Nonprofits must sound the alarm on House tax bill

You’ve seen those signs to access a fire alarm: “In case of emergency, break glass.” In the case of tax reform, it is time for charities and foundations to break the glass and sound the alarm about a proposal that threatens the independence and integrity of civil society. 

Thursday, the House approved a provision that would effectively nullify the Johnson Amendment, a 63-year-old measure that prohibits 501(c)(3) organizations from endorsing or opposing political candidates.

{mosads}The vast majority of nonprofit organizations support the Johnson Amendment because it helps shield them from political pressure by donors, board members or politicians. 

As it stands, nonprofits are able to freely comment on current events and political issues. This type of advocacy can be extremely effective because it is focused on mission, rather than person or party. Charities often are one of the few experts in a policy discussion that do not have a political agenda.  

Endorsing a candidate is something else entirely, because you have to endorse the whole person, the whole platform. A homeless shelter that endorses a candidate based on housing policy is also endorsing that person’s views on taxes and schools and transportation and abortion.

It doesn’t take much imagination to see the crippling effect this could have among donors and board members. Without the firewall of the Johnson Amendment, charities will feel constant pressure to play politics at the expense of their mission.

That firewall serves another purpose, as well: It protects the integrity of civil society at large. The Johnson Amendment ensures that the charitable deduction, which is a government investment in civil society, is not used for political activity.

What happens if that protection is removed? According to the Joint Committee on Taxation, the House bill anticipates $2.1 billion being deducted under this provision. That equates to billions of dollars that used to go to partisan political activity, now being funneled through nonprofits that will be swamped by this flood of unlimited, anonymous and tax-deductible money. It’s easy to see the opportunity for abuse.

Charitable organizations could be created solely to take advantage of the charitable deduction and obscure the identity of political donors. With billions of dollars flowing through these new, opaque channels, it’s only a matter of time until scandal erupts, resulting in congressional hearings, IRS probes and public calls for a crackdown.

Think for a moment what that might look like: The IRS could impose vastly increased reporting requirements on nonprofits, a move that would increase the cost of fundraising and reduce spending on missions.

Religious organizations, for the first time, could be forced to file a Form 990, and all nonprofits could face greater scrutiny of their donor lists. Most ominously of all, Congress would feel pressured to eliminate the charitable deduction entirely to prevent government-subsidized funding of political campaigns.

In short, repealing the Johnson Amendment would open a floodgate for potential abuse that jeopardizes the future of the charitable deduction, donor privacy and the public’s trust in the nonprofit sector. 

That’s a high price all of us would pay so that a handful of organizations could make political endorsements in the name of free speech.

For those organizations, a much simpler solution is already available: They can simply opt out of being a 501(c)(3) organization that accepts charitable gifts, or they can create a 501(c)(4) entity to keep their mission separate from their politics.

Supporters of the House bill argue that such steps would be inconvenient. However, the vast majority of the charitable community is glad to endure that inconvenience in exchange for the protections that the Johnson Amendment affords.

Both individual charities and civil society at large are stronger and more effective with firewalls in place. That’s why we are choosing to break the glass and raise the alarm, now, while there is still time for charities and policymakers to take action.

Dan Cardinali is the president and CEO of Independent Sector, the only national membership organization that brings together nonprofits, foundations and corporations. Vikki Spruill is president and CEO of the Council on Foundations, a national nonprofit association of philanthropic organizations and corporations.