As the first candidate to achieve a majority of delegates in the Democratic primaries for president and raise unparalleled amounts of money, Sen. Barack Obama–if he secures the Democratic presidential nomination in August–may soon face the question of whether he’ll accept public financing.
Since 1976, Republican and Democratic presidential nominees have accepted public financing for the general election, which comes from the $3 voluntary check-off on federal income tax returns. The money is distributed to party nominees as a federal grant of $20 million plus a cost-of-living adjustment against 1976 costs. The nominees are limited to spending only that money, which this year is set to be about $84.1 million per candidate.
“Since the public funding system has been in place no candidate has rejected public funding for the general election,” says Michael Malbin, founder and the executive director of the Campaign Finance Institute.
In February 2007, soon after he first announced his candidacy, Obama asked the Federal Election Commission if a “presidential candidate may solicit and receive private contributions for the general election while retaining the option of refunding the contributions and receiving public funds for the general election if he receives his party’s nomination.” The FEC said a candidate could take that option. In response to a questionnaire issued by the Midwest Democracy Network in September 2007, Obama indicated that if the Republican nominee accepted public funding, then he also would be willing to do the same. Some saw his actions and statements as evidence of his intent to use public funds.
Since then, Sen. John McCain, the presumptive Republican nominee, committed to accepting public funds for the election and also refunded contributions that had been made to his general election fund in the amount of $3 million. Obama has stated that since he is not the Democratic nominee, it is too soon to commit to public funding.
Although Sen. Hillary Clinton’s fundraising hasn’t matched Obama’s, she has raised more than McCain and more than most other presidential candidates in prior years during the primary. Additionally, she never gave any intentions that she would opt-in. “I think she will definitely opt-out,” says Amy Kauffman, senior fellow at the Hudson Institute, a nonpartisan public policy organization. “She knows that she would be able to raise far more money on her own and her best chance is always to overcome her opponent with more money.” Nevertheless, her campaign is carrying about $19 million of debt in the primaries.
“It would be unprecedented if one or both of the candidates decided not to take the public grant,” says Kenneth Doyle, senior editor of BNA Money & Politics Report.
If Obama and McCain accept public funding, they won’t be allowed to raise any more money for their campaigns and Obama will also have to refund money he raised for the general election. Both candidates will be able to raise funds for their national parties but they are prohibited from coordinating with those parties on how the money should be spent.
“Barack Obama could probably raise three times the amount of what he would be given [in public funds],” Kauffman says.
With 1.5 million donors, the Illinois senator has also reversed the status quo on types of donations given and the method in which it is given to the Democratic nominee. “The people who this candidate appeals to are the people who are more likely to use the internet and be more comfortable with donating online,” Doyle says.
“He’s raising money at a historic pace. In the last month, 65% of his funds were donated in amounts of $200 or less and 16% in amounts of $1000 or more,” says Malbin, of the Campaign Finance Institute. “For McCain the amounts are reversed. Sixty-four percent of donations in the month of April came in amounts of $1000 or more, and McCain received 24% of donations in amounts of $200 or less.”
Recently, Obama has trumpeted his fundraising efforts as perhaps a parallel initiative to the public funding system. The MDN reported that at a Washington fundraiser Obama argued that his campaign has demonstrated how the American people can support a candidate and “will have as much access and influence over the course and direction of our campaign that has traditionally [been] reserved for the wealthy and the powerful.”
“It is not quite the equivalent, but it is mass-based support,” says Malbin. “McCain’s donor profile looks normal. Sen. Obama’s is highly unusual. If he opts out he will argue that he is not beholden to large donors.”
When it comes to fundraising, Arizona’s McCain is at a clear disadvantage compared with Obama and Clinton and some say he needs the public funding more than they do. The word on the street is that the Republican National Committee is going to raise a whole lot of money for McCain, much more than what he would have been able to raise himself.
In fact, the RNC has a very significant lead on the Democratic National Committee. Some believe that because the Democratic primaries are running into overtime it has put a crunch on party fundraising. In the past, when there is a clear frontrunner for the nomination, fundraising typically surges. When Sen. John Kerry was the clear presumptive Democratic nominee in 2004, the DNC raised $19 million in April. This April, the DNC raised $4.7 million ($22.4 million year-to-date), while the RNC raised $15.7 million ($52.2 million year-to-date).
“The parties do get involved,” Kauffman says. “The question is which party is going to be able to raise more money.”
Obama may opt out of public funding because raising money for his campaign might allow him to collect more money and will give him more control over the message that he wants to advertise. Otherwise, if the Democratic Party raises money on his behalf, he is not allowed by law to coordinate with them on advertising.
“Some Democratic Party professionals that worked on the Democratic 2004 campaign were sorry that Sen. Kerry did not opt out,” Malbin says. “They thought the independent advertising sponsored by the party committee was not helpful to Sen. Kerry. The party spent $120 million in advertising in 2004. More than 90% of that was for attack ads,” he adds. “It was a basic clash of strategies that was not helpful to the candidate. That is an example of how relying on independent spending might be a problem for the candidate. That is one of the factors that Sen. Obama [and his campaign] are weighing as they consider this decision. “On the other side, $85 million dollars is a lot to throw away.”
The 2004 election cycle was the first in which national parties have been prohibited from receiving “soft money”–or funds spent by organizations that aren’t contributed directly to a campaign–as a result of the 2002 Bipartisan Campaign Reform Act (BCRA), which was coauthored by McCain. The law was to restrain the direct relationships between office holders and major donors, increase disclosure, and make things more accountable.
All political committees file under section 527 in the tax code. There are some organizations that claim tax exempt status under section 527, but don’t register with the Federal Elections
Committee as a political committee. They are known as 527 or “loophole” organizations, and since they aren’t subject to contribution limits or reporting like political action commitees (PACs), the money donated to 527s is considered “soft money.” By law, these groups are supposed to be independent of the parties and candidates and should only use their money for “issue advocacy.” They are expressly prohibited from advocating the election or defeat of a federal candidate, or in electioneering communications, but the FEC charged many of them fines for interfering in the 2004 election.PACs can only solicit contributions from individuals associated with connected or sponsoring organizations, which are usually corporations, labor unions or other established membership organizations. Money contributed by PACs is considered “hard money” because donations to them must be reported and limited to specific contribution limits. This year, Clinton has raised $1.3 million from political committees, while McCain raised about $516,000 and Obama has raised about $8,000.
“PACS are limited to $5000 per year per contributor. The 527 groups claim to be exempt from the regulations limiting PACs and thus can go out and raise money from millionaire donors,” Doyle says.
Some political insiders say that McCain had to accept the public funding or risk looking like a hypocrite. McCain has already received a substantial amount of media criticism regarding lobbyists that work on his staff.
Despite the legislation, people who want to donate above the individual limit of $2,300 usually find a loophole, BNA’s Doyle says. In 2007, many 527 political action committees, several of which supported the 2004 Democratic nominee Kerry, were penalized and fined millions of dollars for participating in campaign activities, accepting contributions and making expenditures in excess of $1,000, and not registering as a federal political committee.