Vouchers: a third way for financing political parties

You got your public funding in my private donations! No, you got your private donations in my public funding!

Barack Obama. The president elected not to take public funding because he had so many private donations. Photograph: Getty Images

The debate around financing of political parties is caught up between two alternatives, each of which possess seemingly intractable problems, but a third way might be surfacing in the US.

On the one hand, the status quo – of uncapped donations – has terrible consequences. It leads to capture by interest groups (stereotypically Labour by the unions and the Conservatives by big business, and like many stereotypes, there is an element of truth), is anti-democratic (contrary to what the US Supreme Court proclaims, money is not speech, yet if you have more money than I do, it's not hard to imagine which of us gets more say in policy) and has ended up in outright corruption (witness, amongst other things, "I'm like a cab for hire", "premier league" donors, or cash for honours).

Unfortunately, the major alternative model has its own problems. State funding of political parties runs the risk of creating an unaccountable political class, paid from the pocket of general taxation while owing nothing in return. It also entrenches the existing trio of parties in their roles, rendering our already distortionary electoral system immune, to all intents and purposes, to change. And, of course, it would be expensive.

The purported "middle ground" of capping donations, meanwhile, seems unworkable politically, while solving none of the problems. If unions are counted singly, Labour won't sign up. If they aren't, the Tories won't. The cap won't be low enough to prevent some donors still having  outsized influence, and yet it won't be high enough to prevent some or all of the parties suffering major financial hardship.

But a number of American campaign finance experts, including Yale's Bruce Ackerman and Harvard's Lawrence Lessig, support a third way. The idea is that every voter is given a voucher for $50, to donate to a political actor as they see fit – it can go to parties or candidates, mainstream or independents, and it doesn't have to be used at all. In exchange, candidates who want to accept the money must agree to stricter rules. Ackerman suggests mandatory donor anonymity (to prevent "influence peddling"), while Lessig suggests a cap on any individual donation of just $100.

WonkBlog's Dylan Matthews reports that the idea has just been given a boost. John Sarbanes (son of the Sarbanes-Oxley Act's Paul Sarbanes) is planning on introducing the Grassroots Democracy Act to Congress:

The bill has three components. The first is a voucher of the kind Ackerman, Ayres and Lessig endorse, implemented as a $50 refundable tax credit for congressional donations, so even people who do not make enough to pay income taxes are eligible. The second is a matching system, where campaigns that reject PAC money will get $5 from a public fund for every private donation of $1, and those that agree to collect only small contributions receive $10 from the public fund for every private dollar. The third is a fund to provide support to candidates who are facing heavy third-party expenditures from super PACs and other groups, to make sure they aren’t drowned out.

Some of the side-effects of such a reform would be positive, as well. Most interestingly, it introduces a form of PR into the electoral system. Every "vote" using a voucher has the same effect, whether it goes to Labour or the Monster Raving Loony Party, and it is impossible to "waste" it. And depending how widely the vouchers can be used, it could allow people to donate to issue groups as well as parties, meaning that organisations like the Electoral Reform Society could see a boost in their funding.

Of course, the one thing it doesn't ensure is that the balance of power is conserved. For that, parties would be advised to look elsewhere. But MPs who are serious about party funding reform may want to consider a similar move.