Congress and Corruption: Regulations and Taxes

Lawrence Lessig has produced a fascinating book that provides valuable insights into the ways in which our government functions: Republic Lost: How Money Corrupts Congress—and a Plan to Stop It. Lessig points to the continuous need for legislators to be looking for means to acquire funds for their reelection campaigns as the source of that corruption. That concept was previously discussed in Congress and Corruption: Campaign Funds. Here we will discuss Lessig’s description of how that lust for funds affects Congress’s legislative activities, with a focus on taxes and regulations.

It is important to recognize that there are few innocent actors in the campaign-funding scramble. Lessig makes it clear that this is really a two-way street. A corporation contributing funds to a candidate can be interpreted as an indirect request for a favor, but a candidate requesting funds from a corporation can also be interpreted as an indirect offer of a favor. It can also be interpreted as a threat that a favor will be withheld if money is not forthcoming. From one perspective, special-interest parties are throwing around their money to buy government favors. From an opposing perspective, legislators are using the threat of disadvantageous legislative outcomes to extort campaign money from stake holders. Both interpretations are correct.

One is better able to understand why some programs are hard to kill, even when everyone seems to recognize that they have outlived their usefulness, if one considers the dependencies that laws and programs create. Lessig refers to the continuing role that government plays in agricultural policy as an example of co-dependency. Every so often an agriculture bill must be passed. Each time it comes up there is the threat that it won’t be passed or that it will be modified in ways that eliminate benefits for some. Is this procedure a contentious struggle between opposing groups of lawmakers trying to attain a better bill, or is it a ritual dance that legislators do in order to extract funds from those who could be affected? The ease with which bad legislation or bad programs get propagated year after year makes one suspicious as to what process is dominant.

Taxes and regulations are two areas in which this "dance" between lawmakers and special-interests parties has been ritualized.

Consider the Research and Development (R&D) Tax Credit. This was initially funded as a temporary credit because there were real questions about its effectiveness. It turned out to be a popular and successful piece of legislation. Given that, why was it never made permanent? Why does it have to be renewed every few years? If you have been paying attention, the answer will be obvious. Big corporations are the primary beneficiaries of this credit. It is worth many millions of dollars to them so they are in a position to contribute the necessary campaign funds to keep the legislators happy. And the lobbyists who act as the intermediaries are appreciated by both sides.

Lessig provides the term "tax extenders" to describe temporary tax provisions. The number of such provisions has grown dramatically in recent years.

"In December 2010, the Wall Street Journal reported on ‘extender mania.’ As they described, in the 1990s there were ‘fewer than a dozen’ tax extenders in the U.S. tax code. Now there are more than 140."

This is an example of Congress recognizing a good opportunity when it presents itself.

"The system is learning, evolving, developing an ever-more-efficient way to create the incentive for people to contribute to campaign coffers: create a mechanism that threatens a tax increase unless a reprieve can be bought...."

Lessig provides us with a great quote.

"To understand the nature of tax law in America, you have to understand one simple point: its complexity is a feature, not a bug."

There is an analogous situation with respect to government regulation. Small government advocates come in to Congress and quickly learn that there is money to be garnered by working the system.

"But souls on the Right....should recognize that it is more likely Congress’s thinking about targets of fund-raising that affects the scope of government power rather than bureaucrats angling to increase the scope of their work. That having lots of targets of regulation is actually a good way to have lots of targets for fund-raising. And thus, so long as fund-raising is a central obligation for members of Congress, there is a conflict between the interests of small government activists and the interests of the fund-raising-dependent congressmen."

Lest this discussion paint a too dark moral picture of our lawmakers, Lessig continually reminds us that it is the system, not the individuals who are at fault. People generally make tremendous sacrifices to get elected and serve. Their official compensation is minimal and there are very few cases of people taking advantage of their position for direct personal gain. Lessig would argue that it is the campaign funding requirement that demands these behaviors.

Lessig fears that this broken system has diminished our country in terms of being a functional Republic. He also fears that this ineffectiveness has caused the voters to lose faith in the government, a situation that is never healthy for a nation.

Lessig provides an intriguing perspective:

"As I write these words, Gallup’s latest ‘confidence in Congress’ poll finds only 11 percent who have confidence in this Congress. Eleven percent. At what point do we declare an institution politically bankrupt, especially an institution that depends fundamentally upon public trust and confidence to do its work? When the czar of Russia was ousted by the Bolsheviks, he had the confidence of more than 11 percent of the Russian people. When Louis XVI was deposed by the French Revolution, he had the confidence of more than 11 percent of the French. And when we waged a Revolutionary War against the British Crown, more than 11 percent of the American people had confidence in King George III."