Skip to main content


Small Donors and Voters Squeezed Out by PACs – But What’s the Alternative?

A record $5.4 million from political action committees (PACs) tied to bankers, auto dealers, doctors, insurance companies and other special interests poured into the 2000 election of the North Carolina legislature, according to a new report by the campaign-finance group Democracy South.

More than 93 percent of the PAC money, or $5.0 million, went to the winners. That amounts to $29,300 in special-interest money for each member of the General Assembly, the report says.

Two out of five legislators got more than half of their campaign cash from PACs. Only two lawmakers, Rep. Joe Hackney (D-Chapel Hill) and Sen. Stan Bingham (R-Denton), refused all money from PACs in the 2000 election.

As legislators struggle to balance the state budget, many of these special interests – especially those that have increased their giving the most in the past decade – are now working hard to protect tax breaks that benefit their industries.

For example, according to Democracy South’s review of PAC spending and budget proposals:

路 The N.C. Automobile Dealers PAC gave $104,000 to legislative candidates in 2000, compared to nothing in 1990. Auto dealers oppose a proposal to lift the cap on the sales tax on luxury cars; the cap effectively reduces the cost of those cars by $2.4 million a year, according to legislative analysts.

路 PACs affiliated with Bank of America and the state’s four other top banks contributed $469,120 to legislative candidates in 2000, an 8-fold jump over the $57,800 they gave in 1990. A loophole in state law allows banks to deduct the expenses incurred in earning tax-exempt income from their taxable income, a practice banned under federal tax law. As a result, the biggest N.C. banks save an estimated $100 million in state taxes each year – a giant hole other taxpayers have to fill.

路 Nationwide Insurance, whose PAC donations to legislative candidates soared from zero to $155,600 in the decade, has lobbied hard for an unusual, 100% tax credit on payments to Guaranty Trust Funds that protect customers if their insurer becomes bankrupt. The credit has saved the insurance industry more than $50 million in the past five years.

路 R.J. Reynolds Tobacco’s PAC spent $100,750 on legislative campaigns, a leap from $25,000 in 1990. It benefits from several tax breaks, including an income tax credit passed in 1999 for exporting cigarettes, worth $8.7 annually to the industry, and an income tax discount worth $56 million to North Carolina firms with heavy investments in manufacturing, a provision RJR pushed through the legislature in the mid-1980s with the promise of building a cookie factory, which it then never built.

“When banks and tobacco companies get to keep their special breaks, it’s hard not to see a connection between the political money given and the political protection received,” said Pete MacDowell, executive director of Democracy South. “Why do budget cuts wind up hurting the people least able to make political donations?”

But MacDowell acknowledged that several major donors were targeted to lose some tax breaks. “Everybody who pays in doesn’t get special treatment. It’s not that simple,” he said. “Legislators are struggling to balance a variety of interests as well as the budget, and they’ve gone after some powerful players, despite their donations. It will be interesting to see which ones ultimately win or lose.”

He noted that Senate and/or House budget writers have sought new tax revenues that would impact beer wholesalers, auto dealers, HMOs, Blue Cross, long-distance phone companies, limited liability corporations, and wealthy individuals who are a major source of political contributions.

Under state law, executives in a company, members of a profession, or other individuals with a common purpose can pool their contributions into a political committee or PAC, which can then make a donation of up to $4,000 to a candidate in the primary and another $4,000 in the general election.

“There’s nothing inherently wrong with a PAC,” MacDowell said. “The real problem is that candidates rely on them so heavily because they have so little choice. We can’t really expect them to turn down the money unless we’re willing to provide an alternative source of ‘clean’ campaign money.” Democracy South is part of a coalition that advocates developing a publicly supported Fair Elections Fund to assist state candidates who abide by strict fundraising and spending limits.

“Voters are paying a steep price for privately financed elections through a tax system that favors big campaign donors,” said MacDowell. He distributed a list of tax breaks that benefit various industries at a cost of over $1 billion a year. “Without fair elections, we are unlikely to get fair taxes.”

According to Democracy South, the small donor who gives $100 or less is also being squeezed out by big players as the volume of dollars in campaigns has escalated. Consider these findings:

路 Legislators took $3.20 from a PAC for every $1 they got from a small donor in 2000. By contrast, legislators elected in 1990 took $1.60 from a PAC for each $1 from a small donor.

路 In 1990, 30 percent of the campaign cash in all legislative races came from small donors. In the 2000 election, the share had shrunk to 13 percent.

路 Together, the top 12 PACs contributed more money to legislative winners in the 2000 election than did all their small donors – $1.74 million versus $1.57 million.

路 PACs provided 36% of the cash contributions winners raised in 2000, down from 43% in 1990, but the per-legislator amount of PAC money tripled from $9,700 to $29,300 during the decade.

PAC sponsors generally admit that their donations buy “access” to legislators, but not favors or votes. MacDowell agreed that legislators do not “sell votes.” But he said “access” is all PACs need to gain an advantage ordinary voters don’t have. “Special interests use their money and access to shape the debate on tax policy or other issues. They narrow the range of acceptable options the legislators choose from. They define options and priorities for their private interests, not the public’s interest.”

MacDowell noted that PACs gave to incumbent legislators across a wide range of the political spectrum. “PACs spread their money around but give the most to the people with the power to affect their agenda. A legislator’s clout in the General Assembly is as important as his or her ideology.”