Funding the gerontocracy

This year,  the per-vote subsidy once enjoyed by Canadian political parties ends. Parties will have to raise funds entirely through donations. So, who gives?

There is a generous federal tax credit for political donations, worth 75 percent of the first $400 donated, 50 percent of the next $350, and 33 percent of remaining donations. The federal tax credit can reduce taxes owed by up to $650. 

Canada Revenue Agency reports the number of people claiming various deductions and credits by age, sex, income, and province in its annual Income Statistics. Using these, it is possible to work out who is giving to political parties.

Despite the generous tax credit, not many give - of all those who file a tax return (including those who pay no taxes), just 0.7 percent claim the political contribution tax credit. Eliminating non-taxable returns would raise the percentage claiming the credit to one percent of taxpayers.  

Also, political donors are old. Forty-nine percent are 65 or older.  

The picture below shows how political contributions, charitable donations and - to provide a basis for comparison - the basic personal tax credit are distributed across age groups. (The basic personal tax credit is something that everyone who has any taxable income at all claims, so it gives a clear picture of the distribution of taxpayers). The figure shows, for example, that almost 25 percent of those claiming the federal political contributions tax credit are 75 or older, even though that group represents just 9 percent of those claiming the basic personal amount.

The majority of those who claim the federal political contribution tax credit - 65 percent - are male. This is not an artifact of couples consolidating political contributions on the tax return of the highest earner. Unless one partner has no taxable income, there is no incentive for couples to move political contributions to the higher earner's tax return. By way of comparison, 54 percent of those claiming charitable donations are male - and there is a tax advantage to consolidating charitable donations on a single tax return, often that of the higher income earner.

 People who give to federal political parties aren't rich - almost three quarters have incomes under $100,000. But that's because most people aren't rich - over 90 percent of people claiming the basic personal amount have incomes under $100,000.  The next figure compares the distribution of people claiming political contribution tax credits, charitable donation tax credits, and the basic personal amount. It shows, for example, that ten percent of people claiming the federal political donations tax credit had taxable incomes between $60,000 and $69,9999. (The distribution has spikes where the size of the categories changes, for example, between the $55K to $59K income group and the $60K to 69K income group). To a greater extent than charitable donations, federal political contributions tend to be claimed by better off Canadians.

 

Another way of seeing this pattern is to see how the percentage of all taxfilers claiming the credit - those with and those without taxable income - increases with income, as is shown below:

 

In sum, those most likely to donate to political parties are male, relatively old, and relatively affluent. It's not hard to figure out why the Conservative Party of Canada prefers funding political parties through individual donations. 

What are some alternatives to the present system? Well, we could go back to having per vote subsidies. Or the federal political contribution tax credit could be clawed back from people with incomes above $100,000 per year - and the savings could be used to make the political contribution tax credit refundable for lower income Canadians. That would go some way towards equalizing political influence across income lines. 

But in a world where political parties disproportionately raise funds from rich old men, we can expect policies that disproportionately favour rich old men - in other words, we're funding a gerontocracy.

Comments

[Avon Barksdale]

The vote subsidy is an awful idea and so is the tax credit for political contributions. Why should people who don't want to contribute to a political party be forced to do so? A better idea is to eliminate all restrictions on donations. The limitations on donations is a restriction on free speech. We may sing about freedom in our national anthem, but few people actually believe in freedom.

Limited government with the rule of law largely removes the difficulties around funding political parties. The more the government takes and the more the government spends, the more important rent seeking and special interests become. Let's apply same basic public choice theory here.

[Robillard]

I don't think I would go so far as to call the funding incentive for political parties to leading to a gerontocracy. I think thet disproportionate claiming of political party donation tax credits by seniors is more of a reflection of demographic history than anything else. It is my understanding that the baby boomers and the "greatest generation" have much higher rates of political party affiliation and membership than generation X and the millenial generation. Members of political parties are probably more likely to donate to political parties than non-members. Why political party affiliation has fallen is a mystery to me though. I'm not sure if it is because political parties offer nothing to the young or vice versa.

As a side note, I am a member of the millenial generation, and I felt enough conviction to join and donate to a provincial political party, but I have never felt the same affinity to any of the federal political parties.

[Frances Woolley]

Robillard: "It is my understanding that the baby boomers and the "greatest generation" have much higher rates of political party affiliation and membership than generation X and the millenial generation. Members of political parties are probably more likely to donate to political parties than non-members."

Yes, this is true. But what follows from that observation?

In an ideal world, governments would institute policies that are good in some kind of social sense, e.g. produce the greatest good for greatest number, increase people's capabilities, etc. In the real world, political parties govern with an eye to getting (re)elected. Mechanisms for funding political activity should be designed so as to create incentives for governments to institute good policies, as opposed to policies that serve to get them re-elected (though some good policies are politically popular, and vice versa). The point of this post is that funding political activity through a political tax credit that leverages the giving of a small percentage of the population will produce a particular set of outcomes that may or may not be desirable.

Yeah, the gerontocracy in the title was click bait.

[Avon Barksdale]

Frances,

Why ignore public choice? It's clear that governments will look to re-election. What else are they suppose to do? The only way to stop the problems you've addressed here is to limit the size of government. There is no hope of grand redistribution without special interest efforts to capture it.

[Frances Woolley]

Avon: "Why ignore public choice? "

Because it's absolutely blindingly obvious. "But in a world where political parties disproportionately raise funds from rich old men, we can expect policies that disproportionately favour rich old men".

"The only way to stop the problems you've addressed here is to limit the size of government."

First, size isn't everything. Second, public choice implies that there is no way to "stop the problems." There are only policies that are slightly better or slightly worse than others.

There is no hope of human existence without special interest efforts to capture it.

[Jacques René Giguère]

Avon: why limit ourselves to illimited funding of parties? Let's cut the middleman out and buy the politicians directly, as was done throughout history. With the guillotine every 200 years.

[Hugo André]

@Avon Actually the per-vote subsidy sounds like a pretty good system. If political parties are funded through donations it is likely that they will pander to special interests like the older males that Frances is talking about. And yet they need to be funded somehow. Political parties provide a public utility and as with all public utilities there is a free-rider problem (which can be eliminated by the subsidy).

[Avon Barksdale]

Hugo,

Our system is a parliamentary which means parties are emergent, not part of the system in a formal sense. The idea is, we have 308 memembers of parliament, not 4 or 5 parties. We do not want a system that formalizes something that is not part of the system. It's this type of thinking that leads people to believe that they elect the prime minister and that the party with the most seats automatically forms the government.

[Avon Barksdale]

Frances,

Yes, we will always have problems with special interests, but let's take public choice seriously here. Limited government with the rule of law limits the harm and radically reduces rent seeking. So, yes, size is a big deal. If effectively unlimited discretionary government has the ability to tax and spend as it pleases, we shouldn't be surprised to see such nonsense as sports stadiums declared a "public good", giving the well connect a fee ride on the taxpayer. Let's watch how that plays out in Ottawa over the next few years. A nice lesson in bg government.

[Avon Barksdale]

Jacques,

I was think more of the US between the civil war and the end of WWI. Government spent nothing, immigration was unlimited, and there has never been a period of faster economic growth.

[Jacques René Giguère]

Avon: with constant macro instability, regular large scale bank failures, machine-gunning of the workers, poisonous milk and meat and infant mortality that would not be tolerated in modern Afghanistan.There is a reason why the unwashed masses asked for change...And massive free land stolen from the Indians with the necessary genocide, though nobody much cared.
As an aside, my family doubling its income from 1955 to 1970 was not bad either.

[Frances Woolley]

Avon - "I was think more of the US between the civil war and the end of WWI. Government spent nothing"

Government spent nothing during World War I? Really?

Jacques Rene, mon ami, let us talk of more pleasant things. I saw a crocus today. How are things in your neck of the woods?

[Avon Barksdale]

Frances,

Yes US government spending went up during WWI, but the US government still send much, much less of the national income at that time than it does now.

The comments here has such a leftist, utilitarian agenda. Economics is not social engineering. In fact, most economists who claim they can engineer don't even know nearly enough mathematics to come close. Sorry, doing dome regressions with Stata counts for very little. Let's stop this engineering nonsense. Economics is harder than physics and physics uses the most advanced mathematics invented. Good economics is about understand what is: What commands a risk premium? Why is it optimal to save less than what the government says you should for retirement? etc. Stop assuming everyone is irrational and that toe-of-frog and eye-of-newt economist blessed policy adjustments will save the day.

And Jacques, the greatest bank failure we ever had was the actions of the Federal Reserve in the early 1930s. The Fed caused the great depression - and that us not some oddball tea party opinion, it is the mainstream consensus of every serious macroeconomist in the world. Just ask Bernanke.

[Patrick]

Confirm cynicism with data... check!

No crocuses yet, but the acorns I collected and cold stratified have germinated. Not sure what I'm going to do with 4 white oak saplings...

[Frances Woolley]

Patrick - cool! Congratulations! Link to how you did it?

[LInda Welling]

Frances, at the risk of being overly picky: you wrote "Unless one partner has no taxable income, there is no incentive for couples to move political contributions to the higher earner's tax return." I understand your focus on tax incentives, and appreciate the contrast with charitable donations, but I wonder if there are no tradeoffs one might see in a bargaining model of the household that let the male choose to participate in political parties while the spouse chooses other activities? This in no way disputes your conclusion; I agree on that one.

Nice post. Hope there wasn't too much snow for Easter.

[Frances Woolley]

Linda, interesting. I wonder if investment income is pooled more or less than employment income is? The work I did with Shelly Phipps and Peter Burton on older couples suggested that women spent part of their Old Age Security on gifts and charitable donations - I'm guessing gifts for children and grand children. Which would make sense for people hoping that their kids will visit them in the long term care facility, and make sure they're taken care of.

What I'd be interested in knowing is what happened to older women's political contributions when pension income splitting was introduced - because pension income splitting might move some women from not being able to take advantage of the political contribution tax credit to being able to take advantage of it.

[Patrick]

Frances: I'm a Luddite. I looked it up in a book at the library. The obvious Google search will find it for you though.

[Chris S]

What I really see is a bad case of incentives mis-aligned against the skills we need in our elected representatives. Right now, the party system appears to strongly favour parties and their members on the basis of their ability to raise their own money, and only secondarily on their fitness as elected-to-goverment representatives.

My suggestion would be to completely disallow all contributions. Instead, every candidate gets a set allowance to run their campaign from. This avoids the distortion of having overwhelming advertising because you have contributions from outside parties. It also avoids the vote-based funding distortion of giving anyone a financial benefit this time just because they were elected last time. Instead, we get to see how well you can run a quality campaign when given a set, limited, budget -- which is a key skill set we expect from those elected to govern.

If a candidate wishes to transfer part of their allowance to a shared party funding pool to manage and use, that's up to them.

There is the separate issue of non-party (third-party) spending; it strikes me as easy to abuse, but still problematic to ban. I'd rather go the direction of transparency, where advertising and communication spending must be clearly connectable to the funding sources - including up to the point where anything reasonably seen as a political ad must come from an organization that publishes the sources and sizes of its funding at the time those funds are received, and can show it does not partake in tax reduction for the donating entities. Yes - funding of political speech comes from post-tax income, whether personal or business.

I also suspect this will all be found to be too radical, or too empowering, depending on the point of view.

[Frances Woolley]

Chris S - those are interesting and worthwhile suggestions - thanks for taking the time to comment.

Patrick - Thanks for the tip. If you were in Calgary not Edmonton I'd ask if I could pick one of them up from you when I'm out West next week.

[Billiam Smith]

This is a classic "equality of opportunity" vs "equality of outcome" debate. Everyone is equally enabled to take advantage of the political donation subsidy - equality of opportunity. Somewhat more older people and men take advantage of that opportunity. There is no policy failing here - just individual people making choices. They can choose to make different choices if they feel exercised about the outcomes.

[Frances Woolley]

Billiam - "Everyone is equally enabled to take advantage of the political donation subsidy - equality of opportunity. Somewhat more older people and men take advantage of that opportunity. "

Actually, no, because it's not refundable, anyone without taxable income can't take advantage of it. Making the credit refundable would be a good first step towards equalizing opportunity.

[Avon Barksdale]

Chris S,

We elect MPs, not parties. Parties are emergent, they are not built into the system. In principle, we could elect all members of parliament without using parties at all - similar to our municipal governments. Your ideas not only strikes me as a restriction on free speech, but is a guaranteed way of eliminating innovative ideas. In the 1830s, a wealthy wool merchant in New England might have decided that slavery was awful and was willing to fund an abolitionist candidate who thought like he did, regardless of popularity. Your ideas make advocating that kind of radical change much harder.

[Jacques René Giguère]

Frances: The snow is of february texture.And there are no crocus here even in summer...

[Determinant]

Billiam - "Everyone is equally enabled to take advantage of the political donation subsidy - equality of opportunity. Somewhat more older people and men take advantage of that opportunity. "

Actually, no, because it's not refundable, anyone without taxable income can't take advantage of it. Making the credit refundable would be a good first step towards equalizing opportunity.

That's why Bob Rae made Ontario's Political Donation Tax Credit refundable when he was NDP premier. Also because there was a unique political arrangement between the Federal and Ontario NDP that saw the provincial party rely exclusively on individual donors, while the Feds focused on unions. This deal has since passed into history.

Though the present system of just being a gerontocracy is a step up from the institutionalized bribery civic duty of business system we had when corporations were allowed to donate before 2004. I will provide quotes on that if you wish.

And here the snow is almost gone, but there are no flowers yet. I am waiting for it to warm up enough to wash and wax my car.

[Jim Sentance]

I still have at least four feet of snow covering my yard. Please no talk of crocuses or flowers for a bit.

[Chris S]

Avon;

I'm having a hard time seeing where you and I have a large disagreement. I am in complete agreement that parties are emergent; I just expect them to be emergent from the elected representatives (or at least the candidates).

As to a restriction on free speech? Again, not quite seeing it. There are no restrictions on speech, only on opaque funding of other people's speech. You're free to say anything you want, and also free to use your own money to make your own voice louder. If there is a party formed that agrees with your ideas, you can point at them with your voice.

In your example of the wool merchant, I only expect that the merchant to directly tout the idea of slavery being bad. He is completely free to drive the popularity of the idea, and if that means that candidates supporting that idea are more likely to be elected, so be it. The money still advances the idea, and the candidate backing the idea still gets elected if the idea funding takes hold.

Where we do disagree, I think, is what we are prepared to accept as likely activities within the system. Your example is a one that runs the risk of candidates accepting convictions of convenience, if they think it will get them more funding to get elected. This is exactly what concerns me about the current system. It rewards the candidate who asks "what do you want me to say after you fund me?", which could also be very different than "what do you want me to do if I get elected?" That way, I think, lies bought and paid for politicians - and that's a consequence I would want to work hard to avoid.

[Avon Barksdale]

Chris,

I think we are pretty far apart on this issue. I believe that free speech means that I can give money to almost anyone I like for whatever reason I want. That's what real freedom means. Campaign finance reform entrenches the status quo and that makes it hard for genuine new ideas to be heard.

The populist idea is that too much money is corrupting politics, and the public wants ways remove the money to purify the politics. But the problem here is that to restrict individual wealth from politics means that someone has to decide which directions are not acceptable. Just look at Frances' post here – she is saying that too many old people contribute relative to the young and so we need to “correct” the situation. But who gets to decide what is an acceptable amount of influence? More populism? Today, we clearly see slavery as bad, no question. But in the 1830s US, the status quo clearly maintained that the “peculiar institution” had a place in the the Union. I don't want anything that restricts wealthy “nutters” who advocate “crazy” anti-establishment ideas such as that we should treat black people as human. And by advocate, I mean fund candidates to get the message out and persuade people that the status quo is wrong.

In the end, the money politics nexus “problem” means that we don't trust democracy - that we don't trust voters to see through political messages supported by wealthy or organized donors. It means that we believe that people are easily fooled and are irrational. This is not the problem, and if it is, good luck balancing all that irrationality with just the right policies. The problem is public choice – the capture process whereby people rationally ignore lobbying efforts that run counter to the public good. The only way to limit that harm is to limit the size of government and ensure the rule of law.

[Jim Sentance]

I don't see that arguing that people can be heavily influenced by advertising is to argue they are easily fooled or irrational, simply that not everyone has the time or ability to figure out the facts for themselves and so end up relying on the information put in front of them by advertising. Funding for advertising seems to be key to getting nominated and getting elected, and it seems to me to be a legitimate concern that we not let people with a whole lot of money have too much influence over our politicians by buying advertising for them.
Nor do I see that putting some limits on individual donations automatically means no funding for new voices. Restricting funding only to those who got votes before through a per vote subsidy might do that, and I could see that as an argument against limiting funding to that. But I don't see the leap from that to unlimited contributions.

[Avon Barksdale]

Jim,

You say that some people don't have the time or ability to figure out the facts and therefore just blindly follow what the ads say. A rational person who doesn't have enough time to figure out the facts or a person who knows that he/she doesn't have the ability to figure out the facts wouldn't vote. Your post implies that the plebs can't be trusted to choose right in the face of advertising – the uninformed will vote in a herding fashion, not cancelling out on average, but gravitating to the politician who spends the most money. I'm sure Carly Fiorina wishes that were true! So, to purify the politics, the argument goes, we need to limit the messaging. That is not freedom. Now, people can debate the merits of surrendering freedom on this issue but make no mistake, the trade-off remains. You will get fewer innovative ideas by restricting campaign funding and you will entrench the status quo. I am much more worried about the tyranny of the status quo with its cloistered elite (Camembert with broken crackers) than the so called irrationality of my fellow citizens.

[Patrick]

If advertising - political or otherwise - didn't work to influence people to do things they otherwise wouldn't do had they not been exposed to it, then why would there be a such a huge market for it? Why do firms, political parties, and even individual with the resources and a reason do so much of it? If simply providing dry information accomplished the same thing, then why the bikini clad girls in beer commercials? Wouldn't it be cheaper to provide a chemical analysis of the beverage on black and white printed page on recycled paper?

[Jacques René Giguère]

Avon: a former girlfriend of mine, unversity graduate, never read a newspaper political news and never listened to any tv news. When I asked her why she voted for Jack Layton in 2011, her answer was direct and simple :"I don't know.".

[Bob Smith]

I used to be involved in party politics and, in our campaign schools, one of the lesson that was imparted on us was that, in preparing preparing campaign materials (ads, flyers, websites, whatever) you should prepare on the assumption that it would be read by someone with a grade 8 education.

The point of this was not that voters are morons - the people who vote generally aren't - but just that for most people (excluding the sort of people who attend campaign schools), politics is a decidedly secondary aspectin their lives. They have jobs, kids, community obligations, they need to paint the frong door, get the cat neutered, etc. and don't have the time or mental energy to assess competing political platforms. So they rely on shortcuts: what the pundits say, what they hear on the radio, what they read on the neat simple - and surprisingly readable after a long day at work - flyer that the clean-cut young man in the Mike Harris windbreaker dropped off.

Advertising is an effective means of conveying that kind of simple messages (coke is better than pepsi, Stephen Harper is scary, Stephane Dion is not up to the job). Granted, I'm not a believer in the advertising is everythign school of thought - no amount of advertizing can get people to believe something that they don't believe. But it matters.

Now, what is a fair criticism of election financing laws (one, unfortunately rejected by the SCC in Harper v. Canada) is that, federally, at least third parties can spend significantly less than political parties on political adverising during the writ period. Given the success of public sector unions at using third-party advertising to sink the Ontario Tories in the last few elections, I have no doubt that Stephen Harper derives a certain ironic pleasure from the fact that, because the SCC ruled against him in the Harper case, his opponents can't do the same thing to him federally.

[Avon Barksdale]

Patrick,

Of course adversing works - it's about persuading people. If the person can be persuaded to see your point of view, why is it bad to try to do so? You're implicitly saying that people are persuaded by illogical arguments. Really? You know their value system? You can tell by revealed preference that they are actually behaving irrationally? Why would someone who is persuaded by a chemical analysis be more rational than someone who is persuaded by a paid celebrity endorsement? Let's stick to the the definition of irrational, and not make normative statements about what you are I think should matter to people when they make a decision.

Jacques,

First, give your former girlfriend some credit - she might have known why she voted for her NDP candidate she just didn't want to tell you. Now, suppose that your ex-girlfriend was just utterly irrational and voted willy-nilly. The NDP spent less money than the Conservatives, so it's clear in your anecdotal case that money can't be everything. If there are irrational voters (or at least voters who make mistakes) all over the place, the democratic argument is that it doesn't matter - they will cancel each other out and only the informed voters will drive the result - at least most of the time. To the extent that "irrational" voters don't cancel out, that's the price of democracy. Instead of trying to restrict the messaging (it won't make the so called irrational voters less irrational) to guide democracy, let's limit government so that whatever shortcomings the election process has (including Arrow's impossibility theorem), it won't matter that much.

[Patrick]

You have to put on a special kind of rose colored glasses to argue that it's freedom when people are manipulated to make decision that may or may not benefit them, but certainly benefit others.

You've never succumb to a sales pitch and bought something you later regretted because it didn't live-up to the claims in the pitch? Really?

There is plenty of research that demonstrates manipulating people is pretty easy to do, and advertisers do it all the time. To all of us. No doubt I'm a victim, and you are too. Education and affluence seem to provide partial immunity. That in itself is interesting.

Call it what you want, but in my book deception and manipulation ain't freedom.

[Nick Rowe]

Bob Smith is stuck in spam.

[Chris S]

Avon;

You have not said so explicitly, but I expect you would object vehemently if it was suggested that all the advertising money went into a single pool, to be divided equally among those candidates who wanted to advertise. That's potentially one way of interpreting some of my suggestions, so I think your objection is likely.

So, *why* do you object?

From a freedom of speech via advertising aspect, this would give everyone equal access to advertising. Do you want others to be disadvantaged in their access to advertising relative to you? Not all advertising is seen by all people, so simply having more occurences raises the chance that substantially that more people will be in a position to receive that speech. Isn't it best for the country as a whole if all advertising reaches all voters? From this aspect, the benefits of freedom of speech are maximized by this redistribution.

An alternative view is that since advertising is limited, and some advertising is more expensive, greater spending on your favoured ideas will crowd out other less well funded ideas, possibly to the point of them never being heard at all. That's a rather cynical political ploy, but I get the impression that "outspend the competition" is a common political tactic.

There is certainly a wide variety of axes on which to judge political ideas, but one is certainly the degree to which the attractiveness of an idea corelates with wealth. In the environment you seem to favour, wealth deployment leads to strong awareness of an idea, and wealth withdrawal leads to weak or nil awareness of an idea. People will certainly be more likely to be persuaded by any argument, illogical or otherwise, if they have no awareness of any other alternative.

That's a problem. It should not be necessary for an idea to pass the "liked by the wealthy" test before it can even attempt to improve widespread voter awareness. But without at least some level of un-influenced redistribution in the funding of political campaigns, that's what we're going to get. Votes, not dollars, should be the currency of political success.

[Jacques René Giguère]

Avon: she is a wonderful girl. But outside whatever is relevant to her kindergarden class ( where she is marvelous) and interior decorating she is totally clueless about anything and everything.
I also at that time to one of my party member who told me that he voted NPD because our MP was a "bad MP". I told him "You've known that for 10 years and you know the new one will be even worse." He said "...." (I am looking for the proper emoji....)

[Determinant]

You have a thing against Jonathan Genest-Jourdain, Jacques?

[Avon Barksdale]

Chris,

"Do you want others to be disadvantaged in their access to advertising relative to you?"

I don't know what this means. Relative to me? I don't give money to political parties.

I find this "access" word to be load. Monetization is democratization. It means accessibility to anyone, not just the politically connected. Free markets splinter economic power, we end up with many rich people who want to support causes they believe in. From the Sam Simons and the Bob Barkers who use their fortune to promote animal welfare to the Koch brothers support of libertarian causes, we have multiple poles of thought. That's what I want - a democracy which splinters political power in conjunction with economic freedom to splinter economic power. Once you decide to limit freedom in the name of controlling persuasion to protect the plebs from their stupidity, you surrender the mechanisms that splinters power.

[Jacques René Giguère]

Determinant: He was my student...