There’s a great deal wrong with the House-passed tax overhaul bill, but its most heinous provision may be one that effectively blows up both the campaign-finance laws and the charitable sector at the same time.
By essentially repealing the so-called Johnson Amendment, a tax provision that bars charities from engaging in partisan politics, the House legislation frees up big donors to funnel even more unlimited, undisclosed money into campaigns, and, for the first time, to deduct that money from their taxes. The bill also threatens the credibility and viability of charitable groups, and would drastically reduce charitable giving—even as it robs education, housing, and health-care assistance from working families who invariably will turn to charities for help.
The Senate tax bill does not repeal the Johnson Amendment, enacted in 1954 at the urging of then–Senate Minority Leader Lyndon B. Johnson, and thousands of charitable and religious leaders are now lobbying to ensure that it stays in the final legislation. The list of those lined up against the repeal is impressive: 5,500 charities and foundations, 4,200 faith leaders, and more than 100 religious and denominational organizations.
So who wants it? Far-right Christian groups were the first to convince authors of the House bill to let churches alone engage in endorsements. But that measure was expanded at the last minute to include all charities, suggesting that big GOP donors, who would like nothing better than to deduct the big donations they funnel through nonprofits to influence elections, are gunning for it, too.
The repeal’s backers say it protects free speech and religious liberty, but these are red herrings. Churches and charities are perfectly free to endorse candidates, they just can’t do it with tax-free money. The government’s bargain with such groups is: We will exempt you from taxes and let you raise tax-deductible contributions, if you stay out of partisan politics. This protects charities from government meddling, and ensures that taxpayers aren’t forced to subsidize endorsements of candidates they oppose.
Campaign-finance watchdogs hate the repeal because it would create incentives for all political money to flow into unrestricted, secret channels. Right now, super PACs may raise unlimited money, but they at least must disclose its sources. Social-welfare and trade groups may raise limitless contributions, which they need not disclose, and they spend hundreds of millions on campaigns under the guise of promoting issues—but at least that money is not tax-deductible.
The House bill creates the very real possibility that political players will create sham “charities” and “churches” to rake in massive, undisclosed, and now tax-deductible campaign donations that will become the new normal in American elections. The campaign-finance system may seem like a world without rules today, but the freewheeling realm of super PACs and politically active social-welfare groups will look like a paragon of accountability and transparency if charities become the new vehicles of choice for political spending.
Even worse, say nonprofit-sector leaders, the bill would erode the public’s trust in charities, lumping them in with unpopular parties and candidates, and driving down contributions. “Charitable nonprofits don’t want to be dragged into the toxic political wasteland,” declared Tim Delaney, president and CEO of the National Council of Nonprofits, when the House unveiled its revised tax proposal earlier this month. Delaney and his allies warn that the House plan would also make churches and charities vulnerable to pressure from politicians.
The House tax bill purports to limit abuses by requiring charities to engage in politics only minimally and “in the ordinary course” of their normal activities. But this ill-defined standard would force the Internal Revenue Service, which has done virtually nothing to enforce political abuses by tax-exempts in any case, into the impossible role of charitable referee. If voters begin to see charities as quasi-political groups, moreover, Congress could face pressure to eliminate the deductibility of charitable contributions altogether.
All this comes on top of several other provisions in both the House and Senate tax bills that are expected to substantially reduce charitable giving. Both bills expand the standard tax deduction, which nonprofit sector advocates say would reduce charitable giving incentives for all but the wealthiest families. The House bill removes the estate tax, which has historically spurred charitable giving. The Senate bill retains the estate tax, but doubles the exemption amount—still threatening charitable donations, but to a lesser degree. The House bill would reduce charitable giving in 2018 by $12 billion to $20 billion, estimates the Tax Policy Center.
This year marks the centennial of the charitable tax deduction, which was first written into the tax code in 1917. Instead of celebrating, the nation’s charities are fighting for their lives. The GOP tax plan not only slashes services to average Americans to underwrite tax cuts for the super-rich, but also makes it harder for churches and other charities to pick up the slack. By erasing the firewall between charity and politics, the House bill doubles the damage. As Delaney, of the National Council of Nonprofits, told The American Prospect: “This is dangerous for democracy, and very harmful to the 501(c)(3) community.”