Writing in the Ottawa Citizen, Macdonald-Laurier Institute Managing Director Brian Lee Crowley says Canada is right to reduce the power of money in politics – and points to the United States as an example of why.Brian Lee Crowley

“In Canada there’s lots that is wrong with our politics, but we’ve succeeded in reducing the power of money”, Crowley writes. “And that’s something we’ve got right.”

By Brian Lee Crowley, Jan. 30, 2015

A US presidential campaign is said to cost about $1-billion these days. In the 2011 Canadian general election, the three main parties were limited by law to spending roughly $20 million each.

While it is fashionable to complain endlessly these days about the alleged mess that Canadian politics finds itself in, this is a good example of something fundamentally right about how Canadian politics works.

When vast gobs of money are needed to be competitive in politics it has some quite predictable effects. Every member of Congress, for example, has to ask themselves what they have to give in return for the millions of dollars each of them must raise. And while some donors are motivated by ideology or personal loyalty, most quite understandably see political donations as a quid pro quo. You give something to get something.

What elected politicians have to offer is the use of power to help their friends and harm their opponents. Moreover a benefit that is conferred on everybody is less valuable to any particular donor than a benefit that is conferred on them alone or a narrow group of like-minded people. Would you rather have a $100 cheque for every person, or a $1,000,000 cheque for you and your friends? Wouldn’t you be likelier to give a bigger donation to the candidate proposing to make you a millionaire?

That, in a nutshell, is the main reason behind the shrill intractable nature of American politics, where every vested interest has numerous die-hard defenders and those who try to think about what would be good for the average person don’t last too long. The more focused you can make your efforts in Congress, the more you can deliver exclusive benefits to a small circle, the more money you’ll have to fight those campaigns.

I am convinced this is why business tax reform, for example is so hard to achieve in the United States. The so-called “headline rate” of federal business taxation is 35 percent, the highest in the industrialised world. That’s a huge competitive disadvantage compared to, say, Canada’s 15 percent rate federally (plus roughly 10 percent provincially).

But don’t kid yourself that the average company is paying 35 percent. According to one account I read recently “In a 2013 report, the General Accountability Office calculated that the effective federal tax rate for profitable U.S. corporations in 2010 was about 13 percent. Throw in foreign, state, and local incomes taxes, and it rises to 17 percent.”

Some experts think the effective rate is higher, but there is wide agreement that the actual rate is in the 20 percent range.

In the absence of a wide-ranging tax reform that lowered rates for everyone, the way that companies deal with the theoretically punishing 35 percent rate is by getting politicians to give them exemptions that lower the rate they pay. The best reductions are the ones that benefit only your company because that reduces your taxes and confers a competitive advantage on you alone. You might well be prepared to pay a lot for that to the congressman or senator who could deliver it.

By contrast, what would you be willing to pay for a tax reform that lowered rates uniformly for everybody by eliminating various deductions? Not only would that not be worth as much to you, you might spend a lot to defend tax privileges you’ve already acquired.

This applies too to the out-of-control spending that is still a fixture in Washington. Everyone would benefit from genuine spending control that brought fiscal discipline and sustainability to public finances. But each person would only benefit a little, whereas many groups get big benefits from the status quo and they’re willing to pay to defend them.

In Canada there’s lots that is wrong with our politics, but we’ve succeeded in reducing the power of money. And that’s something we’ve got right.

Brian Lee Crowley (twitter.com/brianleecrowley) is the Managing Director of the Macdonald-Laurier Institute, an independent non-partisan public policy think tank in Ottawa: www.macdonaldlaurier.ca.

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