The Small Donor Fallacy

Will he or won't he? Barack Obama is hedging on an earlier commitment to limit himself to public funding in the post-convention campaign should he become the nominee. Pressed on it in the Cleveland debate with Hillary Clinton, for example, he promised only to "sit down with John McCain and make sure that we have a system that is fair for both sides."

This should come as no surprise. As of January 31 Obama had already raised $134 million for his primary campaign, compared to McCain's $55 million. He naturally wants to opt out of the $85 million public funding for the general elections, because he can do better fundraising on his own.

McCain might be happy with that $85 million, but he has a different public financing dilemma. As part of the terms for his famous last-ditch personal loan before the New Hampshire primary this summer, he declared himself eligible for a different public program that provides matching funds but caps a candidate's spending at $51 million for the primaries.

McCain already spent $47 billion by the end of January. If held to the terms of the loan and locked into this program, he has probably exceeded that cap, leaving him unable to spend any more until after the convention -- an effective gag order. The FEC hasn't yet accepted McCain's request to opt out of the program; it must vote on the question but currently lacks a quorum of commissioners. With Bush appointees to vacant FEC seats stalled in Congress, it is not clear it will get one. Unless and until it does, McCain's opt-out request remains in limbo.

It's a sign of the times that private fundraising so dwarfs the public finance limits that these public financing pledges have come back to haunt both candidates. But whether they eventually opt out of public funds or not, the larger point is that the damage from today's staggering private fundraising has already been done, because Obama, McCain and Clinton are already so deeply indebted to special interest donors.

Consider how little all three major candidates have to say about the economy, especially about the financial sector's role in the current downturn. Individual Wall Street donors represent their single largest source of campaign cash, and the single largest disincentive for them to embrace needed economic reforms those donors oppose.

The Center for Responsive Politics (CRP) reports individuals employed in the "Finance, Insurance and Real Estate" sector contributed over $16 million to Clinton's primary campaign, over $12 million to Obama's, and $6.5 million to McCain's. Actually, the contributions from this sector could be said to be even higher, since "Lawyers and Lobbyists" gave over $14 million to Clinton, almost $10 million to Obama and $3 million to McCain, and some of those lawyers and lobbyists presumably represent the financial sector.

As CRP Executive Director Sheila Krumholz put it, "no matter who becomes our next president, Wall Street will have an indebted friend in the White House." This is a hard fact, all the soft data about Obama's small donors notwithstanding. Since donations of less than $200 need not be itemized or reported to the Federal Election Commission, we rely on the campaigns themselves for data about them, which are easily exaggerated.

For example, Obama said in the Cleveland debate that "we have now raised 90 percent of our donations from small donors, $25, $50...." But the Obama campaign itself released figures showing January 1, 2007 and January 31, 2008, contributions of $200 or less were only 36% of his primary election receipts. Small donors became important only late in Obama's campaign: they comprised 22% his fundraising in the first quarter of 2007, compared to 46% in January 2008.

This underscores how much Obama depended on a relatively small number of large donors in the early days when he was not well known. Those large donors -- chief among them donors in the finance sector -- were there when he needed them most. They already have and will continue to influence him heavily -- all the more so if he and McCain opt out of public financing.

The fact is, small donors are not rescuing candidates from such corrosive influences -- on the contrary. The only way to escape them would be to fund a viable program for opting out of private financing.

Our current public finance system is hardly that. It remains stuck at 1976 funding levels. Until it catches up to political reality, it amounts to little more than a fig leaf for the obscene amount of special interest money that increasingly distorts our politics.

Jay Mandle is the author of Democracy, America, and the Age of Globalization