Obama rejects public financing against McCain

WASHINGTON (Reuters) - Democrat Barack Obama said on Thursday he would reject public financing of his campaign against Republican John McCain, reversing an earlier stance and positioning himself to outspend McCain in the White House race.

Obama said in a video message to supporters he would refuse $84 million in public funds available for the November general election. He is the first U.S. presidential candidate to bypass the system since it was created after the Watergate scandal in the mid-1970s.

The move drew immediate condemnation from McCain, who countered by announcing he would take the public funds -- hours after saying he would reevaluate his stance in light of Obama's decision.

If Obama had taken public financing, he would have been barred from taking additional donations and limited to spending $84 million in the two months between the Democratic convention and the November 4 election.

The move was widely expected given Obama's record-smashing fundraising in a presidential campaign that will be the most expensive in U.S. history. The Illinois senator, said last year he would take general election public funds if his Republican opponent did the same.

"It's not an easy decision, and especially because I support a robust system of public financing of elections," Obama said in a video message e-mailed to supporters.

"But the public financing of presidential elections as it exists today is broken and we face opponents who've become masters at gaming this broken system," he said.

McCain, who led efforts to overhaul campaign finance laws and has supported public financing, said he would stay in the system and limit himself to spending the $84 million in public funds after the Republican convention ends on September 4.

"We will take public financing," he told reporters in Minnesota. Asked what his thinking was, he replied: "Because we decided to take public financing."

Earlier, he told reporters he was not worried about being outspent. He said Obama's decision to opt out of the system was disturbing but was one of "a number of reversals" by Obama during the campaign.

ISSUE OF TRUST

"This election is about a lot of things but it's also about trust. It's also about whether you can take people's word," McCain told reporters during a trip to Iowa to view flood damage. "He said he would stick to his agreement. He didn't."

Obama had said for months he would talk to McCain about an arrangement on financing, but his campaign said a meeting between lawyers indicated there was no basis for further discussions.

McCain lawyer Trevor Potter said there were no negotiations on the issue with the Obama camp.

Obama built a formidable grass-roots financial machine during his primary battle against Sen. Hillary Clinton of New York, raising more than $265 million from more than 1.5 million donors, many of whom gave in small increments.

McCain raised $96 million so far during the primary season. But his fundraising has quickened in recent months, and his campaign will be aided by the Republican National Committee, which has raised far more than its Democratic counterpart.

Obama said his decision would limit the influence of special interests and force him to rely on his grass-roots army of donors.

By contrast, he said, McCain and the Republican National Committee were fueled by contributions from Washington lobbyists and unlimited spending by special interest groups.

"Instead of forcing us to rely on millions from Washington lobbyists and special interest PACs, you've fueled this campaign with donations of $5, $10, $20, whatever you can afford," Obama said in the video message.

McCain's campaign said Obama's decision had tarnished his image as a reformer.

"Today, Barack Obama has revealed himself to be just another typical politician who will do and say whatever is most expedient for Barack Obama," McCain spokeswoman Jill Hazelbaker said in a statement.

The public funds are paid for by taxpayers who check off a box on their tax returns allowing a $3 contribution to the fund, and Obama's decision raised questions about the future of the system.

(Additional reporting by Andy Sullivan and Deborah Charles; Editing by David Alexander)

(For more about the U.S. political campaign, visit Reuters "Tales from the Trail: 2008" online at blogs.reuters.com/trail08/)