Fixing the Voluntary Tax Checkoff Program
Presidential Election Campaign
Note: Checking “Yes” will not change your tax or reduce your refund.
Do you, or your spouse filing a joint return, want $3 to go to this fund?
Public funds distributed to the national parties and candidates may be used only for legitimate election purposes. For the parties, this means expenses directly associated with the presidential nominating conventions. For candidates, this means “qualified campaign expenses,” which includes properly reported expenditures on behalf of the campaign and within the prescribed spending ceilings.
The presidential public financing system is administered by the Federal Election Commission (FEC), which receives its operating budget from general government revenues, not from the tax checkoff program.
The FEC has predicted chronic shortfalls in the Fund ever since the 1992 presidential election. The 1992 campaign started later than usual, and the presidential candidates asked for less in public funds than expected, so the public financing program met its objectives that year. However, in 1996 and again in 2000, shortfalls in the Fund required that the FEC delay full payments of candidate entitlements in public funds until the Fund was determined solvent.
The shortfall problem is even worse in the 2004 election cycle. The FEC has thus far determined that there is only enough money in the Presidential Election Campaign Fund to warrant paying 53 cents on each public dollar earned by qualified candidates during the first payment period in January 2004, immediately preceding the primaries and caucuses.
These chronic shortfalls in the Presidential Election Campaign Fund are due to two factors. First, there has been a significant decline in the number of taxpayers participating in the tax checkoff program. The rate of taxpayer participation has fallen from a high of 28.7 percent in 1980 to 11.3 percent in 2002. Second, and more important, the spending ceilings and payments of public funds to qualified candidates are adjusted for inflation, and so these expenses grow each election cycle. On the other hand, the tax checkoff revenue source is not adjusted for inflation and remains fixed. The result is a presidential public financing system in which disbursements continue to grow, while revenues are structurally handicapped, leaving the balance of the Fund struggling to keep pace each election cycle.
In a little known footnote of American history, the tax checkoff program for presidential elections first became law as part of the Presidential Election Campaign Act of 1966, sponsored by Sen. Russell Long (D-La). Following a series of campaign finance scandals by President Lyndon Johnson, including Johnson’s “Presidents Club” of $1,000 donors that the campaign would not disclose, Senator Long proposed a system of public financing of presidential elections.
With the support of President Johnson, the public financing measure was approved by Congress as a rider on an unrelated bill. Long’s proposal would have provided about $30 million in public subsidies to each political party to use in the presidential campaigns in the general election. Long’s public financing program was to be funded through an unusual mechanism: a $1 voluntary tax checkoff on federal income taxes that individuals could earmark to the Presidential Election Campaign Fund.
No sooner was the 1966 bill approved by Congress did it run into opposition. In the next year, Sen. Al Gore, Sr. (D-Tenn.) sponsored a bill to repeal the Long Act. Most Republicans joined in the repeal effort on the grounds that they opposed public financing. Gore, on the other hand, argued along with Sen. Robert Kennedy (D-N.Y.) that they could conceivably support public financing, but they were concerned that the measure only supplemented private funds with public funds and thus would not effectively address the corrupting influence of private contributions. Congress voted to make the Long Act inoperative by indefinitely postponing the public financing system pending further study. The following year, Kennedy used much of his family’s personal wealth to challenge Johnson for the Democratic presidential nomination.
Public financing of presidential campaigns – and the voluntary tax checkoff program – was resurrected in 1971. Senator John Pastore (D-R.I.) borrowed much of the original Long Act and reintroduced the public financing and tax checkoff program into the Revenue Act of 1971. Congressional support for the measure was more favorable than in 1966 because of a growing disparity in the campaign finances of the national Democratic and Republican parties. In the final Senate vote on the tax checkoff in 1971, only two Republicans voted in favor of the program while all but four Democratic senators supported it.
The Revenue Act of 1971 immediately implemented a series of tax incentives for small individual contributions to federal campaigns, and on January 1, 1973 would implement the $1 tax checkoff program to benefit the national parties in presidential general elections. Under the 1974 Amendments to the Federal Election Campaign Act (FECA), the public financing and tax checkoff programs were integrated under federal election law with some significant changes. First, the tax checkoff dollars were allocated directly to the presidential campaign committees rather than the national parties. And second, the presidential public financing system was extended to the primary elections as a partial funding program as well as to the general election as a full funding program.
Partly due to the Nixon administration’s opposition to public financing of candidate campaigns, the Internal Revenue Service (IRS) made little effort to encourage participation in the tax checkoff program in 1973, the first year of its operation. The IRS designed a half-page form for the tax checkoff that was separate from the main 1040 income tax form. The separate forms were not always available when requested. The Advertising Council produced some educational ads about the checkoff, but the ads were not widely distributed. As a result, only 3 percent of taxpayers participated in the checkoff program on their 1972 tax returns, bringing in a paltry $4 million.
The next year, Sen. Long sat down with the Commissioner of Internal Revenue, Donald Alexander, and negotiated some important changes in the tax forms. Most importantly, the $1 checkoff was placed on the front page of the 1040 income tax form. The ability to earmark the checkoff for a particular party on the old form was eliminated. Additionally, Long negotiated a provision on the 1973 tax forms allowing taxpayers not only to checkoff $1 from their 1973 taxes, but also another $1 retroactively for the 1972 taxes if the taxpayer had not participated in the check off that year. This last provision raised an additional $8.4 million for the Fund from 1972 taxes, increasing that year’s participation rate from 3 percent to 7 percent. On the 1973 tax returns, 15 percent of taxpayers participated in the checkoff program. By the time the 1976 presidential elections rolled around, about $90 million was collected in the Presidential Election Campaign Fund – more than needed to finance the expanded program of (i) partial public financing for qualified candidates in the primaries, (ii) the party nominating conventions, and (iii) full public financing of the major party presidential nominees in the general elections.
The Watergate scandals and its aftermath heightened public awareness of the presidential public financing system and boosted taxpayer participation in the checkoff program. But as the decades passed, taxpayer participation in the checkoff program has dwindled. As shown in Figure 1, participation in the checkoff program has fallen from a high of 28.7 percent in 1980 down to 11.3 percent in 2002.
Sources: Testimony of Thomas Harris, Vice Chair, Federal Election Commission,“Federal Election Reform Proposals of 1977,” before the Committee on Rules and Administration, U.S. Senate, at Appendix B (1977); Herbert Alexander, Financing the 1976 Elections, at 528 (1979); and Federal Election Commission, “Presidential Matching Fund Income Tax Checkoff Status” (2003).
Though the dropoff in taxpayer participation was dramatic throughout the 1980s and early 1990s, it has generally leveled off since 1994. The participation rate has averaged about 11 to 12 percent over the last decade. In fact, the year 2002 saw a slight increase.
Despite the stabilizing of taxpayer participation in the checkoff program, the Fund remains dangerously close to insolvency. While the spending ceilings and disbursements from the Fund continue to increase for inflation each election cycle, the taxpayer checkoff is not adjusted for inflation. A dollar checkoff for the 1976 presidential election continued to decline in value over the years due to inflation. As a result, Congress approved a one-time adjustment for the checkoff, increasing the $1 checkoff to $3 per individual taxpayer (or $6 per joint return) in 1993.
As shown in Figure 2, this one-time adjustment for inflation replenished the Presidential Election Campaign Fund. Aggregate revenues from the checkoff program to the Fund increased somewhat less than three-fold. This new infusion of revenues salvaged the presidential public financing system in the 1996 and 2000 election cycles.
Sources: Testimony of Thomas Harris, Vice Chair, Federal Election Commission, “Federal Election Reform Proposals of 1977,” before the Committee on Rules and Administration, U.S. Senate, at Appendix B (1977); Herbert Alexander, Financing the 1976 Elections, at 528 (1979); and Federal Election Commission, “Presidential Matching Fund Income Tax Checkoff Status” (2003).
The problems associated with the voluntary tax checkoff have been used by opponents of public financing to discredit the presidential public financing system. The declining participation rate in the program has frequently been cited as the people’s “vote” against public financing. The tax checkoff program has also provided opponents with a means to try to gut public financing. If the checkoff program remains hampered or even ended, revenues to support the presidential public financing system would dry up, leaving the system unable to accomplish its objectives.
The presidential public financing system has long been under attack in Congress, dating back to its origins in 1966. Congress routinely debates ending public financing and the tax checkoff program. Rep. Bob Stump (R-Ariz.) summarized this sentiment in Congress when speaking in favor of the “Termination of Presidential Elections Campaign Act” (H.R. 191): “[T]he public has overwhelmingly rejected the [public] campaign funds as is illustrated by declining participation rates [in the tax checkoff program].”
The argument that taxpayers are voting against the public financing system with their dollars is a far stretch. In every public opinion poll regarding public financing of campaigns – whether public financing is described in its most favorable light as “clean elections” or its least favorable light of “tax dollars” – the percentage of respondents supporting public financing ranges anywhere from a high of 70 percent to a low of 30 percent – much higher than the taxpayer participation rate. Apparently, the motivation for or against participation in the checkoff program is affected by more than support or opposition to public financing.
When participation in the tax checkoff program was at its steepest decline in the early 1990s, the FEC conducted focus-group opinion-polling on what motivates taxpayers to participate in the tax checkoff program. The results showed that most taxpayers knew very little about the program. About 15 percent of taxpayers did not designate either box on their tax forms. Among those who checked “yes” there was a great deal of uncertainty as to how the money would be used or even why the tax checkoff exists. Perhaps even more revealing were the reasons given by those who checked “no.” The most common reason given for not participating in the program was: “No particular reason/Don’t know” (23 percent). This was followed by: “They don’t need my money/They have plenty of money” (17 percent); “Don’t/Won’t give to politicians or political causes” (15 percent); and “Don’t want to expend $1” (13 percent). The last category indicates a misunderstanding of the checkoff program.
Clearly, the decision to decline participation in the tax checkoff program is not a reflection of a groundswell of opposition to the presidential public financing system. In fact, for most taxpayers, the decision has nothing to do with public financing at all.
Although the voluntary tax checkoff program has existed for 30 years, it remains one of the weaker links in the presidential public financing system. The program is structurally flawed in such a way as to ensure chronic shortfalls in the Fund. Spending ceilings and disbursements from the Fund automatically rise each election cycle, but revenues into the Fund do not.
Relative to other federal or state taxpayer checkoff or add-on programs, the presidential tax checkoff program has one of the highest participation rates. Similarly, far more Americans checkoff $3 to the presidential public financing system than make contributions to federal, state or local candidates or party committees. But if the program is to keep pace with disbursements from the Fund, several structural improvements are needed. These include:
The voluntary tax checkoff program has managed to keep the presidential public financing system operating for more than a quarter century, despite some built-in structural flaws. The program can easily be adjusted to provide for a healthy – and stronger – presidential public financing system beyond 2004.
 “Qualified campaign expenses” that may be paid for with public funds are detailed in 11 CFR 9004.4. These include campaign advertisements, staff and administrative expenses necessary for the conduct of the campaign, winding down expenses following the campaign, and limited gifts and monetary bonuses to campaign staff. The Federal Election Commission recently approved a regulation permitting candidates to receive any loss in salary from campaign funds. It has not yet been decided whether this would qualify as a legitimate expense of public funds for a presidential candidate.
 Federal Election Commission, Annual Report 2002, at 35 (2003).
 Craig Holman, “The Emergence of Public Financing of Candidate Campaigns From the Scandals of American History,” unpublished paper on file with the author (2002).
 The tax incentive program of the Revenue Act of 1971 provided taxpayers with the option of choosing a 50 percent tax credit for campaign contributions up to $12.50 ($25 for joint returns) or a 100 percent tax deduction for campaign contributions up to $50 ($100 for joint returns). The tax credit program meant that the federal government reimbursed individual taxpayers up to $12.50 for campaign contributions annually. The tax deduction program meant that individual taxpayers could claim $50 less in taxable income per year. The tax deduction was repealed in 1980; the tax credit was repealed in 1986 under the Reagan tax simplification measure.
 Herbert Alexander, Financing the 1972 Elections, at 354 (1976).
 Congressional Record, “Termination of the Presidential Election Campaign Fund,” at E74 (January 31, 2001).
 Testimony of John McGarry, Chair, Federal Election Commission, “Regarding the Status of the Presidential Election Campaign Fund,” before the Committee on Rules and Administration, U.S. Senate, at 3 (1991).
 Providing full public financing for qualified presidential candidates in both the primary and general elections would cost an estimated $650 million over a four-year election cycle. This estimate assumes that the spending ceilings in both the primary and general elections are increased 20 percent ($54 million in the primaries, and $89 million in the general, in 2004 dollars), with eight presidential candidates qualifying for public funds in the primary elections and two in the general election. Also included in the cost estimate is $15 million for each of the major party nominating conventions.