Tuesday, February 07, 2017

Should We Fight About Religious Tax Deductions?

by Neil H. Buchanan

At the National Prayer Breakfast last week, Donald Trump said that he would "totally destroy" something called the Johnson Amendment.  Under this bedrock provision of the tax code, nonprofit organizations with 501(c)(3) status are "absolutely prohibited from directly or indirectly participating in, or intervening in, any political campaign on behalf of (or in opposition to) any candidate for elective public office."

Given the mutually opportunistic (and mutually hypocritical) alliance between Trump and the religious right, Trump's announcement comes as no surprise.  Fundamentalist Christian leaders have spent years trying to undo the Johnson Amendment.  Trump has no core policy commitments in this area, so he has no reason not to give them what they want.

I will explain in below why the Johnson Amendment is good policy and should be retained.  The more interesting question that I will also address is whether it is worth anyone's time to fight back on this issue, under current political circumstances.  My answer is yes, but it is a more difficult argument than I expected it to be.

Section 501(c)(3) is one of only two provisions in the tax code that is so familiar to most people that they know it by its legal designation.  (Section 401(k) is the other.)  An organization with 501(c)(3) status is not only tax exempt (that is, not required to pay taxes) but is also able to receive contributions that are deductible to the donor.

It is certainly possible to run a nonprofit without being a 501(c)(3), but most charitable organizations would panic at the thought of losing their status under that provision.  The Johnson Amendment is thus thought to put a meaningful brake on the participation of nonprofit organizations in elections.

Why is that good?  Being able to receive money from supporters who can deduct the donations from their taxable income amounts to receiving a subsidy from the public at large.  If my marginal tax rate is 25%, for example, I can give $100 to my favorite 501(c)(3) but get $25 back on my taxes, which means that the federal government (that is, everyone else) pays for one-fourth of my donation.

Naturally, therefore, we have put limits on what 501(c)(3)'s can do.  They cannot, for example, be sham organizations -- "The Church of the Everlasting Tax Deduction" -- that merely shovel money to the owner or pastor of the organization.  In pursuit of a different policy objective, the Johnson Amendment says that an organization that wants to back a particular candidate for office is free to do so, but not with the public's money.

There is, in other words, no loss of free speech rights associated with the rule, and in fact the Johnson Amendment merely amounts to the statement that the public is not willing to subsidize organizations that try to make sure that specific people are elected (or defeated).  For decades, that has seemed like a fine idea to most people.

When the religious right began to mobilize in the Seventies, however, they pushed harder and harder against what they view as an unfair gag order.  Their arguments almost always amount to misdirection plays, with one of their favorites being to point out that the Rev. Dr. Martin Luther King, Jr. was guided by his religious beliefs to try to change American politics.

That the Johnson Amendment did not prevent King from doing what he did seems not to matter to this debate, but it should.  If King had said, "If you believe in God, you must vote for Lyndon Johnson," he would not have been arrested, because he had the right to speak those words.  He would, however, have turned his organization into something other than a 501(c)(3).

King's decision not to campaign for or against specific candidates may or may not have been driven by tax considerations, but plenty of people in religious life apparently believe that it is good to keep their organizations out of electoral politics.  When a parishioner (or, more likely, a lay trustee with influence in the organization) calls upon a cleric to take a position in an election, the Johnson Amendment provides a ready-made answer: What, you want us to jeopardize our donors' tax deductions?

Ultimately, I suppose that this is an empirical question, because we do not know how much direct campaign activity is being suppressed by the Johnson Amendment.  We do know, however, that the people who are loudest in saying that this tax provision stifles their free speech are already violating both the spirit (no pun intended) and the letter of the law.

In what has become an annual tradition, for example, groups of right-wing churches have organized nationwide actions in which their pastors deliberately violate the Johnson Amendment on a particular Sunday, essentially daring the IRS to enforce the law.

Unsurprisingly, the IRS has not taken the bait.  Why would anyone in charge of the organization that Republicans most love to hate be so stupid as to take up a challenge that would result in further funding cuts by a hostile Congress?  The U.S. public at large is not particularly religious in practice, but most people are still going to side with churches over the tax man.

In one sense, then, a fight over the Johnson Amendment is pointless.  What person in his right mind thinks that clergy and other religious people are incapable of getting their views out to the people?  Some pastors currently might not be willing to go so far as to say, "Vote for Donald Trump," but even the most minimally competent shepherd is able to make it clear to the members of his flock where they should stand on issues to be "right with God."

To put it differently, does anyone not know who the religious right supports in any given election?  Do any of the members of those churches not know?

Therefore, even though Jerry Falwell, Jr. reportedly said that repealing the amendment would "create a huge revolution for conservative Christians and for free speech," one can respond (with absolutely no sarcasm): "How?"  We have a country whose politics is so infused by religion that we have National Prayer Breakfasts where presidents openly curry favor with religious leaders.  What more could the religious right do?

One possible answer to that question is: "Let's not find out."

It is possible that repealing the Johnson Amendment could alter the patterns of charitable giving.  For example, the amendment's effect as a subsidy currently makes it more expensive to give money to a candidate than to a true charity.  One hundred dollars (again assuming a 25% marginal tax rate) to Candidate X is $100 out of my pocket, but it only costs me $75 if I give the money to an organization that fights animal cruelty.

Therefore, it is possible that repealing the Johnson Amendment would shift donations from truly charitable causes to church-fronted campaign committees.

Consider also that allowing deductions for contributions to organizations that engage in direct politicking would be even more perverse because of the "upside-down subsidy" nature of tax deductions.  That is, if Wanda is in the 10% marginal tax bracket, her $100 contribution costs $90 after the tax refund.  If Herb is in the 39.6% bracket, however, his $10,000 contribution only costs him $6,040.  Political donations are already dominated by big-money donors, which means that making those donations deductible would give yet another boost to the political views of the wealthiest people.

Some thoughtful people have also argued that nonprofits (even nonreligious organizations) will similarly be pulled into the ugly vortex of partisan politics.  Politicians will be able to impose quid pro quos even on the most well meaning charities, promising favorable access to policy discussions only if the organizations' leaders play ball politically.  Even someone who wants her organization to use its money only to advance its mission might feel forced to make some uncomfortable decisions.

Moreover, there is something to be said for the idea that political fights need to be fought where one's opponent is most committed.  There seems little likelihood that people like Falwell are channeling Br'er Rabbit by putting so much emphasis on the Johnson Amendment, so their enthusiasm ought to tell us something about what matters to them.

Finally, we must always be aware of the finite resources available to pour into political fights.  It is already clear that the Trump Administration is going to be a daily disaster machine, and something amounting to political triage is going to be necessary.

On the other hand, it might be easier to block the repeal of a longstanding policy -- one that, for good measure, many religious leaders enthusiastically support -- than to push through a new policy, so it could be relatively easy to fight this fight.

Most importantly, there is a good reason to fight for good policy simply because it is good policy.  People who want to support candidates for public office can do so, with their words and (far too much) with their dollars.  At the very least, we should continue to prevent the public from subsidizing big donors' relentless efforts to destroy democracy.

It might not be the most pressing issue facing the country, but there is a reason to continue to keep the nonprofit world -- most especially including churches and other religious groups -- from further intermingling with politics.  We have already fallen a long way.  We must not go further down this path.


Shag from Brookline said...

Perhaps the proposal might be addressed by a proposal to limit a charitable deduction in the form of appreciated property (e.g., securities) to the donor's tax basis for such property or FMV whichever is less. Many large donations to charitable institutions are in the form of highly appreciated securities, which if the donor sold would result in taxable income (usually long term capital gains) leaving the donor with less cash to contribute; but a direct charitable donation of the securities would not result in taxable income to the donor who currently would get a charitable deduction for the FMV of the donation. This benefits mostly wealthy taxpayers but not the working class taxpayer who donates hard earned cash. So the proposal would be another benefit to the .1%.

Greg said...

In this particular fight, I think it's wrong to talk about political opponents. The 501(c)(3) political endorsement limitation is good for everyone.

1.) It controls government spending by preventing a back-door through which tax money is funneled to political campaigns.
2.) It helps prevent the formation of shell charities where 90% of the money is spent on political campaigning.
3.) It protects donations to real charities by preventing them from being forced to make a political endorsement that alienates half of their donors, in order to keep the other half of their donors from leaving.
4.) It protects people's access to their religion, by keeping them from being alienated because they happen to have different political opinions than those of their pastor.

If this were really about allowing pastors a little more freedom to endorse specific candidates from the pulpit, I could potentially get behind it, although even then it would potentially alienate some of their parishioners. However, this is about allowing charitable organizations (including churches) to become an engine of political money and advertisements. That sullies the good name of religion and charity in the mudslinging of today's politics.

Does it really matter? Yes. It matters because of the family driven out of their church by partisan politics. It matters because of the food bank that can't raise money without endorsing a political candidate, and that then loses half of their donors.

Joseph said...

I think there is far greater danger to religion than to our polity if the amendment were repealed. Before the election I was in a synagogue and the rabbi essentially made this argument, he expressed the concern about evangelical churches and exhorted the congregation to vote for the candidate who represents American tolerance, civility, respect, diversity, etc. etc. "So, he wants us to vote for Trump?" I joked. As you write, if a pastor wants to impress a view upon his congregation without naming names, it is extremely easy. The suppression of political speech in churches is protective of its religious mission. Politics is corrosive.

Thus, it is a relatively minor restraint that most pastors should appreciate.

As a constitutional issue, I don't know that the matter is so easy any more. I think of the District Court opinion out of Ohio last year stopping the defunding of Planned Parenthood (http://www.dispatch.com/assets/pdf/archive/PP_court_ruling.pdf) and the Missouri church playground case now before the Court (Trinity Lutheran Church of Columbia, Inc. v. Pauley).

Joe said...

The Johnson Amendment as noted has value for religions, which was an argument provided back to the days of James Madison, especially by Baptists. It also seems to further coerced speech doctrine -- if the government (aka us) is in effect paying for a charity, it should be politically neutral in the nature of the amendment. The matter isn't totally clean, as these things rarely are, since there are ways for the religious institutions to promote a candidate. But, degree matters here.

Anyway, since this benefits various sides, this should be a way to put forth a bipartisan effort not to change the current policy.

el roam said...

Thanks for the post, It seems that the respectable author of the post, lacks with all due respect, fundamental issues in that domain of nonprofit organizations, and the first amendment :

And first: such association (non profit) is exempted in tax terms, because or thanks to the fact, that it does act for public purposes. It is not driven by profit cause ( apparently ) but , public cause . A public purpose , means , not only expression in terms of content or the limit of it , but , the very capability , to change thinks . What use , what benefit , can one draw from free speech otherwise ?? for the sheer expression of it ?? he or it must have the capability , to act , to persuade , for the mere purpose of changing actually thinks . If you are pro life , or pro abortion , you want it to stop or , to continue , or enhancing whatsoever . In order to do it, and so , actually influence and change state of thinks , you need: legislation, contacting and influencing politicians and administrations, you need technical material capacities: Room conferences, access to public places, transportation and so forth…..

So, it has to do directly with free speech, otherwise, it is limited to senseless expressing, without actual power to influence and change thinks. So , such associations , are public , that is why exempted from tax payments , and in light of that constitutional purpose , the Johnson amendment , should be observed and analyzed .

Also, The respectable author of the post, has wrong perception, assuming that such non profits association, don't make money or profits. They are making money , and profits ( generally speaking ) yet :

What they can't do , is , distributing profits ,and being motivated by solely making profits , yet :

If a donor , grants them a land for example , piece of land , and in time , the value of the land has risen . They decide to sell it , and to enjoy the gap between historic price of the asset , and the current price . This is a profit !! yet :

They can't distribute it as such, and not motivated strategically for it. Yet , they make profits anyway out of it .

Later maybe I shall put some links and illustrations …..


Greg said...

To add another anecdote, I can remember when Texas was passing their state constitutional amendment banning gay marriage. A meeting was called after church meeting that was "not sponsored by the church" where we were basically told (but not ACTUALLY told) to vote for the amendment. Regardless of my feelings on gay marriage, I was against the Texas law because the wording outlaws marriage, and I'm far more afraid of my insurance company trying to claim I'm not married than I am of some other person's marriage. This view made me pretty uncomfortable in that room.

I can't imagine how unbearable church would become if even that thin veil of separation provided by the Johnson amendment were removed.

el roam said...

Just to illustrate it , here the business organizations code of the state of Texas , defining the " Nonprofit corporation " and the inability to distribute profits ( differentiated from making it ) here :

Title 2. corporations
chapter 22. nonprofit corporations
subchapter a. general provisions
sec. 22.001. definitions. in this chapter:

(5) "Nonprofit corporation" means a corporation no part of the income of which is distributable to a member, director, or officer of the corporation, except as provided by section 22.054.


Clodpate said...

Neil, you are mistaken about the application of the Johnson Amendment. King could have said, "Vote for Johnson" and the status of his church would have remained intact. What the Johnson Amendment bars is saying, "Ebenezer Baptist Church endorses Johnson" or, "We'll be having a fundraiser at the church right after the service." The IRS would like a disclaimer to the effect of “This is my personal advice,” but they haven’t been pushing the issue.

As a Baptist, I am personally against churches endorsing candidates or being turned into campaign central. The problem I have with the Johnson Amendment is giving the IRS power to watch over and chill the political speech of any group of Americans, churches included.

I don't buy this business of "They have to give up something because they are tax exempt." Unions are 501(c)(5) tax exempt, and dues are also tax deductible, yet they are free to endorse and campaign for political candidates. Other 501(c) organizations enjoy similar dual tax benefits and can also get involved politically.

Repeal of the Johnson Amendment would merely return us to 1953, a time when there was no church abuse of the revenue code. To me, repeal is logical, consistent with free speech, and not worth fighting. Indeed, fighting the repeal seems more motivated by politics and personal feelings rather than historical abuses or constitutional principle.

To those otherwise inclined, I recommend:

If you believe the IRS should never have its powers curtailed, then by all means fight the repeal effort.

If you think it’s fine that unions and other tax-exempt organizations should be involved politically, but churches should not be able to, fight the repeal effort.

If you think that because someone doesn't get a check from the government and doesn’t pay federal income taxes and yet somehow they are spending your money, fight the repeal effort.

If you believe based on evidence you have seen that churches abused their tax-exempt status prior to 1954 by endorsing candidates and using donated funds and properties for political campaigns, then fight the repeal effort.

If for personal reasons you are offended by religion in general and don't want religious organizations to be heard politically, then fight the repeal effort.

If you have an irresistible case of Trump phobia, and will not consider any other viewpoint, then fight the repeal effort.

Shag from Brookline said...

A non-profit corporation/entity is not barred from making a profit. There are limitations on uses of the profits in most jurisdictions. Some portion of such profits is distributed to employees by way of salaries, which to some Charity watchdogs might be a tad high in certain instances. There are various ways to use such profits that do not directly benefit charitable purposes of a non-profit. The IRS lacks sufficient funding to audit returns of non-profits. The expense of challenges by private parties plus issues of standing can result in insufficient accountability of non-profits. Those interested might check out this link:


Joe said...

"If you believe the IRS should never have its powers curtailed"

if you believe in strawmen ...

To belabor the point, churches can be be "involved politically" in certain ways, including talking about issues of the day like abortion (on both sides).

As to spending our money, the government is not getting funds by giving certain institutions a benefit with strings. If you deny me money I otherwise would get, yes, in effect you are taking money from me.

"a time when there was no church abuse of the revenue code"

The church's purity back then is impressive if not too believable. I'm rather sure that various churches in some fashion gamed the system. The rule like any rule should be decided on the merits, new rules developed over time even if before the rule was applied life wasn't THAT bad.

Joe said...

Anyway, this issue is getting some play here: http://prawfsblawg.blogs.com/prawfsblawg/2017/02/thoughts-on-the-johnson-amendment.html

Joseph said...

Getting to the Constitutional issue, I think it is very challenging. Prof Buchanan writes:

"There is, in other words, no loss of free speech rights associated with the rule, and in fact the Johnson Amendment merely amounts to the statement that the public is not willing to subsidize organizations that try to make sure that specific people are elected (or defeated). For decades, that has seemed like a fine idea to most people."

We see this same kind of argument in other areas, as I suggested above. It's what we see regarding defunding Planned Parenthood, government funds for playgrounds owned by churches, and in trademark cases like Lee v. Tam. A fundamental similarity in these cases is that even without an entitlement to a benefit and even if a person is not prevented from exercising their constitutional rights, there may be a violation.

There are major passages in the Ohio case I linked to above that appear to undermine the framing used by Prof Buchanan in this case. Maybe the Ohio judge is wrong, I certainly have questions with the logic of it. But I think the rules at play in at least some of these cases need to be reconciled.

Jim said...

As Joe indicates, Clodpate's comment is heavy on the strawmen. As one example (repeated twice in the comment), union dues cannot be used for lobbying, and contributions to a union lose their tax-deductible status to the extent that they are used for lobbying. Unions lobby through PACs, and donations to a PAC established by a union (just like any other PAC) are not tax deductible. So federal tax law doesn't favor unions over religious organizations.

el roam said...

Just illustration to my comment ( here and previous posts ) how first amendment , has to do of course , not only with mere content of expression :

In the link ahead , one may read , about an issue of whether it was clearly established that the Plaintiff, ( Appellee) was exercising a First Amendment right when she attempted to film a police officer during the traffic stop. This is an illustration for peripheral activities , has nothing to do with mere expression ( content and voicing it ) but : permitting to be able finally to speak effectively ( gathering data for example ) . So , if restrained by police , first amendment may have been violated , here :



el roam said...

For he who doesn't want to dive too deep to complications of a ruling , here the " washington post " :



Clodpate said...

Jim, you are mistaken on unions.

501(c)(3)'s are forbidden from more than lobbying. They cannot endorse or oppose, and they cannot use any of their assets for campaign activities. If they were to do so, all, repeat all, of their funds lose their tax deductibility.

In contrast, as you indicate, only union dues towards lobbying are called into question. And unions can and do endorse candidates, and union halls can be and are used by favored campaigns.

Union dues remain deductible by the individual member on Schedule A, line 21.

It was correct, and worth repeating twice. Glad you noticed.

Unknown said...

you write very well this article, there are a lot of good resource here. i am sure i will visit this place again soon. Banking Tips