Campaign Debts – Who’s Responsible for Paying Them Off?

Filed in Delaware by on April 16, 2012

Many politicians rack up campaign debts, especially when running against well-healed opponents. Some even loan huge sums to their campaigns. My question is, when a candidate mortgages their home or empties their retirement account, possibly jeopardizing the financial future of their family, do they have an obligation to do everything they can to repay that debt? They cannot write it off their taxes as a bad debt, so what should they do?

I raise this point because there is a candidate for Insurance Commissioner who closed his previous political campaign with a $124K debt, all owed to himself. He has made no effort, from what I could tell, to repay this debt. Can we afford to have someone holding office who doesn’t pay his debts?

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A rabble-rousing bureaucrat living in Sussex County

Comments (40)

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  1. cassandra_m says:

    This was all his own money? Owed to himself only? Seriously?

  2. JPconnorjr says:

    The guy has a perfect right to waste his own money;)

  3. anon says:

    Candidates’ self-loans should really be called what they are, gifts. I mean, how can you really pay yourself back? Work overtime to transfer money from Checking Account A to Checking Account B?

  4. cassandra_m says:

    Lots of candidates do pay themselves back and, in fact, count on it. If you are efficient at fund-raising and spend your money wisely, whatever is leftover can be a downpayment on paying yourself back. If you WIN, then lots of people want to be your friend and you have other opportunities for fundraising. You pay yourself back from those funds.

  5. MJ says:

    And if you’re emptying a retirement account, then you’re liable for addition taxes on what you withdraw, adding even more of a financial burden to your family.

  6. JPconnorjr says:

    So if a guy is inefficient at fund raising why not just ignore him?

  7. cassandra_m says:

    adding even more of a financial burden to your family

    So I imagine this is his wife’s complaint. Am having a hard time figuring out why somebody blowing their own money on a campaign is an issue. Other than the fact that it was stupid, and he spent his entire campaign bitching about how Democrats were not showing him the money.

  8. George says:

    KWS mortgaged her house several times before the 2008 election and paid each of the loans off in full within 2 to 3 months of taking them out. It was all on the Newcastle Co. Recorder of Deeds website until not too long ago, when all those entries totally disappeared. The only thing left with her name on it on that site now is the state giving her a commission in February 2009. Now who could have deleted all these entries and how much were they paid for it?

  9. anon says:

    Oh, George. A typical anti-KWS blowhard … accusations and insinuations and ABSOLUTELY NO F’ING PROOF.

    BTW, why wasn’t the subject of the OP named?

  10. George says:

    @MJ: That candidate for IC is probably Harris McDowell’s plant for diluting the anti-KWS vote. If she’s reelected, I’m sure old Harris will show his gratitude for getting his cash cow back into office for ….let’s see now… $124K sounds about right for that.

  11. George says:

    anon: You pro-KWS groupies blow a lot harder than we ever could. You might as well STFU because no one takes you seriously.

  12. JPconnorjr says:

    Pandora I stand corrected . I saw 39th and Washington on a downstate blog. It was 29th and market not so close the the Carper Manse. My other point regarding racism remains.

  13. Valentine says:

    It’s really none of your business, MJ, and you have no legitimate point.

  14. MJ says:

    Actually, Valentine, it’s everyone’s business. Do we want elected officials putting their family’s financial welfare in jeopardy just to gain office? There’s a difference of a candidate like Rmoney who can self-finance and one who mortgages their future. And do we really want someone in office who doesn’t pay their debts?

  15. Valentine says:

    It is a debt to himself, according to your post, i.e. his money, his decision. It is most definitely not everyone’s business. And I do not think we want only the wealthy running for office.

  16. MJ says:

    That’s not what I wrote, Valentine, and you know it. Nice try though. Vanna will give you your parting gifts.

  17. jpconnorjr says:

    It is everybody’s business in the sense that it is a reported transaction. At it’s core it is a transaction involving one person. The public is bright enough to give it the weight it deserves.

  18. Valentine says:

    Really? “I raise this point because there is a candidate for Insurance Commissioner who closed his previous political campaign with a $124K debt, all owed to himself. He has made no effort, from what I could tell, to repay this debt.”

  19. cassandra_m says:

    Valentine has a point here. It is one thing to squander the money of contributors and quite another to squander your own. One is criminal and neither is especially smart (or indicative of the kind of traits one might want in a public servant). But it is *his * money, so it is hard to see what a public condemnation would achieve.

    There’s two good things here, though:

    1. Everyone who did not donate to his House run can breathe a sign of relief — your money wasn’t part of this fiscal meltdown.

    2. There isn’t much evidence of good custodianship of campaign funds, so Buyer Beware for those of you thinking of writing a check to this guy.

  20. Liberal Elite says:

    @c “But it is *his * money, so it is hard to see what a public condemnation would achieve.”

    But the loss is tax deductible, so, in a real sense, he’s squandering our money too.

  21. Valentine says:

    It’s hard to even know what to say to this bizarre line of argument — which seems particularly odd for a liberal site.

  22. cassandra_m says:

    If you write off loans to a personal campaign, is that tax deductible? It seems that Hillary had this issue some years back and I thought I read the she had to treat the write off as a campaign contribution, so not deductible. This is from memory, mind you, but i’d be surprised if it was deductible.

  23. Valentine says:

    Lots of things are tax deductible. It doesn’t make it everybody’s business.

  24. Liberal Elite says:

    @V “Lots of things are tax deductible. It doesn’t make it everybody’s business.”

    OK. How about this… I declare myself a candidate, loan my campaign $10,000. Then I use those funds to travel about and eat at some really fine restaurants. Ooops. Money all gone. I guess I didn’t win.

    But since I can’t pay myself back, I get to declare a $10,000 loss on my income tax!! Bad debt is tax deductible, ya know. Whooo Hooo!!!

    It’s like I got a 35% discount for all my travel and meals, and the taxpayers picked up the tab. Whatadeal…. (but it’s none of YOUR business to know).

  25. Liberal Elite says:

    OK. I just checked. Some bad campaign debt is tax deductible and some is not. It’s complicated.

  26. Valentine says:

    @LE – Is that really something we need to worry about? And are you actually a liberal because you sound like a Republican?

  27. cassandra_m says:

    Valentine, here’s a hint for you. Challenging liberal bona fides here is not exactly a winning tactic here. Either you have a point about the tax deductions or you don’t.

  28. Valentine says:

    OK, fair enough. I don’t think it makes sense to get worked up about counterfactuals that may never have happened or if they did are only a tiny fraction of percent of cases.

  29. John Manifold says:

    Campaign loans, contributions and expenses are not deductible.

  30. Liberal Elite says:

    @V “And are you actually a liberal because you sound like a Republican?”

    You’re kidding? Do you think liberals like giving $$$s to poor red states (who are totally ungrateful)? Do you think we like giving tax breaks to large corporations? Do you think we like people who exploit the system and prey on taxpayers?

    It’s the conservatives who are far more likely to turn a blind eye to corporate pork and other fiscal shenanigans. The only time conservatives seem to get into a tizzy about welfare is when race is involved (…dare I say the word?).

    How is it possible that conservatives still support an obvious tax cheat for the highest office in the land?? Can you really so easily look the other way?

  31. Valentine says:

    Well, as Cassandra pointed out, labels are not the issue. I was just thinking that, in my experience, it seems very characteristic of conservatives to make a huge deal out of a single anecdote of fraud or idiocy.

    In the example we are discussing, the person in question did not do what you are saying would be an outrage, and I have no idea if anyone ever has done what you say would be an outrage, but it’s hard to believe a person would want to. Obviously, I would never endorse the type of manipulation you condemn, but I don’t believe in getting worked up over counterfactuals.

  32. Liberal Elite says:

    @JM “Campaign loans … are not deductible.”

    That’s just not true.

    If a campaign orders 500 pizzas and doesn’t pay, the owner of the pizzeria can deduct losses. It all depends on the specifics of the situation. In other words, it’s complicated.

  33. cassandra_m says:

    The pizzeria has an uncollectible debt, which he can write off. That is not the same circumstance as lending yourself money for a campaign that you can’t get donors to pay down. Which is the circumstance we are talking about.

  34. Liberal Elite says:

    @c ” Which is the circumstance we are talking about.”

    But I’m quite certain that Mitt Romney’s accountants could turn one into the other.

  35. John Manifold says:

    Let’s stomp this out before it become suburban legend.

    If a campaign orders 500 pizzas and doesn’t pay, the owner of the pizzeria can deduct losses. … The pizzeria has an uncollectible debt, which he can write off.

    Actually, no and no. A creditor cannot “deduct” an unpaid receivable. It simply has no income.

    As for bad debts, no bad-debt deduction is allowed for the worthlessness of any debt owed by a political committee.

  36. Liberal Elite says:

    @JM “Let’s stomp this out before it become suburban legend.”

    I think you missed.

    http://articles.latimes.com/1994-03-13/business/fi-42174_1_mortgage-deductions
    “Certainly, there are circumstances under which campaign debts could be deductible. For example, if a business sold supplies to a campaign in an arm’s-length transaction and was not paid, the business would have a bad debt.”

  37. John Manifold says:

    The LA Times writer was wrong. See Section 271 of the Internal Revenue Code and the underlying regulations.

  38. Liberal Elite says:

    OK.. I looked.

    http://us-code.vlex.com/vid/sec-debts-owed-political-parties-etc-19209472
    “(c) Exception In the case of a taxpayer who uses an accrual method of accounting, subsection (a) shall not apply to a debt which accrued as a receivable on a bona fide sale of goods or services in the ordinary course of the taxpayer’s trade or business…”

    It seems the LA Times writer was correct.

  39. John Manifold says:

    The exception proves the rule. It means that if a merchant, which operates on the accrual method, had previously included the sales price as income, the merchant is entitled to a deduction when the unpaid invoice becomes uncollectible.

    In other words, when that business sells goods to a campaign, (1) it will report the sales price as income in the year the goods are sold, but (2) it can deduct the outstanding invoice as a bad debt in the year it becomes uncollectible.

    For cash-method taxpayers, of course, no deduction is allowed. The deduction is available to accrual method taxpayers to enable them to undo the phantom income they had to report earlier.

  40. Liberal Elite says:

    Yea. OK. (Note to self: Don’t believe everything you read in the LATimes.)

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