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.