Legal Commentary

Lately there have been lots of calls for loosening the Tax Code's restrictions on political activities by charities.  Some of these calls have been really thoughtful and well crafted.  They're all wrong.

Background: churches and other qualifying charities (hereinafter "charities") don't pay corporate income tax.  Donations to them are deductible, which means that the richer you are, the more your contribution is worth.  Section 501(c)(3) prohibits charities from participating in any campaign for public office.  There are detailed regs describing what it means to "participate," and suffice it to say that existing guidance has more holes than a practice dummy at an accupuncture training school.  Still, critics want yet more hole and yet less dummy.

I don't get it.  Deductibility magnifies the power of rich contributors, who are already over-represented in the political process.  And money corrupts.  Charities are supposed to be independent innovators, offering us alternatives to the same old stale government solutions.  But if there is a big infusion of cash or other rewards in store for charities that support the part line, well, I betcha they line up.  Goodbye, innovation.  Hello, Dobson.

Now, one could tell a political market-failure story for why we might want to subsidize political activity by genuine grassroots organizations.  It's hard, as we all know by now, to overcome free riding by individual voters.  So I can see a case for a subsidy for organizations that try to do that.  But that's not a reason to allow charities, which happen also to receive a subsidy, to also act as political entrepreneurs.  We should have two separate kinds of organizations, each with its own subsidy.  This way, we can design the political-actor subsidy to reduce the disproportionate rewards to rich donors, and reduce the corruption of the charitable sector. 

But wait, our straw wo/man might say.  (Wow, talking straw.  Cool.)   If charities, especially churches, are already the most powerful centralizing force for free-riding individuals, shouldn't we leverage that power?  Two responses.  One: if my corruption point is right, then this is a tactic that only works for the relatively short term.  Then, the organizations drift far enough from their purposes that they fail in their original mission, and they can't politically organize the disaffected former members, either.  Two: the existing organizational advantages of charities may themselves exist because of tax incentives, and so may be easily replicable. 

Tell me why I'm wrong, o skeptics.