THE New York Times had a nice discussion group the other day between legal experts on how to solve the problem of 501(c)(4)s. Basically, this category of non-profits is supposed to cover groups like the Sierra Club, the NRA, and the AARP, which have clear public-benefit programmes (environmental defence and research, gun-use education, and support and social organisation for seniors) but also naturally want to engage in lobbying and some political activity in pursuit of their causes. However, after the Citizens' United ruling in January 2010, the IRS saw an explosion in applications for 501(c)(4) status; as the tea-party movement gathered strength, applications went from 1,751 in 2009 to 3,357 in 2012.
Some of those applications, such as that of Karl Rove's Crossroads GPS, set off alarm bells at the IRS, because they clearly seemed aimed at allowing purely political groups to benefit from the perks of 501(c)(4) status, especially freedom from having to disclose who your donors are. To figure out which 501(c)(4)s were actually political front groups, the IRS started singling out for extra scrutiny conservative names like "tea party" and "patriot", without also looking for corresponding liberal names like "progressive" or "rainbow". That created effective political discrimination against conservatives—not that a pseudo-ideologically-balanced checklist of names would have been much better. But if the IRS isn't allowed to use organisational names that suggest a primarily political purpose as a guide, how is it supposed to figure out which groups deserve more scrutiny?
It can't, argues John Colombo, a law professor at the University of Illinois. He thinks we should scrap 501(c)(4)s entirely.
[T]he Internal Revenue Service will never be able to satisfactorily police the line at which political activity becomes “primary." Since “issue advocacy” (for example, lobbying) is permitted in any amount, the problem isn’t just one of identifying when political campaign activity becomes primary; it is also identifying the line between permissible issue advocacy and political campaign activity.
...Further, the (c)(4) designation has no real purpose. The best explanation, in my view, for tax exemption for charities is that it is a sort of partial government subsidy for organizations that offer services that the private market will not offer, and that government either will not or cannot offer directly. I find it hard to believe that lobbying suffers from such a serious market failure that we need to subsidize organizations whose primary activity is to lobby. In fact, it seems almost perverse that the government would subsidize organizations whose primary purpose is to lobby the government.
Rosemary Fei, a lawyer at the firm Adler & Colvin, disagrees. She thinks some organisations aren't selflessly aiding the downtrodden enough to be granted 501(c)(3) charity status, but still have public-benefit orientations that ought to let them operate tax-free. Meanwhile, some charities, like the Sierra Club, AARP and NRA examples above, "are too politically engaged to be charities, yet they work toward what each believes will be a better world."
Charities who find Section 501(c)(3)’s restrictions hamper their advocacy, often create a (c)(4) affiliate to pursue their lobbying agenda. Health maintenance organizations, low-income housing providers and homeowner or neighborhood associations are all examples of groups that may confer too much private benefit on their members, tenants and residents to qualify for (c)(3) status, yet their contributions to the social welfare are undeniable and warrant their continued exemption from federal income taxes.
I don't really have a decided take on this question. But I would put an asterisk next to Mr Colombo's pessimism that it's possible to distinguish whether an organisation's primary purpose is politics or social welfare. I think it's pretty easy to draw that distinction, in a society that decides it's interested in drawing the distinction. Societies that want to create a line between two fields of public activity are capable of doing so; we already do this in many ways. For example, the distinction between politics and the law is drawn very clearly in the US, because so many powerful social actors have a strong interest in policing those boundaries. Go to Russia or Vietnam, and you see how fuzzy and fluid those boundaries quickly become in societies where most social actors are interested not in separating politics and the law, but in blending them. (Not even an outsider can pretend to delineate a clear line: in a country where everyone violates tax law because it is impossible to comply with tax law, is it "justice" or "politics" when one person is prosecuted for it, or when they're not?)
The problem in America at the moment is that we have a vital, relentlessly competitive political sphere that is gradually colonising the domain of social welfare. Where there are still apolitical social-welfare causes, political groups see their interest in dividing and polarising those causes with one political tint or the other. We've seen this process play out over decades with Planned Parenthood, the Boy Scouts, the environmental movement, and most recently with the scientific establishment. A different kind of society might strongly stigmatise people who set up organisations that pretend to be social-welfare outfits when they are in fact almost entirely devoted to helping one party or the other win an election. This particular issue does not arise in many other advanced democracies, though they have democratic problems of their own. In any case, we're not interested in enforcing these kinds of distinctions right now; we throw up our hands and say "one man's politics is another man's social welfare".
Given that situation, I think Mr Colombo is probably right that we should just do away with the category. Of course that's not going to happen either, because the very same rampant politicisation has also paralysed our government and made it impossible to pass problem-solving legislation of this sort, or indeed any sort at all.
The Daily Otter:
