Chapter 5
Funding the Program: The $1 Tax Checkoff

The public funding of Presidential elections is not financed by a standard Congressional appropriation. Instead, the program is funded by the one dollar checkoff that appears on federal income tax forms.

Do you want $1 of your federal tax to go to
the Presidential Election Campaign Fund?

Yes

No

Constitutionality

This unusual financing scheme quickly raised constitutional questions. In the landmark Supreme Court case, Buckley v. Valeo, the plaintiffs argued that Congress violated the First Amendment by not allowing taxpayers to earmark their $1 checkoff to any candidate or party of their choice. In the Court's opinion, however, the checkoff constituted an appropriation by Congress, and as such it did not require outright taxpayer approval. Furthermore, "every appropriation made by Congress uses public money in a manner to which some taxpayers object."1

By the time its constitutionality had been confirmed, the checkoff had already amassed sufficient funds to finance the 1976 Presidential election. It has funded every Presidential election since. In fact, the Presidential Election Campaign Fund's annual balance has never fallen below the initial $2.4 million raised in 1973. (See Chart 5-2.) (NOTE: Chart will appear in a new window.)

Shortfall

Since 1988, however, the Commission has predicted a shortfall in the Presidential Election Campaign Fund. Initially, Commission staff believed that a shortfall would not occur until 1996. Then, in early 1990, the Commission warned that the Fund balance might not even be sufficient to cover all 1992 primary matching fund payments. By the end of 1991, however, the situation had changed. The 1992 Presidential campaign started later than usual, and the candidates requested less public money than had been expected. In addition, the rate of inflation (which governs the size of the pay outs) was well below expectations; and tax checkoff receipts declined much less than had been anticipated.2 Consequently, the FEC announced that a shortfall in 1992 was unlikely, but that the Fund would run a deficit of between $75 and $100 million by 1996 unless Congress took action.

A funding shortfall--at some point--is inevitable due to a "fatal flaw" in the public funding program: Payments from the Fund are indexed to inflation, but the $1 tax checkoff is not. If the checkoff had been indexed to inflation and the same number of taxpayers checked yes, there would have been no risk of a shortfall in 1992 nor would there be a projected shortfall for the 1996 election.

Absent such adjustment, however, as the consumer price index increases, more and more taxpayers must designate dollars in order to keep pace with the increasing payments to qualified committees. Internal Revenue Service (IRS) statistics, however, indicate that citizen participation has declined. After peaking at 28 percent in 1980, the percentage of tax forms on which the taxpayer(s) checked yes had fallen below 18 percent in 1992.3 (See Chart 5-1 below).

CHART 5-1
Percentage of Returns with $1 or $2 Designations*

 1976 Returns

 27.5

 1984 Returns

 23.0

 1977 Returns

 28.6

 1985 Returns

 23.0

 1978 Returns

 25.4

 1986 Returns

 21.7

 1979 Returns

 27.4

 1987 Returns

 21.0

 1980 Returns

 28.7

 1988 Returns

 20.1

 1981 Returns

 27.0

 1989 Returns

 19.8

 1982 Returns

 24.2

 1990 Returns

 19.5

 1983 Returns

 23.7

 1991 Returns

 17.7

* Figures for 1973-1976 cannot be verified.

 

Explanations for the decline are varied. Some have argued that the public does not want tax money spent to finance elections: "The vast majority of Americans, who are fed up with taxes and irresponsible government spending, are in no mood to pay for anyone's political campaign and do not support the Presidential Election Campaign Fund."4 Others blame increased public awareness of soft money and its alleged role in the Presidential process. Many have also noted that a number of state-sponsored public funding programs, financed by a tax checkoff, have seen similar declines in participation. The Minnesota Ethical Practices Board, for example, reported that participation in that state's checkoff program fell to an all-time low of 14 percent in 1991. This, critics say, confirms that taxpayers oppose using public funds to finance elections.

Supporters of public funding disagree. They say that the decline in participation may be due less to dissatisfaction with the program than to a growing lack of understanding of the program's purpose. This problem, they say, is "bound to increase as time distances most Americans from the founding debate over the program."5 Supporters also maintain that a negative vote on the tax checkoff may reflect a widespread dissatisfaction with government in general, rather than with public funding.

Statistical Wrap-up

The charts that appear in this section provide statistical information related to the tax checkoff and the projected shortfall for 1996. (NOTE: Charts will appear in a new window.)

Public Education Program

In 1989, the FEC conducted focus groups around the country to assess public understanding of the checkoff program. The results of these meetings confirmed that citizens may not know why the public funding program was implemented or how it works. The study also revealed, however, that taxpayers would like to know more. Noting that the creation of an informed populace might not alter existing patterns of participation in the checkoff, the focus group report nevertheless recommended that the FEC conduct a public education program to address three key points:

On March 5, 1991, the Commission launched the first phase of a nationwide public information program to implement these recommendations. The multimedia education program featured television and radio public service announcements in English and Spanish, a flyer, a brochure and an op-ed piece and media appearances by the Commission chairman. The media announcements, which aired during the height of the tax-filing season, urged taxpayers to make "an informed choice" when deciding whether to designate one dollar of their taxes for the Presidential public funding program. Although the program lasted just three months, its messages, combined with television, radio and print news coverage, reached a potential audience of more than 92 million.

On January 3, 1992, the Commission launched the second phase of the education program, expanding both its scope and duration. This phase, which continued throughout 1992, featured:

This phase of the program reached a potential audience of 203 million.6

In a related outreach effort, the Commission chairman was a featured guest on several nationwide radio and television broadcasts, including C-SPAN, CNN and "The Larry King Show" on the Mutual Radio Network.

Legislative Action

Even with an education program, the Commission believes that a shortfall in 1996 is inevitable unless legislative action is taken. As a result, the Commission has, since 1989, sent numerous letters both to Congress and the President warning of the impending deficit. It has also adopted legislative recommendations7 urging Congress to enact legislation that would ensure the financial viability of the public funding program and has testified before various Congressional committees regarding the projected shortfall.

While Congress has introduced a number of bills to address this problem, none of them has been subject to a floor vote.

Regulatory Action

If the Fund is insufficient to cover all entitlements, current law requires the U.S. Department of Treasury to allocate remaining funds, giving first priority to the conventions, second priority to the general election and third priority to the primaries.8

On May 10, 1991, the Treasury Department published new regulations describing the method it would use to disburse funds. Under the revised rules, which apply regardless of whether a shortfall actually occurs, the projected amount needed for the conventions and the general election is to be set aside by January 1 of the Presidential election year. The remaining amount in the Fund--and additional monthly deposits of checkoff dollars--are then to be used for matching payments to primary candidates.

If the amount of matching funds certified by the Commission in one month exceeds the total dollars in the Primary Account as of the last day of the previous month--the amount paid to each candidate will be reduced.9 The difference between the amount certified and the amount actually paid to the candidate will be carried over to the next month and added to any amounts certified to the candidate during that month.10

The Treasury rules also provide that matching fund payments be made once a month rather than twice a month, as was done in the past.11

On July 18, 1991, the Commission adopted conforming regulations to govern submissions and certifications.12 Candidates are to make matching fund submissions only once a month, instead of twice a month, and the Commission will certify matching fund payments on a fixed day each month, instead of within 5 days of receiving a matching fund submission. In addition:

Conclusion

The tax checkoff, like the public funding program it finances, has its supporters and detractors. One fact, however, is clear to both sides: without legislative action to correct the structural flaw in the checkoff, the existing Presidential public funding program will be severely curtailed in 1996.


1. Buckley v. Valeo, 424 U.S. 1, 92 (1976).

2. The FEC had originally projected a $2 million decrease, based on an anticipated decline in checkoff receipts in the year preceding the Presidential year (a pattern that had occurred in every other election cycle under the public funding program). In fact, they declined by approximately $140,000--from $32,462,979 in 1990 to $32,322,336 in 1991.

3. Recent IRS studies, sampling 10,000 tax forms per year, indicate that the checkoff was left blank on about 15 percent of tax returns. (See IRS Taxpayer Usage Study.)

4. Senator Mitch McConnell, "Checkoff Time Approaching," Washington Times, Feb. 2, 1992.

5. Frank J. Sorauf, Inside Campaign Finance: Myths and Realities, p. 144.

6. The text of the public service announcements used in both phases of the education program is included in Appendix 5.

7. Specific recommendations have included indexing the dollar checkoff to inflation and appropriating funds directly. See Appendix 2.

8. The Commission has encouraged Congress to examine these priorities in light of the projected 1996 shortfall. See Appendix 2.

9. The candidate would receive a payment equal to the amount certified to the candidate during that month multiplied by the following fraction:

amount in primary account on last day of month / total certified that month, for all candidates

In effect, this means that a candidate would receive an amount equal to:

his/her total unpaid certifications / all unpaid certifications

multiplied by the amount of funds available.

10. The Commission had proposed a "partial set-aside" alternative to Treasury's approach. The Commission's plan (submitted to Treasury as oral and written testimony) would have factored into the equation anticipated receipts to pay for the general election, thus affording more funds for the early primary campaigns.

11. Previous rules permitted two submissions and two resubmissions each month, with corresponding payments made twice a month.

12. These regulations took effect November 6, 1991.

13. For additional information regarding the Commission's administration of the matching fund program, see Chapter 1.