How (and why) Congress twists its own arm: The political economy of tax-funded politics

Conclusions and implications

We do not claim to have provided a comprehensive view of tax-funded politics, but only to suggest that it is an important political phenomenon. There are hundreds of taxpayer-financed lobbying organizations, many of them so well organized that they have published books on ‘networking.’ The importance of tax-funded politics is also evident in the creation of the Washington, D.C.-based ‘OMB Watch.’ During the early 1980s, when the federal Office of Management and Budget (OMB) made an effort to enforce federal laws against tax-funded politics, the tax-funded political network responded with strong opposition. The Washington Post reported: ‘OMB Watch was... started by a coalition of anxiety-ridden nonprofit groups concerned about an OMB proposal to ensure that government-funded organizations did not lobby with government funds.’ Reportedly, OMB Watch has over 1,000 member-organizations; according to one of its directors, ‘If not 100 percent, at least 90 percent of our members are federal grantees’ (Barringer, 1984).

One economic implication of tax-funded politics is that it makes it quicker and easier to secure wealth transfers through the aegis of the state, thereby facilitating the process of rent seeking. Because the practice helps protect incumbents, tax-funded politics may also render government more monopolistic. Congressional incumbents are ultimately responsible for all expenditures, and they benefit politically from illegal tax-funded politics. By subsidizing their interest-group allies, they help assure their own reelection. We believe this is one reason why there is so little turnover in Congress; in the 1984 national elections, for instance, 95 percent of all incumbents in the House and Senate were re-elected. Tax-funded politics, along with the proliferation of subcommittees and congressional staff and the franking privilege, make it more costly for challengers to compete.

The amounts of the grants discussed in this paper are in the hundreds of millions of dollars, but such amounts may seem trivial when compared to a trillion dollar federal budget. We must remember, however, that funds spent on tax-funded politics are an important element of the political process, not because of their absolute amount but because of the political and economic effects they engender. In the 1984 congressional elections, total campaign spending by all House and Senate candidates, incumbents and challengers, was about $375 million. This amount is only a fraction of the total spent on tax-funded politics in recent years. If $375 million in campaign spending can affect political outcomes and, ultimately, public policy, then several times that amount devoted to tax-funded politics is also likely to have an effect. We hope we have stimulated interest in further research on what we believe to be an important political phenomenon.