Opponents of social movements often seek to discredit them by pointing to their sources of funding. So it was no surprise that amid surging campus protests against Israel’s war in Gaza, “follow the money” quickly became a rallying cry among pro-Zionist advocates.
Analysts, pundits, and even some journalists highlighted which foundations funded groups organizing the protests, and raised the specter of foreign donors stoking the activism.
Soon, politicians on the right took up the call. It didn’t take much convincing given their pre-existing campaigns targeting progressive philanthropy, including efforts to pass the baton of philanthropic bogeyman from George Soros to donor intermediaries such as Arabella Advisers and the Tides Foundation. (According to a Chronicle of Philanthropy investigation, “data and testimony provided by movement leaders show that the student protests have not been largely funded or significantly shaped by any single donor or philanthropic organization.”)
In April, a bill passed the House with overwhelming support that would strip a nonprofit’s tax-exempt status if the Treasury Secretary labels it a “terrorist supporting organization.” Then, in May, the chair of the House Oversight Committee, Republican Representative James Comer of Kentucky, announced an investigation into where campus protests were getting support, saying “it appears global elites are funding these hateful protests and pop-up tent cities.”
In the Senate, Republicans such as Josh Hawley of Missouri have pressured the Internal Revenue Service to investigate several pro-Palestinian organizations, stressing that agency rules prohibit nonprofits from encouraging members to commit civil disobedience. “Across the country, campuses are in chaos,” Hawley wrote to Attorney General Merrick Garland in May. “It is time for you to open an investigation into the reason why, and who’s funding it.”
Left-leaning commentators have framed these inquiries as part of a wider assault on civil society in the United States and globally, especially at the behest of authoritarian leaders. It doesn’t help that some of the politicians most critical of American nonprofits have held up leaders such as Hungary’s far-right prime minister Viktor Orbán as role models.
The New York Times’ Michelle Goldberg, for instance, worried that if Donald Trump won the presidency, his administration would crack down on progressive nonprofits, “following a well-worn authoritarian playbook.” Goldberg cited the work of democracy scholar Rachel Kleinfeld, who recently wrote “The tools being applied to reduce civil society’s range of action in the United States do not always replicate those used … internationally. But they often rhyme.”
Time to Act
These warnings should be taken seriously. But mixed up with the politicians’ bad faith posturing and illiberal grandstanding are legitimate concerns about donor transparency and philanthropy’s role in influencing public life. Supporters of philanthropic reform who aren’t pushing a partisan agenda should take advantage of this increased focus on funding sources to advocate for policies that promote transparency and nonprofit oversight.
Some funding for campus protests, for example, was channeled through donor-advised funds and fiscal sponsors, which make “following the money” especially difficult. Fiscal sponsors are nonprofits that can accept tax-deductible donations for, and provide administrative services to, groups that are not 501(c)(3)’s. DAFs, often described as charitable checking accounts, are the fastest growing giving tool. They allow a donor to give to a sponsoring organization, take an immediate tax deduction, but decide how to distribute funds at a later date.
Although this gives donors the same discretion and control as a private foundation provides, the sponsoring organization is legally considered a public charity, and therefore has fewer reporting and spending requirements than a foundation.
DAFs — and to some extent fiscal sponsors — are philanthropic black boxes. DAF sponsoring organizations can harbor hundreds of donor-advised funds, and some DAF holders favor them precisely because of their opacity. Outside observers can see money go in and grants head out, but often don’t know which individual donor is giving to which nonprofit.
This lack of transparency has fueled poorly-informed journalistic speculation about various centrist and left-leaning foundations, such as the Gates Foundation, funding campus protests because they contributed to DAF-sponsoring organizations that also donated to pro-Palestinian groups. Conservative politicians then eagerly spread these conjectures as fact.
Legislators seem especially concerned with the dangers posed by foreign donors, a complex issue with its own trade-offs. As of now, there’s little indication that these highly partisan calls for hearings and investigations will bring more light to philanthropy’s dark patches. History has demonstrated, however, that political opportunists can sometimes stumble onto the tracks of significant reform, especially if those tracks are sturdily laid down by advocates operating during the same period.
That’s why besides Viktor Orbán’s Hungary, there’s another model to consider when contemplating recent partisan legislation targeting progressive philanthropy: the storm of controversy that led to the passage of the Tax Reform Act of 1969.
That law represents the highwater mark of philanthropic reform over the last half century. It includes provisions related to foundation payout rates, limits on self-dealing, and reporting requirements now championed by many progressives. It inaugurated what scholars Dana Brakman Reiser and Steven Dean term the “grand bargain:” Foundations must adhere to rules about transparency and spending rates, in exchange for tax incentives and the broader blessings of political legitimacy. Notably, these rules don’t apply to DAFs and fiscal sponsors.
Imperfect Reform
But the 1969 legislation was propelled by a motley crew of politicians of various ideologies. It also contained provisions that were motivated by partisan and reactionary impulses, such as limits on foundation support for voting registration that clearly targeted efforts to register Black voters. That’s why, at the time, some on the left viewed the entire legislative effort with suspicion.
As Whitney Young, head of the National Urban League, explained, this proposal “had the direct result of making the Black community particularly feel that [the Tax Reform Act] is a hostile bill, a bill that suddenly came into fruition with a purpose as much to intimidate as to legislate.”
Young was not entirely wrong. The Tax Reform Act was the product of both low and high reform impulses. Partisan opportunists have long used philanthropic reform to limit their opponents’ work or power. The conception of the Johnson Amendment, which prohibits 501(c)(3) nonprofits from endorsing political candidates, bears this out as well. As such, philanthropic reform has often simultaneously fostered and constricted the space for civil society to flourish.
A contemporary philanthropic reform campaign is likely to include efforts to do both. At the very least, it’s almost certain that any legislative effort will come with the support of policymakers who are attracted to it as a cudgel to beat their ideological opponents. This is especially the case given Donald Trump’s recent selection of J.D. Vance, one of the most outspoken critics of progressive philanthropy, to be his running mate.
So how should proponents of philanthropic reform proceed at a time of imperiled civil society? Expeditiously, but cautiously. As Rachel Kleinfeld has noted, “Illiberal actors choose issues involving unpopular groups and cases with the most morally murky facts to create a permission structure that allows them to shut down a much broader set of activities.” The current focus on foreign funding could provide that permission.
Still, this moment shouldn’t be squandered. Supporters of philanthropic reform meant to apply equally to one’s ideological allies and ideological adversaries must take advantage of this increased attention on philanthropic transparency. That includes pointing out where a lack of transparency leads critics astray.
Good-faith proponents of philanthropic reform should push for policies that respond to the growth of philanthropic activity outside the so-called “grand bargain” of the Tax Reform Act. Among other things, they can address foundation donations to DAFs to meet payout requirements and use the tax code to encourage increased DAF transparency. And they can support more money for nonprofit regulation as a response to concerns about potential malfeasance — funding that many on the right have long opposed.
But they should do so while insisting upon the importance of a free, robust civil society and guarding against efforts to restrict it. In other words, they must match the opportunism of bad-faith actors with a principled opportunism of their own.
