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Obama’s Fundraising Success May Herald a Whole New Model

Sen. Barack Obama (D-Ill.) has created the potential for a new model of campaign financing, and a new (or at least altered) approach to campaign finance reform. I am not referring to his decision to opt out of the public funding system, for which he has taken serious flak from Sen. John McCain (R-Ariz.), major newspaper editorial pages, many columnists and a slew of reformers. I mean in his incredible ability to craft a wholly new funding system that has already raised almost $300 million for the nominating process from approximately 1.7 million individual donors.

[IMGCAP(1)]It is that awesome fundraising machine that gave him the impetus to drop out of the public funding system. No one should be surprised at that decision — I said many weeks ago that I would be disappointed if he eschewed the public funding, but that I might join in suing him for political malpractice if he took it. On the one hand, he would get $84.1 million from the taxpayers; on the other, he could balance the criticism and charges of hypocrisy with the $300 million he could raise (and spend unfettered) by funding on his own.

That is an aside. Obama has managed to build on the initial steps that Howard Dean took in pioneering Internet fundraising four years ago, moving to an unbelievable new level. Through a sophisticated effort relying on pinpoint Google ads, links to just the right Web sites, a sweeping effort to build a list of millions of e-mail addresses, and an e-mail appeal designed to create a large community of participants in a movement, not simply as a blunt instrument to raise money, Obama has transformed political fundraising.

It is not just that he has built this veritable army of contributors, most of whom will follow with him through the fall campaign and beyond, if he is able to win the White House. Having this base of small donors through a process that is incredibly inexpensive to run, with fundraising costs that are 5 to 10 cents on the dollar (compared with 95 cents for direct mail), frees Obama from the punishing, time-consuming burden of attending scores of fundraisers and making thousands of phone calls to potential donors. (Of course, Obama is not at the same time ignoring the $2,300 donors and bundlers, which may create more flak for him through the rest of the campaign. But he will certainly spend much less of his own time courting donors than will McCain.)

His remarkable fundraising prowess will also enable him to pursue a bold strategy for governing through campaigning. Obama may have enough money to put substantial resources into advertising, get-out-the-vote efforts, and staff in all 50 states, which will do more than complicate McCain’s strategic allocation decisions. It means that Obama can help elect state and local candidates, and Members of Congress, in states that he cannot possibly win, building gratitude and chits that will help immeasurably if he is in the White House. It is an extension of Dean’s much-vilified 50-state strategy, but that is the right way to go to build a long-term majority base.

Obama is perhaps unique in his capacity in this area, compared to other presidential candidates. And certainly his model will not be available to most Members of Congress or their challengers. But his effort and success make a model of campaign funding based on encouragement of small donors a much more appealing avenue.

Ever since Congress unfortunately repealed the tax credit for small contributions to federal campaigns in 1986, I have been agitating for ways to encourage small donors to give and to encourage candidates to focus on raising money from them. Most candidates would love to have more small donors, but in the past the incentive to find and woo them was simply lacking. I had countless conversations with Members who would say that they used to employ barbeques for $10 or $25 a head, generating enthusiasm and volunteers. But doing so moved from being revenue-neutral — with the costs of sending invitations, getting the venue, and paying for the food, drink and servers balanced by the take from the donors — to being a net drain, so the efforts dwindled.

Now, we have new potential to expand greatly the number of small donors (they have actually gone up sharply since campaign reform was enacted) and to make them a much larger share of candidates’ funding. Step one is to create a serious tax credit — 100 percent for a contribution of $100 or less. Step two is to implement some variation of matching funds for candidates who demonstrate a capacity to raise serious sums from small donors, who get over a threshold of resources from such contributions. This idea was embraced by the business-oriented Committee for Economic Development a few years ago.

The more we can tilt the system toward small donors, the less lawmakers will be tempted to shake down lobbyists and big donors, and the less leverage special interests will have to threaten lawmakers (or presidents) who attempt to take away their special privileges. The more the system relies on small donors, the more confidence voters will have that the system is not rigged — and the more voters will have some stake in the system.

Imagine if a President Obama — who might by that point have 3 million individual donors, who made an average contribution of $100, all still getting regular communications from the president — decides to raise the tax rates for hedge fund and other investment officials to that of other taxpayers, and they make clear that the sizable sums they have contributed to the Democratic Party and to him will suffer as a consequence. He can turn to his new army to make up the difference, and diminish their ability to block the tax change.

No reform is a panacea or a miracle worker, or without unintended consequences. Many candidates would be tempted to tailor their small-donor appeals not to the majority in the center but to the ideological extremes, where many of the Internet activists currently reside. But it is still worth thinking about moving to the next step, crafting a system of incentives that can truly change the base of campaign funding away from a small number of big donors and bundlers to a large number of rank-and-file voters.

Norman Ornstein is a resident scholar at the American Enterprise Institute.

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