January 11, 2011

Charities Should Reject Senator’s Offer on Politicking

Sen. Charles Grassley, the Iowa Republican, is a key member of the Senate Finance Committee.

When Sen. Charles Grassley issues a report, students of the Senator’s record expect the document to call for more transparency and accountability, meaning more regulation by Congress, the IRS, and nonprofits themselves.

Well, Senator Grassley did issue such a report last week, and it did contain much of the expected language—but it also offered nonprofits a present: a recommendation to lift the current ban on nonprofit “electioneering.” Nonprofits should think twice before accepting the gift.

Senator Grassley, the Iowan who has long held the senior Republican role on the committee, started a review of six “media-based ministries” in 2007 after he received complaints that these televangelists were violating the standards for tax-exempt groups.

The report released last week deals mostly with issues that affect churches, such as whether they should be expected to report publicly on their activities (as they are not required to now) and how to treat compensation such as “parsonage allowances” for members of the clergy. The report urges the creation of an IRS advisory committee on religious organizations, which have traditionally received less oversight than other nonprofits.

But when the report assesses charges of political campaigning by televangelists, it goes far beyond matters of concern to religious charities alone.

Since 1954 all organizations that have charity status under Section 501(c)(3) of the tax code have been totally prohibited from participating in federal election campaigns.

While those groups can try to influence legislation as long as they spend only an insubstantial portion of their budgets doing so, they cannot undertake any activities at all to promote or oppose candidates for federal office without risking fines or even the loss of their tax exemptions. The U.S. Supreme Court has repeatedly upheld this ban.

Both liberal and conservative religious groups are frequently accused of violating the prohibition, and in recent years the controversy has escalated. In 2004 the IRS stepped up efforts to ensure that nonprofits were complying with the ban.

But religious groups say the ban impinges on their First Amendment rights. In 2008 a group of ministers hoping to spur a new judicial review of the restriction conducted a “Pulpit Freedom Sunday,” using their sermons to comment explicitly on the presidential campaign.

The 2010 Congressional elections produced numerous complaints that nonprofits bankrolled by businesses, labor unions, and wealthy individuals wielded improper influence by advertising extensively on behalf of one or another candidate in several tightly contested races. The upsurge was blamed on the Supreme Court’s 2010 ruling in a case known as Citizens United, which lifted federal election-law restrictions on corporate support for political campaigns.

But Senator Grassley did not try to jump on the bandwagon led by the Citizens United critics. Instead, his report expresses sympathy with the nonprofits’ position and concern for limited IRS resources—and therefore urges Congress to reconsider the prohibition on campaigning by charitable organizations.

First, the report notes, the ban has dubious origins. In 1954, according to lore, Sen. Lyndon B. Johnson faced a difficult re-election campaign, partly because of opposition from a tax-exempt group. So Senator Johnson, with no stated rationale, sponsored the legislation that made this behavior illegal.

The report says the ban may be inconsistent with federal legislation that permits nonprofits to do a small bit of lobbying. After all, if a group cannot influence the election of lawmakers, it may have trouble influencing legislation.

The prohibition is also difficult to enforce. The most recent effort by the Internal Revenue Service to crack down on electioneering, the report pointedly observes, has produced penalties against a minuscule share of tax-exempt organizations, including churches. The rules are so complex that investigations of possible violations are usually long and costly.

The report concludes that the burdensome rules on nonprofit campaigning should be changed to resemble the rules on nonprofit lobbying—permitting an “insubstantial” amount of campaign spending—or that nonprofit campaigning should be regulated via federal election laws, which limit contributions, not expenditures.

This is not an obvious conclusion, since charitable organizations have found ways to conduct campaign activities within the present law. The report is silent, for example, about groups that have advocacy status under Section 501(c)(4), which can be affiliated with churches or other Section 501(c)(3) organizations and can participate extensively in political campaigns as long as such activity is not their “primary purpose.”

Election activities by advocacy groups have increased substantially in recent years.

Nor does the report say much about “Section 527” political-action groups, which can actively campaign. Those groups cannot be affiliated with churches or other charities but can be organized and supported by members of such charities.

However, contributions to 501(c)(4) advocacy groups and 527 groups are not tax-deductible; that may be the real reason why lifting the ban on charity campaigning is attractive to advocates of more nonprofit political activity. If donors get can get a tax break for their political gifts, they’ll be even more likely to give than they are now.

Thus, those who believe nonprofits currently do not do enough politicking out of fear of violating current restrictions are likely to agree with the report.

Those who see election activities by 501(c)(3) groups—especially religious ones—as campaigning subsidized by tax-deductible contributions are apt to oppose a change that may enable these groups to become more involved in the political process.

If Senator Grassley’s recommendations for change are adopted, we can expect even more electioneering by and through nonprofits next year. But the price to be paid for such change could be steep.

As the report notes, it is now accepted that the law may limit contributions to groups involved in political campaigns. There are no such limits on donations to charitable groups. If charities are allowed to campaign, will we see efforts to restrict the amount an individual or corporation can give them? Already such proposals have been floated to restrict donations to 501(c)(4) organizations.

Similarly, since Citizens United, lawmakers have been asked to require all groups participating in federal elections to disclose their donors’ names; indeed, the Supreme Court implicitly endorsed this idea. If the ban on charity campaigning is lifted, will charitable organizations eventually be forced to reveal the names of their donors? Such disclosure could jeopardize their ability to back controversial causes in ways other than through elections.

Senator Grassley is right in saying that existing rules are poorly enforced. But rather than simply proposing to allow nonprofit campaigning, the report would have done better—as it did in dealing with the other issues it reviewed—to insist that televangelists, churches, and other groups behave more like the charities they purport to be.

Suzanne Garment, a visiting professor at Indiana University, and Leslie Lenkowksy, a professor there, are writing a book on philanthropy and public policy. Mr. Lenkowsky is regular contributor to The Chronicle’s opinion section.