Obama warns of 'anything goes' campaign finance system

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"There aren't a lot of functioning democracies around the world that work this way, where you can basically have millionaires and billionaires bankrolling whoever they want, however they want, in some cases undisclosed, and what it means is, ordinary Americans are shut out of the process," Obama said.

The court heard arguments Tuesday on a case examining Watergate-era restrictions on donations to individual candidates and political parties. Under current rules, wealthy donors are barred from giving more than $48,600 total to members of Congress and $74,600 to party committees.

But in the aftermath of the Citizens United ruling three years ago, restrictions were lifted on donations to political action committees, which could then spend the cash on election ads after the Supreme Court ruled that political spending was an expression of free speech. Those super-PACs are barred by federal law from coordinating directly with candidates but are free to advertise in support of or opposition to specific candidates.

If the Supreme Court again ruled to loosen campaign finance rules, individuals could give $3.6 million to be spread among congressional candidates and party committees.

The president said that, ideally, politicians should "bind ourselves to some rules that say, the people who vote for us should be more important than somebody who's spending $1 million, $10 million, or $100 million to help us get elected."

He acknowledged that his reelection campaign required raising immense amounts of cash, admitting that "there's nobody who operates in politics that has perfectly clean hands on this issue."

Obama also said that the gridlock currently gripping the nation's capital could be partially attributed to polarization resulting from an influx of campaign cash.

"You have some ideological extremist who has a big bankroll, and they can entirely skew our politics," Obama said.

 "And there are a whole bunch of members of Congress right now who privately will tell you, I know, our positions are unreasonable, but we're scared that if we don't go along with the Tea Party agenda or some particularly extremist agenda, that we'll be challenged from the right."

At the hearing Tuesday, conservative justices seemed to dismiss the Justice Department's concerns about the risk of corruption.

“What I see are wild hypotheticals,” Justice Samuel Alito said.

But the court's liberals proved more sympathetic.

“If you give $3.5 million, you get a very, very special seat at the table,” Justice Elena Kagan said.

— Sam Baker contributed.