A Global Flat Tax Revolution

Money, Politics and the Supreme Court

by Robert A. Levy

Wouldn't it be great if politicians lived up to the limits and demands they placed on the rest of us?

The McCain-Feingold bill, now codified as the Bipartisan Campaign Reform Act, specifies that individuals may contribute a maximum of $4,600 per election campaign to a presidential candidate. The act's prime mover, Sen. John McCain (R-Ariz.), apparently hoisted by his own petard, now wants individuals to donate $70,000 to various fundraising accounts that will find ways to channel the money in his direction. Of course, McCain is not the only presidential candidate who decided to circumvent the Bipartisan Campaign Reform Act. Both President Bush, who signed the legislation, and Sen. John F. Kerry (D-Mass.), who supported it, used similar accounts during the 2004 election.

The careers of sitting politicians are more easily perpetuated if the speech of their opponents can be repressed.

One of McCain's fundraising accounts raised $317,000 in a single day from a few Wall Street bankers and consultants. Out of each $70,000 contribution, $2,300 will go toward McCain's primary campaign; another $2,300, to his general election campaign; $28,500, to the Republican National Committee, which will spend the money on his behalf; and the rest, to key state committees.

So much for McCain's own 2002 admonition: "It is self-evident that contributions from a single source that run to hundreds of thousands of dollars are not healthy to a democracy." Yes, the accounts are perfectly legal — but only because politicians such as McCain haven't gotten around to closing all the loopholes. Nor could they. Campaign finance reform is like pushing on a balloon: The quantity of air, like the amounts contributed to campaigns, is not diminished; it simply occupies a different space.

Meanwhile, Bill Clinton and Hillary Rodham Clinton reported earning a paltry $109 million over the past eight years, of which $20.4 million was earned in 2007, as the 2008 election season unfolded. Where did the money come from? Well, Bill gets up to a quarter of a million dollars per speech, which has generated nearly half of the $109 million total. Did those who paid such enormous fees expect access and influence in a Clinton II presidency? And what about access and influence for Ronald Burkle, the billionaire investor and supermarket titan whose partnership with Bill Clinton yielded an estimated $12 million to $15 million in advisory fees for the Clinton coffers? Or Vinod Gupta, whose InfoUSA database company threw off another $3.3 million as payment for Bill Clinton's consultations? Gupta, by the way, has been sued by some of his shareholders for improper fees and jet travel related to the Clintons.

Maybe the Clintons are simply exploiting their fame and connections and have promised no political favors. I have seen no evidence that suggests otherwise. Then again, according to the Supreme Court, it's not necessary to prove actual corruption to justify Congress' campaign finance restrictions. The "appearance" of corruption is quite enough. That's what the court held in McConnell v. Federal Election Commission in 2003. Essentially, said the court, preventing the appearance of corruption is a sufficiently important governmental interest for Congress to disregard First Amendment protections of political speech.

Robert A. Levy is senior fellow in constitutional studies and co-author of The Dirty Dozen: How Twelve Supreme Court Cases Radically Expanded Government and Eroded Freedom.

More by Robert A. Levy

But instead of preventing either actual or apparent corruption, the real effect of the regulations upheld in McConnell has been to protect incumbents from upstart challengers. The careers of sitting politicians are more easily perpetuated if the speech of their opponents can be repressed. The architects of modern campaign finance laws have never produced any evidence either of corruption that allegedly results from privately financed campaigns or of wealthy individuals or companies "buying" elections.

Instead, reformers merely assert a litany of potential horribles to rationalize their opposition to the current system. They favor a managed system, one that is managed by their rules, according to their standards, and designed to achieve their ends, which do not include a vigorous and free marketplace for political expression.

As for money in political campaigns, it's just a symptom of two larger problems: too much government power and too much government money that can be doled out to those whom politicians favor.

Overweening government has wormed its way into nearly every aspect of our lives, and our pervasive regulatory and redistributive state creates huge incentives for profiteering. If you want to minimize the influence of big money on officeholders and candidates, the answer is to cut the size and power of government. Until we do that, we need to restore free political speech by razing the ineffective and unconstitutional structure condoned by the Supreme Court in McConnell.

The Obama We Don't Know

With Barack Obama clinching the Democratic Party nomination, it is worth noting what an extraordinary moment this is. Democrats are nominating a freshman Senator barely three years out of the Illinois legislature whom most of America still hardly knows. The polls say he is the odds-on favorite to become our next President.

Think about this in historical context. Jimmy Carter and Bill Clinton were relatively unknown, but both had at least been prominent Governors. John Kerry, Walter Mondale, Al Gore and even George McGovern were all long-time Washington figures. Republican nominees tend to be even more familiar, for better or worse. In Mr. Obama, Democrats are taking a leap of faith that is daring even by their risky standards.

AP

No doubt this is part of his enormous appeal. Amid public anger over politics as usual, the Illinois Senator is unhaunted by Beltway experience. His personal story – of mixed race, and up from nowhere through Harvard – resonates in an America where the two most popular cultural icons are Tiger Woods and Oprah. His political gifts are formidable, especially his ability to connect with audiences from the platform.

Above all, Mr. Obama has fashioned a message that fits the political moment and the public's desire for "change." At his best, he offers Americans tired of war and political rancor the promise of fresh national unity and purpose. Young people in particular are taken by it. But more than a few Republicans are also drawn to this "postpartisan" vision.

Mr. Obama has also shown great skill in running his campaign. No one – including us – gave him much chance of defeating the Clinton machine. No doubt he benefited from the desire of even many Democrats to impeach the polarizing Clinton era. But he also beat Hillary and Bill at their own game. He raised more money, and he outworked them in the small-state caucuses that provided him with his narrow delegate margin. Even now, he is far better organized in swing states than is John McCain's campaign. All of this speaks well of his preparation for November, and perhaps for his potential to govern.

Yet govern how and to what end? This is the Obama Americans don't know. For all of his inspiring rhetoric about bipartisanship, his voting record is among the most partisan in the Senate. His policy agenda is conventionally liberal across the board – more so than Hillary Clinton's, and more so than that of any Democratic nominee since 1968.

We can't find a single issue on which Mr. Obama has broken with his party's left-wing interest groups. Early on he gave a bow to merit pay for teachers, but that quickly sank beneath the waves of new money he wants to spend on the same broken public schools. He takes the Teamsters line against free trade, to the point of unilaterally rewriting Nafta. He wants to raise taxes even above the levels of the Clinton era, including a huge increase in the payroll tax. Perhaps now Mr. Obama will tack to the center, but somehow he will have to explain why the "change" he's proposing isn't merely more of the same, circa 1965.

There is also the matter of judgment, and the roots of his political character. We were among those inclined at first to downplay his association with the Trinity United Church. But Mr. Obama's handling of the episode has raised doubts about his candor and convictions. He has by stages moved from denying that his 20-year attendance was an issue at all; to denying he'd heard Rev. Jeremiah Wright's incendiary remarks; to criticizing certain of those remarks while praising Rev. Wright himself; to repudiating the words and the reverend; and finally this weekend to leaving the church.

Most disingenuously, he said on Saturday that the entire issue caught him by surprise. Yet he was aware enough of the political risk that he kept Rev. Wright off the stage during his announcement speech more than a year ago.

A 2004 Chicago Sun-Times interview with Mr. Obama mentioned three men as his religious guides. One was Rev. Wright. Another was Father Michael Pfleger, the Louis Farrakhan ally whose recent remarks caused Mr. Obama to resign from Trinity, but for whose Chicago church Mr. Obama channeled at least $225,000 in grants as a state senator. Until recently, the priest was connected to the campaign, which flew him to Iowa to host an interfaith forum. Father Pfleger's testimony for the candidate has since been scrubbed from Mr. Obama's campaign Web site. A third mentor was Illinois state Senator James Meeks, another Chicago pastor who has generated controversy for mixing pulpit and politics.

The point is not that Mr. Obama now shares the radical views of these men. The concern is that by the Senator's own admission they have been major moral influences, and their views are starkly at odds with the candidate's vision as a transracial peacemaker. Their patronage was also useful as Mr. Obama was making his way in Chicago politics. But only now, in the glare of a national campaign, is he distancing himself from them. The question is what in fact Mr. Obama does believe.

The young Senator has been a supernova exploding into our politics, more phenomenon than conventional candidate. His achievement in winning the Democratic nomination has been impressive. Now comes a harder audience. The presidency has to be earned, and Americans have a right to know much more about the gifted man who is the least tested and experienced major party nominee in modern times.

Bernanke Backs King Dollar

By Lawrence Kudlow

Fed chairman Ben Bernanke made big news Tuesday by singling out the weak foreign-exchange value of the U.S. dollar as the principal culprit in "the unwelcome rise in import prices and consumer price inflation."

Are you watching this, John McCain?

Bernanke is signaling a major policy shift on the dollar. In his speech, via satellite to a conference in Barcelona, Spain, he said Fed policy and the underlying strength of the U.S. economy "will be key factors ensuring that the dollar remains a strong and stable currency."

In effect, the Fed chief is putting a floor under the dollar. But there's more here. He added that "we are attentive to the implications of changes in the value of the dollar for inflation and inflation expectations, and will continue to formulate policy to guard against risks to both parts of our dual mandate, including the risk of an erosion in longer-term inflation expectations."

The Fed head has finally figured out that the weak dollar is driving up inflation. He's also reaffirming the Fed's traditional priority of generating price stability. In the process, he may be restoring an inflation-targeting policy that has been badly undermined of late. Hopefully this means the central bank will go back to using forward-looking market-price indicators, such as the dollar and gold, in its policy decisions.

Bernanke's comments follow on similar statements made by Fed governor Kevin Warsh, Dallas Fed president Dick Fisher, and Minneapolis Fed president Gary Stern.

And they mark the first time in his tenure that Bernanke has explicitly discussed the dollar-inflation connection.

Now, Treasury-man Hank Paulson in recent days has been talking about the dollar. But he still frames the discussion in terms of a strong dollar being in the national interest. Unfortunately, that phraseology remains a euphemistic reference to the Bush administration's long-held policy of dollar neglect. Not until Mr. Paulson uses the new Bernanke language -- "that the dollar remains a strong and stable currency" -- will we know the White House is shifting gears to King Dollar. Even better, Mr. Paulson could use the term "dollar appreciation."

But without question, Bernanke would not have changed his language unless he got a signoff from Paulson. So these new statements are the most hopeful sign yet that U.S. financial bigwigs are starting to get their arms around the greenback.

In currency trading following Bernanke's speech, the dollar rose significantly and gold fell. In the money markets, futures traders are pricing in a Fed rate hike, perhaps as early as late October, with a whole series of rate hikes predicted for next year. I don't expect the Fed to rush into rate hikes anytime soon. However, there is another way for the central bank to bolster the buck.

In recent months, the Fed's emergency-lending operations have injected something like $400 billion of cash reserves into the troubled banking system. So in the months ahead, while keeping the fed funds target rate steady at 2 percent, the Fed can gradually unwind some of these emergency loans as the banking system continues to heal and balance sheets continue to repair.

This would reduce some of the excess cash that has contributed to the weaker dollar. Meanwhile, a more reliable currency could end the speculative oil-and-commodity boom that has been leaking into consumer prices via the beleaguered greenback. Then, as the economy picks up later this year, the Fed can move to a gradual nudging-up of its target rate.

All this said, the Bernanke move is a huge plus for prosperity. And for the life of me I don't know why Sen. John McCain doesn't take a cue from Bernanke and mount a King Dollar campaign of his own.

Sen. McCain needs to speak to the food-and-oil-price-hike inflationary fears of Main Street voters across the country. Why not promote a "McCain Dollar," taking a page from Reagan and his anti-inflation run in 1980? Not only to send a message to cash-strapped families, whose incomes are being swallowed by weak-dollar food-and-gas prices. But also to send a strong-dollar message around the world to bolster American power and prestige.

There are a lot of things broken in Washington right now, including the dollar. There's overspending and earmarking. There's a ridiculously complex tax system that imposes multiple tax burdens on capital, investment, and saving. There's the entitlement problem. And the energy system needs to be totally deregulated so that free-market forces can promote a full portfolio of conventional and new energy sources.

Big Mac can fix what is broken in Washington, including the busted dollar. The sooner Mr. McCain adopts this reform message, the closer he's gonna get to victory in November.

Quite simply, a strong currency, along with pro-growth tax, spending, entitlement, and energy reform, is the winning message.