Tim Keller, head of the Arizona chapter of the Institute for Justice, makes the following argument:
Direct government limits on expenditures are unconstitutional. Instead of a direct limit, Arizona created so-called “matching funds” to enforce the caps. The system’s drafters knew that many candidates like Martin would reject taxpayer funding on principle and simply opt out, freeing them of the government caps. That would give them an advantage over those who accept taxpayer funds and thus discourage participation in the scheme. So there had to be a way to punish those who opt out. “Matching funds” is the punishment: Whenever a privately financed candidate or an independent group outspends a taxpayer-funded candidate, the government steps up to the ATM (in this case, Arizona Taxpayers’ Money) and matches those expenditures dollar-for-dollar, up to two times the initial payout.In Arizona, candidates can either choose to be "clean elections" candidates receiving public funding, or not. If they choose public funding, they need to find a certain number of "grassroots" supporters to each make $5 donations (a number dependent upon the number of people in the district, or in the state, for statewide offices), and then they are eligible for matching funds for advertising if any non-"clean elections" candidates exceed the "clean elections" spending cap. Those funds come from money earmarked for the purpose by Arizona taxpayers when they file their state income tax returns--many people check the box that allows a $5 tax credit ($10 for married filing jointly) if the money is passed on to the clean elections fund.
“Matching funds” are how Arizona rewards those who take taxpayer money for politics and punishes those who refuse it—as well as private citizens or groups who want to support them. “Matching funds” are how Arizona reins in speech about politics.
Indeed, the dirty little secret of Arizona’s law is that it is designed to limit speech: Government controls the purse strings, so government decides how much speech is “enough.” But, in a free society, the government has no business micromanaging how citizens debate, of all things, who should run the government.
State-imposed limits, even indirect limits, on grassroots advocacy and campaigns for public office violate the free speech and association guarantees of the First Amendment. That is why Dean Martin, the Freedom Club PAC and Taxpayer Action Committee joined with the Institute for Justice to ask the federal courts to vindicate their First Amendment rights. The 9th U.S. Circuit Court of Appeals recently reinstated this lawsuit, originally filed in 2004 by IJ and Martin. Now we return to the trial court to argue the merits of the case.
Arizona’s election scheme, one of the most far-reaching in the nation, adds up to less speech from fewer voices resulting in a less robust public debate. If the Arizona model spreads, as so-called campaign finance “reformers” hope, our core rights as citizens to speak on political matters will give way to government control. But IJ is fighting back with a case that can set an important precedent against taxpayer-funded campaigns and in favor of unfettered First Amendment rights.
The IJ argument is that this violates the First Amendment because a non-"clean elections" candidate's speech is chilled by the fact that matching funds will go to any "clean elections" candidates running for the same office if they exceed the spending cap. There's nothing else preventing them from exceeding the spending cap--only the knowledge that their opponent will get comparable funding. I don't see how this constitutes any restriction at all on a candidate's freedom of speech. The fact that someone else will get funding to promote their speech if I spend money to promote mine doesn't impact my ability to speak at all. This isn't like the Fairness Doctrine where some media outlet is being compelled to give equal time for opposing views, rather it's that taxpayers who have given money to clean elections are providing funding for such candidates to speak with a comparably loud voice to their opponents funded by special interests.
This is not to say there aren't good arguments against the clean elections law. I think one good argument against it is that it has been used by social conservatives to get fringe candidates elected to office. Another is that it makes complicated and seemingly arbitrary rules (PDF) about how a candidate can spend money, and involved the creation of a new bureaucracy, the Citizens Clean Elections Committee. It also used to (until successfully overturned by a previous lawsuit) involve compelled funding of speech, when it was funded by parking fines.
IJ has argued (rightly, in my opinion) that a tax credit for donations to school choice organizations doesn't constitute a violation of the First Amendment if it goes to religious schools, since it's an individual taxpayer choosing to give their own money to a religious organization, not the government passing money along. I agree with Sam Coppersmith that similar reasoning should apply to the clean elections tax credit.
UPDATE (February 7, 2008): Tim Keller has sent me a copy of the decision in Day v. Holohan, the case that overturned clean elections in Minnesota, as well as informing me that contrary to what I say above, 2/3 of Arizona's clean elections funding still comes from surcharges on civil and criminal fines--which I agree amounts to compelled speech for parking and traffic violators. I was under the (apparently mistaken) impression that that source of funding had already been eliminated.
Tim also points out that, contrary to Sam Coppersmith, the clean elections tax credit doesn't quite work the same way as the school tuition credit. When a taxpayer checks the box for a $5 donation to the clean elections fund, $5 goes as a tax credit to the taxpayer and another $5 goes to the clean elections fund, so the general fund really is out $5 ($10 if you count the taxpayer being allowed to keep $5 of his own money to be a taking from the government, which I don't). The school tuition credit, by contrast, involves the taxpayer making a donation (up to $1,000 for a married couple filing jointly) directly to a school tuition organization which then counts as a tax credit on the return. No money at all goes from the treasury to the school, though it gets the amount of the donation less in taxes paid. With the clean elections credit, the state is out the money it has to pay to clean elections AND it doesn't get the money from the taxpayer, while with the school tuition organization tax credit, the state is only out the money it doesn't get from the taxpayer. Tim says that if clean elections was funded the same way, IJ wouldn't be suing.
UPDATE (September 3, 2008): The Institute for Justice argument prevailed in court. Last Friday Judge Roslyn Silver ruled that the matching funds provision of the Clean Elections Act violates the First Amendment, following the Supreme Court case of Davis v. FEC. There will be a hearing today to determine what the implications are--whether matching funds will continue to be provided to candidates in this November's general election or not. IJ has asked for an injunction against matching funds.
UPDATE (June 27, 2011): The U.S. Supreme Court has sided with the Institute for Justice on this (PDF), in a 5-4 decision. The dissenting argument makes some of the same points I do above, and I still have to agree that it's a better argument. As the dissent puts it:
the program does not discriminate against any candidate or point of view, and it does not restrict any person's ability to speak. In fact, by providing resources to many candidates, the program creates more speech and thereby broadens public debate. ...
At every turn, the majority tries to convey the impression that Arizona's matching fund statute is of a piece with laws prohibiting electoral speech. The majority invokes the language of "limits," "bar[s]," and "restraints." ... It equates the law to a "restrictio[n] on the amount of money a person or group can spend on political communication during a campaign." ...
There is just one problem. Arizona's matching funds provision does not restrict, but instead subsidizes, speech. The law "impose[s] no ceiling on [speech] and do[es] not prevent anyone from speaking." ... The statute does not tell candidates or their supporters how much money they can spend to convey their message, when they can spend it, or what they can spend it on. ...
In the usual First Amendment subsidy case, a person complains that the government declined to finance his speech, while financing someone else's; we must then decide whether the government differentiated between these speakers on a prohibited basis--because it preferred one speaker's ideas to another's. ... But the speakers bringing this case do not make that claim--because they were never denied a subsidy. ... Petitioners have refused that assistance. So they are making a novel argument: that Arizona violated their First Amendment rights by disbursing funds to other speakers even though they could have received (but chose to spurn) the same financial assistance. Some people might call that chutzpah.
Indeed, what petitioners demand is essentially a right to quash others' speech through the prohibition of a (universally available) subsidy program. Petitioners are able to convey their ideas without public financing--and they would prefer the field to themselves, so that they can speak free from response. To attain that goal, they ask this court to prevent Arizona from funding electoral speech--even though that assistance is offered to every state candidate, on the same (entirely unobjectionable) basis. And this court gladly obliges.