US Federal Political Candidate Self-Loaning Behavior: Non-Market Interest Rates, Tax, and Campaign Finance Law Implications
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- Author:
- Setzenfand, Ryan
- Area of Honors:
- Accounting
- Degree:
- Bachelor of Science
- Document Type:
- Thesis
- Thesis Supervisors:
- Robert Hills, Thesis Supervisor
Samuel Burton Bonsall, IV, Thesis Honors Advisor - Keywords:
- Campaign loan
Campaign finance
Interest rates
Candidate
Applicable Federal Rate
Ted Cruz for Senate
et al.
v. Federal Election Commission
Supreme Court
President
Congress
Tax
Ethics and Compliance
Regression
Below-Market Loans
Above-Market Loans
Non-Market Loans
IRS
Bipartisan Campaign Reform Act of 2002
Politician Campaign Loan Paradox
Credit card
Personal loan - Abstract:
- This thesis explores the self-loaning behavior of federal political candidates, specifically investigating the interest rates on loans made by political candidates to their campaigns and whether the rates are at a market rate of interest. Additionally, I analyze whether personal loans from candidates differ, in terms of interest rates, from loans by financial institutions; and investigate available candidate tax returns to determine whether candidates charging interest below the Applicable Federal Rate are paying an imputed interest charge as a result. Loans to political campaigns have received increased attention following Senator Ted Cruz’s challenge to the constitutionality of the $250,000 limit on post-election repayment of loans that is contained in the Bipartisan Campaign Reform Act (BCRA). I find that the incidence of loans over $250,000 increased because of Ted Cruz’s challenge to the BCRA following the Supreme Court’s decision. In addition to BCRA, there are campaign finance laws that restrict campaign contributions to non-personal use (52 USC 30114), and tax laws that recharacterize transactions when loans involve non-market interest rates (26 USC 482 and 26 USC 7872). My analysis further finds evidence that more than 90% of campaign loans have below-market interest rates, the applicable federal rate (AFR) is not a strong predictor of the interest rate on personally or financial institutionally financed candidate loans, and candidates may not be imputing interest from below-market loans nor reporting campaign loan interest in their personal tax returns. Candidates for office need to be aware of both tax laws and campaign finance laws that may impact loans made to their campaigns, and tax return preparers with political clients need to be aware of any loans made to campaigns to ensure appropriate tax treatment for their client’s tax returns. Ultimately, greater clarity around compliance by regulatory authorities may be warranted.