, GuideStar, on 2/9/17 Chuck McLean
Last week, President Trump announced at the National Prayer Breakfast, “I will get rid of, and totally destroy, the Johnson Amendment and allow our representatives of faith to speak freely and without fear of retribution.” Introduced in 1954 by Senator (and future president) Lyndon B. Johnson, the Johnson Amendment explicitly prohibits 501(c)(3) organizations (including churches) from engaging in partisan political activity.
What does this mean? Although 501(c)(3) organizations may engage in a certain amount of issues advocacy, they must stop short of actively endorsing or financially supporting a particular candidate or a particular political party. This restriction applies almost exclusively to charitable nonprofits. Other tax-exempt organizations can engage in partisan activity (although the matter of how much is still very much in question), but contributions to those organizations are generally not tax-deductible.
Much of American law is borrowed from England. But it was not until 1894 that the Wilson-Gorman Tariff Act established the basic principles of our current laws (at least as regards charities). The act established that organizations that were ruled tax exempt must operate for the charitable good of society. This act was declared unconstitutional by the Supreme Court the next year, but the foundation was set.
The Revenue Act of 1909 essentially said the same thing as the prior act, but added the provision that no individual involved with such an organization could benefit from the net income of the organization (the principal of private inurement). A nonprofit could pay someone for his or her honest toil in the organization, but it couldn’t give him or her a share of the net income over expenses just because there was a surplus. Finally, the Revenue Act of 1917 established an individual income tax deduction for contributions to charitable organizations.
These three principles, tax exemption, no private inurement, and tax-deductible contributions are to this day the cornerstone of what we now call 501(c)(3) charitable nonprofits.
Enter the Johnson Amendment. Johnson introduced it at a time when there was not a particular amount of angst about political activity by 501(c)(3) organizations (nor was there, so far as I can determine, much political activity by 501(c)(3) organizations). It appears that (to quote the New York Times) “like many things Johnson did, the goal was to bludgeon a political opponent, in this case a rival in a primary who had the backing of nonprofit groups that were campaigning against him [Johnson] by suggesting he was a communist.” In any case, the amendment was uncontroversial at the time.
That is clearly not the case now.
ARGUMENTS FOR REPEALING OR ALTERING THE JOHNSON AMENDMENT
There has been increasing momentum in some religious quarters to repeal the Johnson Amendment. The Alliance Defending Freedom asserts, “The good of our society depends upon the ability of churches to speak freely. When the church is silent, the culture suffers.” Another page on its website states, “Its’ time to put an end to the Johnson Amendment.”
In 2008, the Alliance Defending Freedom started Pulpit Freedom Sunday, encouraging preachers to violate the Johnson Amendment during their sermons on a particular Sunday and to mail those sermons to the IRS. The alliance states that 4,000 preachers have participated since Pulpit Freedom Sunday began. Thus far, the IRS has taken no action in response.
In 2011, members of Senator Charles Grassley’s staff put together a list of tax policy issues and questions pertaining to churches and other public charities. Among the questions was the matter of government regulation of political speech. Senator Grassley asked the Evangelical Council for Financial Accountability (ECFA) to reach out to a broad spectrum of religious and other nonprofits to gather input from them regarding these issues. In response, the ECFA formed the Commission on Accountability and Policy for Religious Organizations [full disclosure: I served on one of the advisory panels to the commission].
The commission’s final report, issued two years later, concluded that clergy and other nonprofit leaders should feel free to speak their minds, including speech about specific political candidates, without fear of reprisal from the IRS, provided such speech did not entail expenditures that would not have been made had there been no such speech. The commission also specifically said that the prohibition regarding the use of tax-deductible contributions for political speech should continue. In other words, the commission concluded that a preacher should be able to stand in the pulpit and tell the congregation to vote for Candidate Jones (which is currently against the law), but not to spend any of the church’s money to get Jones elected. The first would be a departure from the Johnson Amendment; the latter preserves the rest of the amendment.
It would be fair to say that this was by far the most controversial issue discussed in the meetings of my advisory panel, and certainly a major fear was that to relax the law regarding expenditures was to threaten the tax deductibility of donations to charitable nonprofits, particularly churches.
ARGUMENTS FOR KEEPING THE JOHNSON AMENDMENT AS IS
Leading (secular) nonprofit organizations quickly responded to the president’s announcement. Daniel J. Cardinali, president and CEO of Independent Sector, said, “Independent Sector is troubled by any proposal to repeal the Johnson Amendment. … For 60 years, this law has played an essential role in maintaining public confidence in, and support for, the charitable community. It ensures that charities remain a nonpartisan haven, separate from politics, in our civil society.” Cardinali observed, “Allowing the endorsement of political candidates is tantamount to allowing political agents to use the public’s goodwill towards the charitable sector as a vehicle to advance, through financial contributions, their own partisan political will.”
Tim Delaney, president of the National Council of Nonprofits, expressed similar sentiments: “Nonpartisanship is vital to the work of charitable nonprofits. It enables organizations to address community challenges, and invites the problem-solving skills of all residents, without the distractions of party labels and the caustic partisanship that is bedeviling our country.” Delaney suggested instead focusing on giving nonprofits a voice in policy discussions, keeping and increasing charitable giving incentives, and examining the impact of budget cuts on nonprofits.
We may be looking at changes to the current notion of the American nonprofit sector. In addition to the president’s desire to repeal the Johnson Amendment, the charitable deduction may be eliminated or altered. Congress is seeking ways to increase revenue without raising taxes. Much of the low-hanging fruit has been plucked. The Joint Committee on Taxation estimates that the deduction for charitable contributions costs about $50 billion a year in terms of money that does not go into the Treasury.
Just a couple of weeks ago, I told GuideStar’s president that I didn’t think it likely Congress would touch the deduction. But at that time I didn’t think the Johnson Amendment would be repealed, either. If it is, I cannot imagine that the Congress would allow tax-deductible donations in support of partisan political speech.
Note: This analysis is the author’s and does not necessarily represent the view of GuideStar.
The preceding post is by Chuck McLean, GuideStar’s senior research fellow.