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Credits Due

Sens. Byron Dorgan (D-N.D.) and John Warner (R-Va.) have introduced a worthy measure — one designed to restore tax credits for small political donations, thereby encouraging broader participation in the political process. Probably nothing can undo the massive and increasing influence of big-money contributors, but the Dorgan-Warner proposal would mitigate it somewhat.

From 1972 to 1986, federal law permitted a 50 percent tax credit for small donations (varying over time from $25 to $100), but the provision was repealed as part of tax reform. Since then, the tax code has been utterly de-reformed and reloaded with breaks, exemptions, credits and deductions for various interests — but restoring the political deduction has been just a mere topic of discussion.

Over the years, meanwhile, big contributors have come to dominate campaign finance — through the old soft-money system, the rise of political action committees and the work of fundraisers able to reach out to maximum-dollar donors. In 1994, according to Federal Election Commission data, soft-money donations totaled $125 million and contributions of less than $200 amounted to $180 million. By 2000, soft money was up to $500 million, but small-dollar donations totaled $280 million. In 2000, contributions of $200 or less made up just 30 percent of all funds donated to federal candidates.

Of course, Congress has now outlawed soft-money donations to political parties in a step that may or may not pass judicial muster. Even so, big money is certain to keep its influence through independent expenditures, political committees set up under Section 527 of the tax laws, and the raising of hard-dollar contribution limits to an individual candidate from $1,000 to $2,000 and any donor’s overall limit per election cycle from $50,000 to $97,500.

Members of Congress are unlikely to significantly alter this reality for the simple reason that it’s vastly more convenient to raise $100,000 by holding a fundraiser for 50 people at $2,000 a head than to convince hundreds of donors to part with $50, $100 or $200. That’s why the Dorgan-Warner proposal is desirable: Individuals would get up to a $200 tax credit to offset contributions, and couples filing jointly would receive a $400 credit.

The Senators’ bill limits the credit to individuals making $60,000 a year or less and couples earning $120,000. A House version would give the credit to donors regardless of income. We favor the Senate bill, which is designed as an incentive for middle-class donors. The American Enterprise Institute, which did much of the research underlying the tax credit proposal, figures that its costs would be in the low hundreds of millions of dollars per year. Income caps would contain the cost. We think that, to broaden political participation, the money will be well spent.

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