certainly unconstitutional.

Under this system, candidates in those races who agree to forego raising money for the general election can receive a large lump-sum payment for their campaigns from the state. The system is set up to equalize funding between candidates. If a traditional candidate (a candidate who has opted not to receive taxpayer funding) spends, for example, $5,000 beyond the threshold amount, the state would automatically award the subsidized candidate $5,000 in additional funds called matching funds.

A subsidized candidate will receive matching funds equal to the sum of the money spent by a traditional candidate opposing him in the race and by any independent groups supporting the traditional candidate. Such a setup creates the potential for absurd results, as illustrated in the graph on the next page.

Taxpayer-financed campaign systems chill free speech. Because of their matching funds, they punish traditional candidates for spending money on their campaigns and cause them to seek to avoid spending. For the same reason, they chill the speech of independent groups who support the traditional candidate: they do not want to harm their candidates by spending money and thereby triggering more money to his opponent.

Citizens should not be forced to pay tax dollars for the private benefit of politicians. It is political welfare, plain and simple. It is also an incumbency protection scheme — the equalization of funds benefits incumbents who have built-in advantages (e.g., name recognition).

It also is unethical to force citizens to support candidates and speech that they oppose.

In Davis v. FEC (2008), the United States Supreme Cour held that punishing a self-financed congressional candidate for spending beyond a threshold amount of money was unconstitutional. The implication of Davis is that taxpayer financing systems are highly likely to be ruled unconstitutional.

Key Facts

• Independent groups that support a subsidized candidate can spend whatever amount they want, but independent groups that support traditional candidates are punished for engaging in free speech.
• The Davis ruling most likely means that North Carolina's public campaign financing systems are unconstitutional.
• The United States Supreme Court has blocked matching funds from being distributed in Arizona until it issues an opinion on (or declines to hear) a Ninth Circuit Court of Appeals case that found matching funds to be constitutional.
• Prior to the surprising Ninth Circuit opinion, two district courts had already struck down taxpayer financing systems in light of the Davis case. After the Ninth Circuit opinion, the Second Circuit Court of Appeals found that matching funds are unconstitutional.
• Taxpayer-financed campaign systems take dollars that could be returned to taxpayers or used for important programs and divert them to personal campaigns of politicians.
• Taxpayer financing does not limit the amount of spending in campaigns. It does, however, cause political donations to shift away from giving directly to campaigns to giving instead to political action committees, 527s, etc.
• North Carolina state income-tax forms contain a checkbox for taxpayers who wish to divert $3 of the taxes they owe to public campaign financing systems. Only about 8 percent of all taxpayers check that box, however. The checkbox is the best measure of whether the public supports taxpayer financing of campaigns — clearly, they strongly oppose it.

Recommendations

1. Repeal existing taxpayer systems. Taxpayer financing systems are almost certainly unconstitutional. As a matter both of law and of policy, the legislature should repeal the current taxpayer financing systems.
2. Oppose any expansion of the taxpayer-financed campaign system. Future proposals for new taxpayer financing systems are likely, but they should be strongly opposed.