April 27, 2017
Calls for tax reform by the White House, Congress, and others have led to proposals that would have a direct and profound impact on nonprofit organizations and philanthropy. Of those proposals, one from the House Republicans calls for eliminating the tax deduction for charitable donations, one floated by the White House would eliminate an incentive for charitable bequests, and another from a coalition of nonprofit organizations would expand the deduction to more taxpayers. The three proposals couldn't be more different.
But while charities and donors are scrambling to preserve (or expand) their tax advantages, there are other worrisome proposals floating around. Most significantly, President Trump and the Republican leadership on Capitol Hill want to change the tax code to allow charities to engage in partisan electoral activity — while, at the other extreme, some want to disallow tax deductions for support of nonprofit advocacy and policy work.
Certainly, one can understand why most tax-exempt organizations would fight to protect the tax incentives for charitable contributions that support their work, but such efforts raise questions about whether charities and donors are worried more about their own self-interest than the public good.
Nonprofits' efforts to preserve and extend the charitable deduction would be less suspect were the organizations fighting for those policies as engaged in the debates over other government tax, budget, and policy initiatives — debates that profoundly threaten many of the causes and constituencies they exist to serve. When nonprofit and foundation leaders are missing from such debates, it becomes easier to impugn their motives for trying to preserve their own tax advantages. Protecting the charitable deduction is not an adequate surrogate for broader action.
Against this backdrop, the president's pledge to "totally destroy" the so-called Johnson Amendment prohibition on charities' involvement in partisan electoral campaigns needs to be addressed (as do other administration proposals).
The National Council of Nonprofits is among the leaders of a growing effort to counter the president's assault on nonpartisanship in the charitable sector. NCN and other organizations seem to understand that if the nonprofit sector is to keep the public's trust and be seen as an effective arbiter and representative of the public interest, charities cannot become creatures of any political party, whether Republican, Democrat, Libertarian, or Green.
While the president may believe otherwise, repeal of the Johnson Amendment is not in the interest of either the charitable sector or the nation. And if he believes repeal will help him "neutralize" charities' opposition to his agenda by making it appear that that opposition is fueled by partisan, tax-deductible political contributions, he is both cynical and mistaken.
Trump's bellicose rhetoric, and the Republican-controlled Congress' acquiescence, makes it imperative we address the counter-proposal floated by well-known commentator David Callahan (and echoed in a review/opinion piece by journalist Robert G. Kaiser) calling for an end to tax deductions for nonprofit policy and advocacy work. As much as I respect both men, I'm sure I am not the only one who finds that proposal to be terribly problematic.
At the risk of oversimplifying, their argument is based on the fact that growing inequality has massively concentrated the nation's wealth in the hands of a few people at the top of the economic pyramid. Indeed, these "elites" control so much wealth that they cannot possibly spend it all on themselves, their families, or their hobbies (so the argument goes), making philanthropy an attractive outlet for the billions in question.
Callahan and Kaiser argue that all that tax-advantaged philanthropy allows the wealthiest to shape, through their tax-deductible donations to charities and nonprofit institutions, the direction, and in many cases the outcomes, of our public policy debates and otherwise influence the role of public institutions and the provision of public services.
And they're right. But the problems presented by that analysis need to be put in context. It is critical in thinking about the issue to note that the billions upon billions of dollars in direct political campaign contributions and political action committee spending, as well as the additional billions spent on corporate lobbying, are much more likely to affect government policy than would an expansion of philanthropy's considerable support for nonprofits' policy and advocacy work.
More importantly, nonprofits' efforts are much more likely to serve the public interest. Eliminating tax incentives for nonprofit policy and advocacy work would only serve to further tip the scales of political debate and influence toward private benefit. While it could be argued that tinkering with tax deductibility could be done in a way that shifts more philanthropic resources to community-based work and empowers greater public engagement with policy and politics, I wouldn't bet on it. And even if it did, concern would remain about the power of the uber-wealthy to decide exactly which organizations, communities, and individuals get funded.
In fact, if the deductibility of charitable contributions is denied nonprofit organizations whose work has anything to do with public policy advocacy and political decision making, what's to prevent us from being dragged back to a nineteenth-century system of alms giving that supports only the most basic service provision and public benefit programs? Even then, questions about the self-serving nature of some philanthropy would remain.
Over the years, there have been many proposals aimed at better encouraging and democratizing charitable giving and all the public benefit work it supports. Some variation of the Internal Revenue Service's "public support test" for charities, and even for particular programs, might have the potential to address concerns about the effect of massively concentrated private wealth on the public domain — be it through nonprofit think tanks and advocacy groups or through ostensibly apolitical universities, museums, park conservancies, and so on. Channeling philanthropy away from public interest policy and advocacy work, however, is not the answer to our current dilemma.
Mark Rosenman is a professor emeritus at the Union Institute & University. To read more of Rosenman's commentary, click here.