An appreciation of honesty, and a call for serious debate.
Blue Tent, the progressive online platform that advises wealthy individuals and foundations, recently sent out an end-of-the-year message to its followers. “As you think about last-minute charitable donations before December 31,” Blue Tent founder David Callahan begins the e-mail, “here’s a tip: focus on helping Democrats win victories in next year’s high-stakes elections.” He then adds this alarming statement:
I know: Tax-deductible gifts to 501(c)(3)s supposedly can’t be used for electoral work. But that law is a joke. Any donor who does a little homework can find lots of ways to make “charitable” donations that help their political party.
We appreciate Callahan’s honesty here. No matter what your ideological proclivities may be, you can only interpret his assertion as a confession that our system is broken. For many years and especially since the 1969 Tax Reform Act, we have entertained the idea that charitable and political activities can be distinguished and that charitable deductions can be limited only to organizations in the former category. Nonetheless, as Callahan acknowledges, smart lawyers and other advocates have figured out myriad ways to eviscerate this distinction. As a result, foundations, donor advised funds (DAFs), and wealthy individuals can pursue their partisan interests under the guise of the charitable.
Is that what we really want? Do we want end-of-the-year giving to be focused on politics rather than supporting the homeless, food pantries, and the range of social and human services that have been the usual recipients of holiday largesse? For Callahan, the answer is yes, because he believes that you can only address social problems through political power. As he notes in the penultimate paragraph of his letter, “While I’m all for giving to more traditional nonprofits, I believe it’s important to prioritize electoral work through 2024. If we don’t, all the other causes we care about will be at risk.”
Would the average voter support the idea that wealthy people and well-endowed foundations have the right to shape the outcome of elections and be subsidized to do so?
For many years, the answer has been no. Beginning with the origins of the charitable deduction, the public and its elected representatives have been adamant that charitable, tax-deductible giving should not be used for partisan, political purposes. Throughout the 1960s, there were regular hearings and commissions on how the wealthy could potentially use their contributions to nonprofits, including their own foundations, to influence public policy and electoral politics. The 1969 Tax Reform Act was, in part, aimed at curbing the ability of large donors to influence voter registration and voter turnout and at making it very difficult for the wealthy and their institutions to use their charitable money to promote legislative action.
In the early 1980s, when I was a young program officer, there was a concerted effort among progressives to find ways in which foundations could support expanded voter registration and related activities. The election of Ronald Reagan had jarred many in the philanthropic community and, especially at the staff level, there was significant interest in finding ways for foundations to help correct this political “mistake” and return the White House and Congress to liberal control. However, at that time, many foundation boards had at least a few conservative members who would question an all-out politicization of philanthropy. Similarly, many of the law firms that advised donors were cautious about smearing the boundary between charitable and political activities. My quite liberal boss at the time was fond of reminding us of the beating that the Ford Foundation endured at the hands of the House Ways and Means Committee in 1969. There was a clear sense that foundations and other liberal donors should only approach the political world with great caution and a clear understanding that a mistake could have real consequences.
Today, many of the biggest foundations have very little political or ideological diversity among their boards, staff, or legal counsel. Many of America’s wealthiest institutions, families, and individuals have been prodded and poked into being more “strategic” and “impactful” with their money, which usually means being more focused on elections and on supporting various legislative initiatives as the local, state, and federal levels. One can argue about whether the bulk of this money favors Democrats over Republicans and liberal causes over conservative ones. While it’s most likely that the broad political left has an advantage here, the bigger point is Callahan’s assertion that the system is broken. As he notes, “I’m no fan of our Swiss cheese nonprofit rules, which allow the wealthy to exert a big influence on politics and policy on the taxpayers’ dime.” (Link in original.)
So, what should be done? First, simply make the public aware of the current situation. It’s remarkable that Callahan’s letter has generated no detectable criticism in social media or elsewhere. That means either that there is broad acceptance of the politicization of charitable giving or that there is broad ignorance of the current situation. My guess is the latter. In the history of debates over the rules and regulations governing nonprofit activities, abuse for political purposes has always been front and center. This situation has changed.
Second, it is time to push for Congressional hearings on politics and charitable giving. Callahan and many other experts have noted how “broken” the current law is. Now might be the right time to do a deep legislative inquiry into current abuses and the potential for reestablishing a clear line between charitable and political activities. There is not much room for optimism that this line can be restored. After the 1969 reforms, it was honored for two decades because donors and nonprofits decided to honor the spirit of the law out of respect, caution, or fear. Can those informal cultural restraints be restored? Can we rebuild a commitment to follow the spirit of the law or, at least, fear the consequences of going over the line that most people can recognize? A series of highly visible Congressional hearings that solicited the opinions of our best experts and legal minds would be a means for exploring whether a new standard is possible and viable and for exposing the worst abuses of the current situation as flagrantly outlined in Blue Tent.
Finally, if the conclusion is that the line between charity and politics is forever blurred, it may be time for sharp limitations on access to the charitable deduction. Just one possibility might be to begin phasing out the deduction at $250,000 and ending it at $500,000. This restriction would affect only a small, but very wealthy, minority of donors. Most individuals and families would still be able to deduct their contributions to their church, the local Boys and Girls Club, the community food pantry, and so forth. It would take away the subsidy enjoyed by the very wealthy who are the audience for Blue Tent and other platforms. It would not stop existing foundations or DAFs from using their money for political purposes. Nor would it prevent elite donors from giving to politicized nonprofits. However, it would end the tax benefits associated with contributions to these organizations and it might deter the creation of new foundations and DAFs.
The use of charitable dollars to fund baldly political enterprises such as the ones listed in the Blue Tent communication should disturb all Americans who care about the integrity of the nonprofit community and the legitimacy of the federal charitable tax deduction. This argument will generate protests from the Left, of course, that the underrepresented would be excluded from participating in the political process. There would also be strong opposition from universities, hospitals, cultural institutions, and other large nonprofits that focus much of their fundraising now on the very wealthy. These political barriers make it even more important that we find a way to restore a distinction between the partisan and the philanthropic.
There should be serious debate about the future of the charitable sector. When a leading voice in philanthropy declares that the current laws are inadequate and prone to abuse, it is time to take action aimed at restoring the boundary between charitable and political activities or, at a minimum, stop subsidizing those who make a mockery of this distinction.