Washington Outlook
Edited by Richard S. Dunham
Campaign-Finance Reform Only a Republican Could Love?
Republicans were none too happy when John McCain of Arizona joined Democratic partner Russell D. Feingold of Wisconsin to muscle their campaign-finance bill through the Senate in 2002. But after the parties released their first-quarter fund-raising estimates in early April, McCain's GOP colleagues had plenty of reasons to feel forgiving.
In the first test of the new world of campaign-finance reform, Republicans collected far more money than Democrats. The National Republican Congressional Committee (NRCC) pulled down $22 million in the first three months of the year -- more than triple House Democrats' $7 million take. The Democratic National Committee, outraised by Republicans by more than 4 to 1 in the first two months of 2003, refused to release an estimate for March, citing an Apr. 20 statutory deadline.
Why the heavy GOP tilt when reformers had promised a level playing field? One reason is that the new system favors fund-raising techniques that benefit Republicans. Democrats haven't yet weaned themselves off their dependence on a handful of donors from Big Labor, Wall Street, and Hollywood. Now that unregulated soft money is banned, those contributors can no longer write six-figure checks to the party. Under new limits, an individual can give only $2,000 per candidate and $25,000 per national party in an election cycle.
Republicans, meanwhile, have invested millions in a sophisticated telemarketing campaign that has produced an extensive database of small-dollar donors to help compensate for the loss of fat-cat checks. "Democrats worked diligently to make McCain-Feingold the law of the land," says Representative Tom Reynolds (R-N.Y.), who chairs the NRCC. "Look at them now. They haven't gotten their sea legs."
To catch up, Democrats are taking a page from the GOP playbook. They are investing in direct-mail programs to cultivate their own small-donor base. And they are leaning on representatives serving on powerful committees to raise funds for colleagues in tight elections. Representative Robert T. Matsui (D-Calif.), who chairs the Democratic Congressional Campaign Committee, says he is seeking "significant increases" in contributions that Democratic members are expected to make to party coffers. Members of the leadership, for example, must pony up at least $300,000 each, while those on the tax-writing Ways & Means Committee, with ready access to business lobbyists, are expected to raise $100,000. It's no mystery where Matsui came up with this prototype: The GOP pioneered it in the 1990s, with phenomenal results. In 2002, House Republicans contributed some $22 million to the community chest.
The good news for Democrats is that the money gap isn't as wide on the Senate side. Republicans modestly topped their rivals, $5.4 million to $4.4 million, in part because Dems can rely on such prodigious fund-raisers as Hillary Rodham Clinton of New York and Edward M. Kennedy of Massachusetts. And the chairman of the Democratic Senatorial Campaign Committee, New Jersey Senator and former Goldman, Sachs & Co. co-Chairman Jon S. Corzine, has aggressively tapped the Wall Street well. "Traditionally, there has been some anxiety about making our case to the business community," says Corzine. "I don't have that reluctance."
Corzine's friends notwithstanding, Republicans have many more well-heeled supporters. As a result, Democrats find themselves digging out of a deep hole. If they can't catch up, they could remain in the minority for a long time. While it was never McCain's intention to cement his party's financial edge, it seems his Republican colleagues now owe their favorite maverick a debt of gratitude.
By Alexandra Starr
CAPITAL WRAPUP
A Retreat on Tax Cuts
After failing to persuade or intimidate moderate Senate Republicans into backing a tax cut of more than $350 billion, the White House and GOP Hill leaders have decided that a strategic retreat beats an embarrassing defeat.
On Apr. 9, as BusinessWeek went to press, lawmakers appeared to be ditching efforts to settle on a single tax-cut framework. Instead, the Senate Finance Committee will be asked to craft a $350 billion tax-cut bill, while the House Ways & Means Committee is expected to prepare a version of at least $550 billion. Later in the spring, both houses will try to reconcile their differences. Their failure to reach a consensus deals a huge blow to the centerpiece of President George W. Bush's 2003 economic agenda: eliminating individual taxes on corporate profits, including dividends.
Backers of a Bush-size tax cut are on the defensive. Nearly all Senate Democrats and four moderate Republicans have refused any tax measure larger than $350 billion. Centrist Republicans, including Olympia J. Snowe (Me.) and George V. Voinovich (Ohio), have resisted heavy pressure to back a larger bill. Unless Bush can leverage his postwar popularity to win their support, it's unlikely they will budge.
Congressional tax writers are mull-ing alternatives to the Bush dividend plan. One would let individuals exclude up to 50% of dividends from tax. Another would tax dividends at the 20% capital-gains rate. Senate Finance Chairman Charles E. Grassley (R-Iowa) says he is unlikely to include a dividend provision in a $350 billion bill.
By Howard Gleckman
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Copyright 2003, by The McGraw-Hill Companies Inc. All rights reserved.
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