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For the Public Good? Nonprofits and Political Donations

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What is a charity? In general, we think of it as an organization that does something to further the public good, doesn't make a profit and is tax-exempt. We feel good about giving to them because they help people or do something good for society. But charities and nonprofits are a murky world these days. Big charities handle millions of dollars and the highest paid director of a charity makes over $2 million dollars. That's a far cry from the local food bank, little league team or crisis hotline, and not what most of us picture when we think of a charity. And while they may accept donations and be tax-exempt, not all non-profits are charities. Under the IRS code, there are 28 designations for tax-exempt status including charitable, educational and recreational so there is a wide-range of groups that fall under nonprofit or tax-exempt status.

What makes non-profit groups so much more difficult to judge these days is that they may play a role in politics. How can a charity, a hospital or even a church be political? We know, for example, that hospitals and nursing homes (both individual hospitals and trade groups) have spent nearly $23 million on lobbying so far this year. The Supreme Court, in the Citizens United decision, placed an absolute premium on freedom of political expression --monetized it. However they're categorized, these groups recognize their need for a voice in Washington -- and voices cost money.

The recent brouhaha about the IRS unfairly scrutinizing conservative groups applying for tax-exempt status illustrates just how sticky -- and political -- nonprofit and charitable status has become. That status is important because it allows organizations to take donations and it also allows them to craft an image that they are working for the public good. In particular, social welfare groups as designated by the IRS in the 501(c)3 rules are confusing because they may not look or act like charities and they can appear very political in nature. This designation provides "for the exemption from federal income taxation of civic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare." The IRS admits that there is no definition of a social welfare group but offers the lofty idea that these groups embody, "the ideas of citizens of a community cooperating to promote the common good and general welfare of the community."

Isn't this a problem? That nebulous and idealistic description is supposed to offer guidance on who gets tax exempt status? Even corporate p.r. departments could spin that -- I mean, aren't grocery company employees a community of people contributing to the public good? Vague, complicated definitions make tax status determinations difficult and in the end you wonder if applications are ever refused. The problem isn't what tax exempt organizations can do or not do, but the broad classification of these "social welfare" groups makes it easy for organizations to play politics with charity status. And they do.

Then there are the (501(c)6) organizations which includes business leagues and chambers of commerce. The U.S. Chamber of Commerce is a tax-exempt organization and according to their website, they advance the interests of business " through its nationally-recognized team of lobbyists and policy experts. Together, they help craft pro-business legislation and block excessive taxes and regulations." Their Wikipedia page calls them a "lobbying group representing the interests of many businesses and trade associations." The Chamber has spent a billion dollars on lobbying since 1998, more than any other organization whether corporate or nonprofit. Since they don't have to disclose their donors we don't know who they are representing when they wine and dine in Washington but a look at their spending gives you an idea.

I guess that it's to be expected that charities and nonprofits would have lobbyists and give to political campaigns in today's politicized world. If you're trying to affect change then you need to have influence with lawmakers. Clearly, savvy charities and nonprofits know that.

Here's my question though: if we give these groups a break on taxes to support their mission to serve the public good, why don't we get a full account of their donors and how they spend money on politics? Isn't a transparent political system also for the public good? And, if no one is breaking rules or doing bad why should it be a secret? Let's call for transparency in political spending across the spectrum -- profit or nonprofit. Let political spending be out in the open and then we, as citizens, donors and consumers, can make the choices we feel are best.

As for the tax code, there may be some help on the horizon. Public Citizen is trying to bring some intelligibility to the issue of political spending through a new initiative called Bright-Lines. They are proposing new guidelines that clearly define political activity so that nonprofit organizations can engage in our political process without gaming the system, without fear of audits and in a way that is clear to all stakeholders. Something has to be done and this is a start -- our tax code may need lots of work but clarity and transparency are an excellent place to start.