Economic interventions to attract political donations are a form of sleaze; they benefit some politicians at the expense of the population.
Politicians can offer tax breaks, or exemptions from economic regulation, as inducements to individuals or organisations – to persuade them to support a political candidate or party in an election. These manoeuvres might take place before the election, to attract new donations, or after the election as a reward for donations given. From a political perspective, this might be a distortion of democracy – as described later (6.4.5.2). In the economic sphere it can result in a distortion of market forces or the sharing of wealth.
It must be assumed that when organisations make political donations, they expect to receive benefits: ‘kickbacks’. The companies and organisations that make large political donations in America are tracked on the OpenSecrets.org web site. Politicians in some other countries also make economic interventions to attract political donations, but the practice is most obvious in America.
The US Congress has responded to intensive lobbying by repeatedly legislating to allow large corporations to reduce their tax bills, as a form of tax avoidance, including hiding profits overseas (3.2.4.4). This practice was revealed in a report on the “Active Financing Exception” Corporate Tax Loophole:
“Wall Street banks, insurance companies and conglomerates with a big financing arm—General Electric has been a particular beneficiary over the years—can steer earnings to tax havens where little or no tax is due, while sending losses to the U.S., diminishing or even wiping out their domestic tax liability.”
These tax concessions reduce payments by large corporations and therefore place a greater tax burden on everyone else to pay for government spending.
The deregulation of financial markets, which contributed to instability (3.3.4.3), is very probably directly connected to the political donations made by large financial corporations.
(This is an archive of a page intended to form part of Edition 4 of the Patterns of Power series of books. The latest versions are at book contents).