To a great extent, the fund-raising dynamics of an election cycle are a function of the larger political dynamics. With wide-open contests for both parties nominations, no incumbents at the top of the ballot, a slew of animated and high-profile candidates and an evenly divided electorate, voter enthusiasm is high on both sides of the aisle. But Democrats may have more reason to be excited. A shaky economy, record-low and declining approval ratings for the Republican President Bush, an unpopular war in Iraq and a seemingly imminent recession may make 2008 an especially difficult year for Republicans. Political scientists have shown that dollars raised are related to prospects for victory, which helps to explain why Democrats running for president across the board have been raking in the dough and helping to dismantle the fund-raising advantage Republicans have historically enjoyed. At the end of the third quarter of 2007, Democratic presidential contenders had raised more funds than Republicans by a 1.5-to-1 margin ($244 million to $175 million respectively).
The two leading Democrats, New York Senator Hillary Clintonthe first candidate ever to announce she would eschew public funds for both the primary and general election campaignsand Illinois Senator Barack Obama, have raised unprecedented sums. Clinton had collected nearly $91 million at the end of the third quarter, while Obama brought in over $80 million. The other Democrats also raised impressive amounts. Despite the uphill battle Republicans may be facing in 2008, Republican contenders also attracted considerable sums from donors (see tables).Where Does the Money Come From?
Donors contribute to political campaigns for many reasons. Some contributions are purposefully aimed to advance or support a policy agenda, while other donors enjoy the social benefits associated with giving: networking, name recognition and more.
Material motivesquid pro quo expectations to get something in returninduce at least some donors to give, but campaign finance laws are designed to prevent such impropriety. This is one reason why the Bipartisan Campaign Reform Act of 2002 outlawed so-called soft money. While the Watergate-era Federal Election Campaign Act placed strict limits and disclosure requirements on individual contributions (the maximum was $1,000 for the primary election and $1,000 for the general), a loophole in the law allowed the political parties, rather than the candidates, to raise soft money in virtually unlimited amounts for certain party-building activities, which frequently indirectly helped individual candidates. During several previous presidential campaigns, the amount of soft money skyrocketed. In 2000, for example, the Democratic National Committee raised $136.6 million in soft money contributions; the Republican National Committee raised $166.2 million in soft money in the same cycle. The B.C.R.A. was supposed to end the era of soft money, double individual contribution limits and index them to inflation.
Before long, however, new loopholes were found and exploited. The 2004 election included intense spending and activities by so-called 527 organizations (named after the applicable section of the I.R.S. tax code). These are groups created primarily to influence the nomination, election, appointment or defeat of candidates for public office. In the 2004 election, 527s raised and spent over $600 million. Typically, these groups spend most heavily during the general election campaign; and it is expected that barring any legislative or regulatory intervention, 527s will be active again in 2008.
Besides organized interest groups, individuals are finding ways within the constraints of the law to remain valuable to their candidates of choice. One of the more contentious issues surrounding the 2008 fund-raising cycle is the practice called bundling. The Wall Street Journal reported in 2007 that bundling, by which a single fund-raiser gathers up contributions for a candidate from employees, clients and acquaintances, has become the latest way for campaigns to raise big money. Ample evidence points to a bundling boom. Based on data through September 2007, a Wall Street Journal analysis concludes that there are nearly twice as many bundlers in the current election as there were in the 2004 cycle, a nearly tenfold increase since 2000. Bundled donations in 2007 accounted for 28.3 percent of total candidate intake, compared with 18.2 percent in 2004 and 7.7 percent in 2000. Nearly every major 2008 candidate has a bundling program.
Candidates are also relying much more on professional fund-raisers to fill their campaign coffers. An analysis by the Center for Responsive Politics reveals considerable growth in the outsourcing of campaign fund-raising. Campaign organizations hired about 800 fund-raising consultants to bring in $31 million in the first three quarters of 2007, up from about 260 such firms (and $12.3 million) for the same period in 2003. Republicans have out-outsourced Democrats by a wide margin, with Mitt Romney, the biggest outsourcer, tapping fund-raising consultants to bring in $3.1 million in the first three quarters of 2007. By contrast, Barack Obama and Hillary Clinton have outsourced $600,000 and $500,000 respectively in the same period.
Increased reliance on bundlers and outsourcing fund-raising may be legal, but they are not without risk, because donors are further removed from the campaigns and may not be properly vetted. Hillary Clinton, for example, was forced to return over $850,000 in cash to Norman Hsu, one of her major bundlers, when it became known that Hsu, a New York apparel giant, may have been involved in an illegal investment scheme.
On the plus side, B.C.R.A. changes as well as technological developments seem to be bringing more small donors (those who give less than $200) into the fray. The Campaign Finance Institute estimates that 21 percent of all contributions through the third quarter in 2007 came from small donorsmany of them making their contributions onlineup from 18 percent over the corresponding period in 2003. Small donors accounted for one-quarter or more of total intake (through the third quarter of 2007) for Obama, Edwards, Thompson, Paul, Huckabee, Tancredo, Kucinich, Hunter and Gravel. Over the complete period of the 2004 cycle, 31 percent of total Bush contributions came from small donors, 32 percent of Kerrys contributions and 61 percent of Deans.Has the System Changed?
Though the number of small donors has risen, presidential candidates continue to draw the lions share (two-thirds) of their individual contributions from donors of large amounts (over $1,000). And for the most part, campaign organizations appear to be finding ways to overcome the soft money ban. B.C.R.A. has actually done little to improve the system of presidential campaign finance.
The B.C.R.A. did not address the system of public financing for presidential campaigns that has been in place since 1976a system that is essentially defunct and may even be on the verge of collapse. Federal law enables eligible presidential candidates to accept public funding for their campaigns provided they adhere to strict state-by-state spending limits. Given the inordinate importance of low-population, early-contest states like Iowa and New Hampshire, candidates are reluctant to restrict their spending in these states, especially if their opponents are not doing so. In the 2000 election, George W. Bush announced he would forgo public funding in order to be exempted from state spending caps. By 2004, three main candidatesBush, Kerry and Deanrejected public financing for the same reasons, and in this election most candidates have also rejected public funds. In a historic and unprecedented announcement, Hillary Clinton declared she would even reject public financing in the general election campaign in order to be free of spending constraints.
Michael Malbin, director of the nonpartisan Campaign Finance Institute, has argued forcefully that this system is obsolete and is desperately in need of reform. An institute task force has proposed a number of reforms to preserve the public financing system, including raising the spending limit in nomination cycles, creating an escape hatch for public financing candidates who run against opponents who reject public money, changing the matching fund formula and raising the voluntary income tax checkoff to finance some of these changes. In its current form, the public financing system, originally intended to level the playing field in presidential elections, is not achieving this purpose. This fuels fears that the nominations, and even the election, will go to the highest bidder.The Good News
Yet there is always a silver lining. Regarding the impact of contributions on governing, political scientists have found little evidence of a true quid pro quo in which politicians deliver in return for donations. Elected representatives are constrained by vigorous ethics laws, and other factors (like constituency preferences, partisanship and ideology) are likely to be far more influential in a leaders decision-making caculations. Money may buy access to a politician, but it rarely guarantees outcomes.
There are also limits on how much success money can buy a candidate on the campaign trail. Consider the victory of Huckabee in Iowa despite the fact that his campaign was run on a shoestring budget. Experience from the 2004 cycle also suggests caution. Dean failed to capture the nomination despite being the year-end money leader.
As the eminent political scientist V. O. Key noted decades ago, voters are not fools. They realize that money is necessary to sustain a national dialogue about ideas and policy proposals. The one thing money buys for sure is a national conversation, a debate over candidates and policies, that is essential to the democratic process. The big bucks filling the 2008 presidential campaign coffers show that at least we have that.
UPDATE: Fourth-quarter Fundraising Results for 2007
The recently-released fourth quarter presidential fundraising totals  reveal candidates raised $582.5 million and spent $481.2 million, according to the Center for Responsive Politics. The figures are in line with the fundraising trends for the first three quarters of 2007.
On the Democratic side, amongst candidates still in the running for the nomination, Senator Hillary Clinton raised the most money in the final quarter of 2007, bringing in $26.6 million. Overall in 2007, Clinton raised an unprecedented $115.7 million. Senator Barack Obama raised $22.8 million in the fourth quarter, bringing his total intake for 2007 to $102.2 million.
Republicans also raised impressive sums during the fourth quarter. Former Massachusetts governor Mitt Romney led the field (in both the 4th quarter and overall for 2007). In fact, Romney beat out both Democratic contenders in the 4th quarter to raise $26.9 million, raising his cumulative intake for 2007 to $88.5 million, more than twice what the next-best fundraising candidate, John McCain, brought in during 2007. McCain raised $9.7 million in the final quarter, for a 2007 grand total of $41.1 million. Ron Paul, who trails far behind in polls, showed considerable fundraising prowess in the 4th quarter and overall for the year. Paul brought in $19.8 million in the last quarter and $28.1 million overall. Former Arkansas governor Mike Huckabee, who won the Iowa caucuses in January 2008, had his best fundraising quarter to date in the 4th quarter, raising $6.6 million of his overall 2007 total of $9 million.
Going into the 2008 contests, candidates are also spending heavily. Fourth-quarter reports showed Clinton and Obama have already spent $77.7 and $83.5 million respectively in 2007. Clinton ended the year with an advantage over Obama in terms of available funds; Clintons cash-on-hand at the end of 2007 was $38 million compared to only $18.6 million for Obama. Still, Obama continues to raise impressive amounts. The Obama campaign, perhaps capitalizing on victories in states like Iowa and South Carolina, reportedly raised over $32 million in January 2008 alone.
Mitt Romney had spent nearly all his money by the end of 2007 ($86.1 million) and was left with a cash-on-hand total of $2.4 million. McCain spent a total of $38.2 million and was left with $3 million at the end of 2007. Ron Paul had the upper hand in terms of available resources at the end of 2007, with $7.8 million on hand. Paul spent $20.3 million in the year. Mike Huckabee, who spent $7.1 million in 2007, had $1.9 million cash-on-hand at the end of the year.