Filthy Lucre?

An editorial cartoon in today’s edition of USA Today depicts a black-robed preacher standing, his right hand held aloft, his left clutching a bag of money.  His eyes are pointed down, watching a saw (labeled "IRS") cutting out the floor beneath him.  And he is speaking a single word: "Vote. . . ."

The cartoon accompanies an op-ed titled "Turning a blind eye, IRS enables church politicking" by Dan Gilgoff, senior editor at U.S. News & World Report.   And while the bag of money clutched in the preacher’s hand merely suggests impropriety, the op-ed makes the claim explicit: churches are flouting the law, and the IRS must do something about it.

That the IRS has been lax in its enforcement of the prohibition on political intervention by churches cannot be denied, but is that really such a terrible state of affairs?

The op-ed contends that it is a terrible state of affairs: "This enforcement vacuum is aggravating the very problem that Congress set out to fix in 1954: preventing Uncle Sam from subsidizing partisan politics."  It’s difficult to take this claim seriously, however.  As the article acknowledges, then-Senate Minority Leader Lyndon B. Johnson–who pushed for the legislation–was probably more interested in dealing out retribution against groups that had opposed his reelection than in protecting tax-payers.  And even if that was the "purpose" behind the law, it’s difficult to imagine "reform" advocates rallying behind that principle today; if a pulpit endorsement is an example of illegitimately "subsidized partisan politics," then the direct funding of partisan activity through presidential public financing and "clean elections" statutes must, a fortiori, be illegitimate.

The op-ed gets stronger when it argues that failure to enforce the law will "offer tax relief to partisan political advocacy."  In the abstract, this is a more plausible concern, and it fits with the general principle that funds used for politicking "consist exclusively of dollars that have already been taxed."  Gregg D. Polsky, A Tax Lawyer’s Perspective on Section 527 Organizations, 28 Cardozo L. Rev. ___ (2007).  The editorial cartoon accompanying the article subtly reinforces this argument; the bag held by the preacher is undoubtedly filled with untaxed donations, filthy lucre when applied to partisan advocacy.  But this is also where the argument fails, for what is being complained about doesn’t really cost money.

For the most part, churches aren’t buying advertising time supporting or opposing political candidates.  Indeed, it has been made clear that this is an activity that will result in the revocation of the sponsoring church’s tax-exempt status.  See, Branch Ministries v. Rossotti, 40 F. Supp. 2d 15 (D.D.C. 1999).  Instead, what’s being complained about are endorsements from the pulpit.  But it’s difficult to see how pulpit endorsements violate the after-tax money principle.  Endorsing a political candidate during a sermon doesn’t increase the cost of delivering the sermon.  The rent and utilities will be the same regardless of the content of the sermon.  Assuming the preacher isn’t paid by the word, the person speaking the political message will receive the same compensation whether or not a political endorsement is uttered.  And if services are held on a regular schedule like, say, every Sunday, people will presumably show up regardless of the content of the sermon.  With no identifiable violation of the after-tax money principle, it’s not surprising that the IRS is reticent to strip churches of their tax-exempt status on the basis of pulpit endorsements.

The article goes on to note that both conservative and liberal churches are guilty of "flout[ing] the IRS rule without consequence," and points to the example of All Saints Episcopal Church in Pasadena, California as a liberal church that "has little reason to fear revocation of its tax-free status," despite being subject to investigation.  The author is likely correct that All Saints will not lose its tax-exempt status, but it is a mistake to conclude that All Saints has suffered no consequences.  All Saints has been incurring legal bills in connection with this investigation since 2004.  And thanks to the hopelessly abstruse "facts and circumstances test" used by the IRS to evaluate political intervention, it is unlikely that the conclusion of the investigation will leave All Saints with any better idea of how to avoid investigation in the future, other than to avoid all discussion of political issues.

Seemingly without regard to the lack of any strong enforcement rationale and the obvious danger that more robust enforcement would pose for the clearly protected discussion of political issues, the author concludes with surprise at the religious community’s reaction to the All Saint’s case:

In an interesting twist . . . many Christian right activists have taken up the liberal All Saints’ cause, vowing to fight any IRS attempt to revoke the church’s tax-exempt status.  A strange marriage, to be sure, but churches on both left and right have much to gain by pressuring the IRS to continue ignoring its own rule.

We do not find it at all surprising or strange that groups with significantly different viewpoints would join together in support of First Amendment principles; unlike political speech regulations, the Constitution doesn’t play favorites.  But then, we see things differently than Mr. Gilgoff.  While he sees churches with "much to gain"–what exactly is he concerned they will gain?– we see them with much to lose.

Related posts on this topic can be found here, here, and here.

The Center for Competitive Politics is now the Institute for Free Speech.