What Obama's Super PAC and Romney's Taxes Have in Common

They're both subject to bad rules when it comes to money.


Obama's a hypocrite. Romney's a tax evader. Get used to hearing these charges, because they'll be repeated throughout the presidential campaign, with ever-increasing volume.

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But while pondering the leading candidates' venalities, it's worth keeping one other thing in mind: Obama and Romney have made some tawdry decisions because they basically had no choice. The real culprit in some of their most controversial decisions is a set of bad rules that basically guarantees there will be questionable behavior by the candidates.

First, the Obama "super PAC." The president is taking heat for throwing his support behind a Democratic fundraising group, Priorities USA Action, that will raise money from wealthy donors who are free to give as much as they want. This so-called SuperPAC will then be free to run ads and lobby for Obama's re-election, without the kinds of limits on fund-raising or spending that govern the candidates' own political-action committees.

In the past, Obama has criticized the outsized role of special-interest money in politics, and declined the support of outside groups that aren't an official part of his campaign. So he seems to have flip-flopped. A hyperventilating Republican spokesman told the New York Times that, "yet again, Barack Obama has proven he will literally do anything to win an election."

[See Obama's 8 new ideas for the economy.]

Well, duh. Obama took his stand against outside PACs in 2008, before the Supreme Court's 2010 Citizens United decision, which basically said there are no limits on the amount of money corporations and wealthy donors can spend to influence the outcome of elections. That gave rise to super PACs, which raise and spend as much money as possible to support favored candidates, even though they're not officially connected to them.

This change amounts to a revolution in campaign finance that will probably push total spending on the 2012 elections far beyond any previous record. Plus, super PACs tend to finance the ugliest negative ads, since that gives the candidate an element of plausible deniability. We've already seen that in the Republican primaries. Newt Gingrich, for example, disavowed a much-criticized "documentary" portraying his rival, Romney, as a greedy, job-killing banker--even though the video was produced by a super PAC that supports Gingrich.

Republican super PACs have already raised millions of dollars that's sure to be used against Obama in the general election. So what's Obama supposed to do? Take the high road and limit his own funding? Hardly. Serious candidates run to win, not to lose nobly while making a point. It was a foregone conclusion that Obama would have no choice but to play by the same tilted rules as his rivals. The problem isn't Obama's flip-flopping. Nor is it Democratic or Republican fund-raising. It's a bad set of rules that creates a fund-raising arms race and makes the candidates more beholden than ever to wealthy donors. If one does it, they all have to.

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Mitt Romney's tax advantages reflect another set of bad rules. Romney, of course, is a multimillionaire who earned roughly $21 million annually over the last two years—and paid taxes at a rate of about 15 percent. Many middle-class workers face a tax rate of 20 percent or more, even though they earn a tiny fraction of Romney's income. That's because nearly all of Romney's income comes from the gain on investments, which is taxed at a lower rate than regular wages. Romney also takes advantage of complex offshore tax shelters that further lower his tax payments. They're perfectly legal, though such maneuvers clearly favor wealthy taxpayers who have large sums to move around and can afford to hire the shrewdest tax preparers.

Democrats and even some Republicans have tried to smear Romney as an aristocratic tax dodger. But what would you do if you were Romney? Instruct your accountant to ignore tax laws that could save you money? Send Uncle Sam an extra $1 million or $2 million as a goodwill gesture? Try to earn less, to appear more ordinary? Doubtful. Romney is doing precisely what most people would do, which is using every advantage that's legally available to him.

[See why Obama has a common-sense deficit.]

There are many other aspects of politics, governance, and society in which bad rules promote sub-optimal behavior. The federal government's ability to borrow money at will leaves few barriers to reckless spending. The same was true of many ordinary consumers, until the 2008 financial crisis forced a change in the rules. In schools, students learn how to ace tests rather than how to think deeply and independently, because that's what the rules encourage. In the workplace, many people plot how to impress the boss or score a promotion instead of simply doing a good job, because the former is often perceived as the best way to get ahead.

Trashing the candidates can be irresistible in a never-ending political campaign filled with inanities. But there are bigger problems than the candidates' flaws. A shrewd candidate, in fact, might focus a spotlight on some of the political system's lousy rules—even if he exploits them for his own gain.

Rick Newman is the author of Rebounders: How Winners Pivot From Setback To Success, to be published in May. Follow him on Twitter: @rickjnewman