Originally published on Forbes.com.
At the National Prayer Breakfast, President Trump has promised to totally destroy the Johnson amendment so that representatives of faith can “speak freely and without fear of retribution”. The Johnson amendment is a tag on the definition of a a 501(c)(3) organization – which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office.
501(c)(3) is the gold standard of exemptions. Not only is everything your organization does, short of opening a hardware store or something like that, exempt, donations are deductible to the contributors. And churches end up being the platinum standard. A church automatically has 501(c)(3) status, while other worthy organizations have to apply for that status. Churches are also exempt from filing Form 990, which among other things, would disclose how much their more highly paid ministers are making.
How Limited Is Clergy Speech?
But are all those benefits worth it if it means ministers can’t get up and say which candidates they support? Actually it might be, since there is an argument that religious leaders should not be doing that anyway. As it happens, though, your minister can tell you who to vote for without endangering the tax-exempt status of her church. Well in advance of the 2008 elections the IRS gave guidance to exempt organizations on what constituted prohibited campaign intervention by issuing Revenue Ruling 2007-41. The ruling teaches by example and the fifth example is quite instructive:
Minister C is the minister of Church L, a section 501(c)(3) organization and Minister C is well known in the community. Three weeks before the election, he attends a press conference at Candidate V’s campaign headquarters and states that Candidate V should be reelected. Minister C does not say he is speaking on behalf of Church L. His endorsement is reported on the front page of the local newspaper and he is identified in the article as the minister of Church L. Because Minister C did not make the endorsement at an official church function, in an official church publication or otherwise use the church’s assets, and did not state that he was speaking as a representative of Church L, his actions do not constitute campaign intervention by Church L.
So Minister C can shout his support for Candidate V from the rooftops. Just not from the church steeple.
What Exactly Does He Mean?
What is unclear from the President’s statement is what he means by destroying the Johnson amendment. There is a bill in Congress HR 6195 The Free Speech Fairness Act, which is more of a tweak to the Johnson amendment, but arguably addresses the President’s concern and also that of the promoters of Pulpit Freedom Sunday
This bill amends the Internal Revenue Code to permit a tax-exempt organization to make certain statements related to a political campaign without losing its tax-exempt status. An organization may not lose its tax-exempt status under section 501(c)(3) or be deemed to have participated in, or intervened in any political campaign on behalf of (or in opposition to) any candidate for public office, solely because of the content of any statement that: (1) is made in the ordinary course of the organization’s regular and customary activities in carrying out its exempt purpose, and (2) results in the organization incurring not more than de minimis incremental expenses.
This is arguably already the state of tax administration, since much to the frustration of the Freedom From Religion Foundation and possibly the promoters of Pulpit Freedom Sunday, that event, in which ministers give political sermons and send audio recordings to the IRS, has failed to get a rise out of the IRS.
A Radical Change?
Entirely dropping the ban on political involvement by all 501(c)(3) organizations, which would be what the President means if you took “destroying” literally would be a much more radical change. Benjamin Leff takes on the question of what that would be like in a post on The Surly Subgroup. Mr. Leff throws some numbers around that indicate that with strategic use of Donor Advised Funds all campaign spending could become tax-deductible
In 2015, Donor Advised Funds made over $14.5 billion in charitable contributions. If contributors wanted, they could divert just under half of that amount to political campaigns, transforming $7 billion into tax-deductible contributions to political campaigns. (Or, they could make new tax-deductible contributions and direct them to political campaigns, in which case they could spend in aggregate just under $14.5 billion). In the 2016 presidential election, total spending by Hilary Clinton, Donald Trump, the Democratic and Republican parties, and all Super PACS was just over $2 billion. So, in other words, there is enough capacity in existing Donor Advised Funds to transform all political spending into tax-deductible charitable contributions.
Would That Be Such A Bad Thing?
Mr. Leff tends to think it would not be such a good idea.
So, not only is deductibility a government subsidy for political spending that would go disproportionately to wealthy taxpayers, it would go to them in disproportionate amounts, providing a greater subsidy per dollar contributed to wealthier taxpayers than to less wealthy ones. It’s hard to imagine that there are many people who would interpret that dramatic tilt of the playing field in favor of wealthy donors a good thing. Not even Trump could sell a policy like that with a straight face.
On The Bright Side
Sam Brunson, also on SURLY, notes that ending the prohibition on political endorsements would remove one of the big obstacles that not-for-profit newspapers face.
If Trump does in fact get rid of and totally destroy the prohibition on endorsing and opposing candidates for office, a tax-exempt newspaper would not have to give up its traditional endorsements. And if that happened, would newspapers move to the world of tax-exempts?
Truthful Hyperbole
The TaxProf provided a nice roundup of reaction to the President’s proposal.
I was thinking of passing on this since it is really unclear what the President is proposing. In the Art of The Deal, Trump writes:
The final key to the way I promote is bravado. I play to people’s fantasies ………. I call it truthful hyperbole. It’s an innocent form of exaggeration – and a very effective form of promotion.
That view is quite frustrating to those with a more analytical bent, but it is something that we are going to have to get used to. At any rate, it allows for “destroying the Johnson amendment” to be a simple tweak as is proposed by HR 6195 We’ll see.