As President Trump and members of Congress push to overhaul the tax code, an array of proposals have been floated that would have a direct and profound impact on nonprofit organizations, foundations, and donors.
There are sharply contradictory efforts, one by Republicans to eliminate the tax deduction for charitable donations, one by Mr. Trump to end the incentive for charitable bequests, and an opposing one from nonprofit leaders to broaden it so that everybody — not just people who itemize — can take a deduction.
If charities and their donors manage to maintain or expand their tax advantages, that is hardly the end. President Trump and the Republican leadership on Capitol Hill want to change the tax code to allow charities to engage in partisan electoral activity — and, at the other extreme, at least one prominent philanthropy expert wants to disallow tax deductions for support of nonprofit advocacy and policy work.
While it is understandable that most organizations would fight to protect and even expand tax incentives for contributions in support of their work, questions arise about whether charities and their donors are operating in their own self-interest or on behalf of the concerns reflected in each group’s mission.
Nonprofits’ work to preserve charitable deductions would be less suspect if they were also engaging in debates over government tax, budget, and policy measures that threaten the causes they exist to serve.
Nonprofits’ work to preserve and extend charitable deductions would be less suspect if they were also engaging in debates over government tax, budget, and policy measures that threaten the very causes and constituencies they exist to serve. Charity and foundation leaders need to be on the frontline of battles to stave off the president’s extreme efforts to dismantle the legal authority and resources government has to safeguard people and the planet, and to serve the broader public interest.
If nonprofit leaders are missing from such struggles, there would be every reason to impugn their motives for trying to preserve their own tax advantages. It is patently absurd to suggest that protecting charitable deductions is an adequate surrogate for broader concern and action.
Charity Politicking
It is in this context that President Trump’s pledge to “totally destroy” the ban on charities politicking — widely known as the Johnson Amendment — and the diametrically opposed challenge by others to tax deductions for funding policy and advocacy work need to be addressed.
The National Council of Nonprofits is among the leaders of a growing effort to counter the president’s assault on charities’ nonpartisanship. The coalition and most organizations seem to understand that if nonprofits are to maintain the public’s trust, to be seen and treated as effective arbiters and representatives of the public interest, they cannot become creatures of any political party. They cannot become Republican, Democrat, or other.
While President Trump may believe that his purposes are otherwise better served, repeal of the Johnson Amendment is not in the interests of either nonprofits or the nation. In fact, it is not beyond the pale to suggest that the president might believe he would get closer to his goal of unassailable strongman leader if he can “neutralize” charities’ likely opposition to his agenda by helping to discredit them as partisan political operatives rather than as representatives of the public interest. His efforts to delegitimize and bully his critics — established journalists, mainstream news media, and others — as all being biased liars gives credence to this suspicion.
Concentration of Wealth
President Trump’s behavior, and that of the Republican-controlled Congress, makes it imperative to also address the contrary proposal put forward in The Chronicle of Philanthropy by David Callahan, editor of Inside Philanthropy, and echoed in a review of Mr. Callahan’s new book by as influential a journalist as The Washington Post’s former managing editor Robert G. Kaiser. It calls for the denial of tax deductions for support of charities’ policy and advocacy work. That notion becomes terribly problematic in today’s political context.
To oversimplify, the argument is based on the fact that with growing inequality, massively increased wealth has become unimaginably concentrated in the hands of relatively few people at the top of the economic pyramid. There is so much money controlled by these “elites” that they cannot spend it all on themselves, so philanthropy becomes an attractive outlet.
Mr. Callahan notes that this allows the wealthiest to drive the direction, perhaps even the outcomes, of public policy debates and to otherwise influence the operation of government institutions and the provision of government services — all through tax-deductible donations to charities as the vehicle for such control.
Taking tax incentives away from donors who support advocacy efforts would serve to further tip political influence toward the benefit of wealthy people and big corporations.
And he is right, as is Mr. Kaiser, but the problems presented by that analysis need to be set in context and then dealt with through mechanisms other than disallowing such charitable deductions. It is vital in thinking about this to note that 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 decisions than would even massive support for charities’ policy and advocacy work.
Tipping Political Influence
Yet charitable advocacy efforts are much more likely to serve the public interest. Taking tax incentives away from donors who support them would serve to further tip political influence toward the benefit of wealthy people and big corporations. While it might be argued that altering tax deductibility could shift more philanthropic dollars to support of local organizing efforts and work to empower ordinary people and communities to extend direct influence over government, the concerns brought forward by Mr. Callahan would also apply to the power of the uber-wealthy to decide exactly which organizations, communities, and people would get funded for such activity.
In fact, if deductibility is to be denied to donors to charitable organizations to do even a little public policy advocacy or work on political power, we would be forced to limit it to alms giving and funding for only the most fundamental provision of direct services and enrichment efforts. The self-serving nature of too much of philanthropy would still remain unresolved.
Over the years, policy experts have suggested ways to better encourage and democratize charitable giving and the efforts it fuels. Some variation of the Internal Revenue Service’s “public support test” — which requires charities to demonstrate they get donations from a broad swath of the public — might hold the most potential to curb concerns about the extreme influence of private wealth over the public domain — be it through nonprofit think tanks and advocacy groups or even through ostensibly “politically benign” universities, museums, park conservancies, and so on. Channeling philanthropy away from public-interest policy and advocacy work, however, is not the answer.
Mark Rosenman is a professor emeritus at Union Institute & University.