Tax exemption, free speech, and a bold campaign promise

Organizations such as churches are often faced with the choice between tax-exempt status and use of their political voice.

My daughter just finished the fifth grade and loved learning about the American Revolution.  Over the July 4th holiday, she explained why the colonists wanted independence: “People didn’t want to have to pay taxes without having a say in their government.” 

I asked her if the opposite were ever true: Should organizations that enjoy tax-free status, such as churches, lose their political voice? Churches are exempt from federal income taxes as 501(c)(3) organizations. Should they have a political say? My daughter thought about it for less than a minute: “Um… No.” 

My rising sixth-grader doesn’t know it, but she’s just stumbled into an obscure, but heated, issue of the day. Some clergy—mostly on the political right—believe that the tax law does indeed stifle their political speech. And Donald Trump has promised to rescue them.  

My daughter, in fact, takes a much tougher view than the Internal Revenue Code. The IRS  says a 501(c)(3) “may not be an action organization, i.e., it may not attempt to influence legislation as a substantial part of its activities and it may not participate in any campaign activity for or against political candidates.” 

The law does not prohibit clergy from speaking on policy issues of the day. However, in a meeting with hundreds of evangelical leaders last month, Trump seemed to promise to change the Code by repealing any limits on church-based political activity:

I think maybe that will be my greatest contribution to Christianity—and other religions—is to allow you, when you talk religious liberty, to go and speak openly, and if you like somebody or want somebody to represent you, you should have the right to do it.

In a CNN interview last month, Marjorie Dannenfelser of the Susan B. Anthony List and Bishop Harry Jackson of the Hope Christian Church elaborated on Trump’s promise. Said Dannenfelser:

[Trump] brought up… repealing the Johnson Amendment many times during this conversation… [It’s] a limitation on religious people… If you have… the church tax status, you can't speak out in elections.

Jackson added,

The Johnson Amendment originally was really suppressing the voice of the African-American church. The freedom of speech… should be our right as is consistent with our faith.

The plot thickens: What is this Johnson Amendment? 

As David Shipler describes in The Atlantic, Congress passed the law on July 2, 1954, at the bidding of then Senator Lyndon B. Johnson. LBJ was furious that conservative, tax-exempt organizations were backing an opponent. So he got even. With little debate, Congress passed his amendment that extended the curbs on lobbying by 501(c)(3)s to include political campaigning. 

Importantly, the ban applied to religious and secular organizations alike. So, for instance, a tax-exempt hospital foundation can’t endorse a candidate who backs a change in national health policy, and a private university can’t support a lawmaker who favors aid to higher education.

Has the Johnson Amendment suppressed the free speech of churches or religious leaders, as Dannenfelser and Jackson charge? Will Trump save the proverbial day? In the words of my daughter: Um, no. 

Churches—and their clergy—still enjoy broad latitude when it comes to expressing views on policy issues. The IRS says churches can conduct educational meetings, produce and share educational materials, and talk about public policy issues without jeopardizing their tax-exempt status. Religious leaders can even express their political opinions as individuals, though not on behalf of their church.

And what if a church violates the rules? The IRS can investigate if a high-level Treasury Department official reasonably believes a house of worship is overstepping the law, but you can count on one hand the number of cases the service has brought in recent decades.  

In other words, as the president of the Evangelical Council for Financial Accountability states: “Despite those… implying the IRS is lurking behind every tree, the risk of an IRS audit at your church is very low.”

Besides, if churches truly feel called to engage in political campaigns they can do so without fear of IRS reprisal. They could incorporate as a 501(c)(6) organization and pay a 35 percent excise tax on their political expenditures. Or, they could create a separate 501(c)(4) to engage in political advocacy. 

Of course, they’d pay a price—in the form of lost tax subsidies. Donors cannot make tax-exempt contributions to those organizations like they can with churches. And political organizations usually have to pay property taxes, while churches do not. But churches have the choice.

Imagine what would happen if Congress did allow political campaigning by houses of worship. Would taxpayers find themselves subsidizing the Church of the Chamber of Commerce, which might collect tax-exempt contributions to help out friendly lawmakers? Or the Congregation of Gun Control, doing the same to back candidates who support gun show background checks?  

The claim that the IRS stifles religious free speech seems overblown at best, but the issue generates deep and vocal passion among a key segment of the American electorate. Trump, in turn, seems to be selling them a solution that could cause even more problems. Why?

Now there’s a mystery even my daughter could solve.

This article first appeared at TaxVox.