The Catholic University of America

CUA Law Professor Roger Colinvaux wrote a The Chronicle of Philanthropy op-ed entitled "The House Tax Bill Could Be the End of Charities as We Know Them" on November 16, 2017.  See below
 

The House Tax Bill Could Be the End of Charities as We Know Them


From: The Chronicle of Philanthropy
Date: November 16, 2017
By: Roger Colinvaux

If the tax bill passed by the House Ways and Means Committee becomes law, partisan politics would overtake the nonprofit world, casting institutions designed to promote the public good into the depraved den of identity politics and selfish motives. Charities would use tax-subsidized contributions to favor or oppose political candidates at the behest of wealthy, anonymous donors with devastating results for charities and democracy.

This is a seismic moment for the conduct of politics in America. The House bill must be changed.

Since 1954, charities have been barred from getting involved in political campaigns by a rule known as the "Johnson Amendment." It takes that name from Lyndon Johnson, who (for selfish reasons) got the rule enacted, but only after decades of debate on the issue.

Donald Trump vowed to destroy this rule at the behest of some evangelical churches that want to endorse candidates from the pulpit. Nonprofit advocacy groups responded forcefully, arguing that repeal would open the door for charities to become conduits for millions of dollars of tax-deductible dark-money political contributions, paving the way for the "charity PAC." This would occur because if the Johnson Amendment’s prohibition on politicking is removed, a charity — and only a charity — would give political donors secrecy and a lucrative tax deduction for their political speech.

Perhaps getting the message, House Republicans now propose to relax, not repeal, the Johnson Amendment. The bill just passed by the Ways and Means Committee would let charities make political-campaign statements, but only in the "ordinary course" of their regular activities and only if the cost of the speech is not more than a small, incremental expense." According to the sponsors of this compromise, these limits ensure that "the organization’s primary function remains charitable or religious in nature." Thus, the sponsors believe, there would be no risk that charities would become PACs or that taxpayers would subsidize political campaigns through charitable contributions.

Misguided Assumptions

Unfortunately, these hopeful assertions are misguided. Consider the stricture that a charity may not spend more than "de minimis incremental expenses" on campaign statements. The intent apparently is to limit significant spending on campaign activities. But endorsements, political statements on websites, or those made as part of any media presentation or fundraising letter are cheap.

The bill would not prevent, for example, a health-care organization from saying in its mass mailings: "Help us in our fight against cancer. Vote for Bob Smith." This additional statement costs virtually nothing. And the "ordinary course" limit would not be a bar.

What is ordinary and regular for a charity is whatever a charity does. Fundraising and communicating with the public about mission would certainly qualify. Political statements could become a routine part of virtually any communication by a charity.

And even though endorsements are of low or no cost to the organization, the value of the endorsement to the candidate or donors could be extremely high. Donors would undoubtedly be willing to pay thousands of dollars for routine endorsements from important charities. There would be no way to know whether a donor was paying for charity or for politics, and, in truth, for many groups, there would cease to be a difference.

Phony Contributions

The Johnson Amendment protects charities from political pressure applied by donors and from partisan capture. Without it, charities, which are always in the fundraising business, could be bought for political purposes. The result would be taxpayer subsidies of phony charitable contributions made for political reasons, something the sponsors of this measure say they want to avoid.

Further, it is common to assume that charities have a noble intent. But charities are easy to create and can serve a particular (and ugly) agenda under the guise of being educational. Under the House bill, for example, an educational organization with a goal of promoting white supremacy through scholarly works might attract large donations, write policy papers, and then attach political statements at no extra cost. The allowable balance of educational and political statements to retain 501(c)(3) status would be an open question, and probably unenforceable without very detailed IRS guidance.

And it is not just fringe groups. More mainstream political organizations would form as charities, develop a plausible amount of "social welfare" charitable activity, and then conduct political activity at no extra incremental cost. This is what happened in the wake of the Citizens United decision when political-leaning groups formed as 501(c)(4) organizations to avoid disclosing donors. (Karl Rove’s Crossroads GPS is perhaps the best-known example.) The problem would be worse with charities because of the lure of a charitable deduction for political speech.

In short, once nonprofits are permitted to take partisan stances, there is no realistic limit. Ironically, the only hope for a limit would lie with the IRS, which could attempt to shape the law and come down hard on abusers with aggressive enforcement. But IRS regulation of political activity is precisely the fear that Republicans cite as chilling and what they say they want to avoid in the first place. Further, as recent history has shown, when the IRS attempts to regulate political speech, it does not go well for the agency or the country. The political reality is that the underfunded IRS would not seriously attempt to enforce these already weak limits, especially in the face of a hostile Congress.

More Power to the Rich

All these problems would be magnified by another provision in the House bill that limits the charitable deduction to the wealthiest 5 percent of taxpayers. If this provision were combined with relaxing the Johnson Amendment, the result would be a massive subsidy for the political contributions of only the very richest in society — a patently unfair result that would further skew political discourse to those at the top of the income spectrum and drown out the voices of everyone else.

The Johnson Amendment has served the nonprofit world and American society well. Fortunately, the Senate bill introduced last week does not change the Johnson Amendment, so there is still a chance to defeat this measure. It is urgent that Congress be persuaded to leave the Johnson Amendment alone and protect the longstanding independence of charitable organizations and the integrity of the democratic process.


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Roger Colinvaux  

Professor Roger Colinvaux's
Areas of Expertise

Tax-Exempt Organizations

Charitable Deduction

Political Activities of Nonprofits

For additional information about our professors' areas of speciality, see Professor Colinvaux's faculty page.