Appealing calls for mutual restraint risk preserving rather than repairing a broken system.
The Trump administration’s aggressive legal and financial actions towards segments of the nonprofit community have given rise to an important line of thinking in response, called“prudential pluralism.” The basic idea is that donors and nonprofits should follow the Golden Rule and avoid using government investigations and coercion as a means for policing the charitable sector. It is an appealing idea in our polarized world. Nonetheless, it is also wrongheaded and unlikely to have the effects that advocates tout.
In a recent article, Benjamin Soskis provides a thoughtful and generally positive disquisition on prudential pluralism. He defines this approach as “the defense of civil society, marked by diverging interests, ideologies, and values, grounded in the sense that, even if one’s own allies are not currently under threat, in the future, they may be given that one attack can license or precipitate another.”
Not surprisingly, a good number of philanthropic leaders on the left and center-left of the pollical spectrum have endorsed this thinking, including the current president of the MacArthur Foundation. However, the call for restraint and political disarmament has also garnered support among conservatives, like Lawson Bader of DonorsTrust.
These leaders of the charitable right might find the causes and movements pursued by the progressive community to be distasteful and misguided. Yet, as the Philanthropy Roundtable, a coalition of conservative donors, has pointed out in relation to a proposed tax on foundation endowments, “Lawmakers should remember that they are not just setting policy, they are setting precedent.” In commenting on the administration’s attacks on Harvard, similarly, Bader noted that these actions “open the door for future administrations retaliate against faith-based charities, private foundations, or think tanks that dissent from the prevailing orthodoxy.”
At first glance, this argument seems to be compelling. Voluntarily refrain from attacking the other side when you have power and the other side will do the same when they have power. In the end, the nonprofit world is free to pursue its many and divergent ends for making our country a better place.
This is consistent with a long tradition of self-importance in the nonprofit community that asserts the vital value of the sector to American life. The basic theme is that donors and nonprofits should be exempted from most, if not all, criticism because they are essential to a good society. The Council on Foundations, for example, has a new initiative touting the importance of philanthropy to food banks, homeless shelters, churches, and youth centers, even though most of its largest members have not prioritized such activities for decades.
Unfortunately, when you unpack this argument, the contents do not hold up to scrutiny even if we would like to buy into such an appealing and virtuous idea. For me, there are three problems that undermine prudential pluralism.
Assumptions
The first flaw is the assumption that the current state of the charitable sector is generally okay and that any problems can be fixed through existing enforcement mechanisms. If there are a few bad actors out there, current laws and procedures should be used to correct them. No new laws or penalties are needed; we just need to make better use of the existing system.
The fact is that there is limited enforcement. The Internal Revenue Service (IRS) is the principal federal agency for enforcing existing laws, and it has been very hesitant to clamp down on even-glaring violations by nonprofits and their donors due to political sensitivities and limited resources.
A few state attorneys general, in Minnesota and Georgia, have tried, but most states stand back and wait for the feds. The list of unsavory behavior by nonprofits involving COVID payments and other government payments is long and growing.
The second faulty assumption that the current system does not have serious structural flaws. The current laws and regulations for nonprofits and philanthropies have been bent and stretched to enable various activities that clearly violate the intent of the law. My colleague Scott Hodge has made the case that many nonprofits have become commercialized and essentially serve as platforms for making money without the same taxes and regulations that are applicable to similar for-profit entities. I and others have arguedthat a significant slice of this world is overly politicized and allows tax-deductible dollars to be used for lobbying and electoral politics.
These problems will not be easy to solve. Nonetheless, they are real problems that threaten the legitimacy of the charitable sector. The notion that multimillion-dollar businesses avoid taxes by technically being a nonprofit would appall most Americans. Similarly, the fact that billionaires can get tax deductions for money going into nonprofits that are linked to lobbying and partisan election activities would also find little support among the public.
The third questionable assumption behind prudential pluralism is the notion that all parties will honor the ceasefire even when they have the ability to go after the other side. Why do Bader and other conservatives think that their calls for restraint will be reciprocated in kind by progressives when they control the White House, Congress, or both? There is little historical evidence that restraint is common among politicians and their allies when they see an opportunity to make political hay out of objectionable or questionable behavior by nonprofits.
Both sides have been more than willing to use government power to shape and constrain the charitable world. In the 1950s, then-Sen. Lyndon Johnson pushed through an amendment that prohibited nonprofits from endorsing candidates. I would like to believe that this was a high-minded act, but the fact is that Johnson had been the target of tough negative ads sponsored by a Texas nonprofit with conservative funding.
Throughout the 1960s, with Democrats in control of Congress, the House Ways and Means Committee and the Senate Finance Committee held countless hearings on the behavior of the charitable community. The result was sweeping reform of existing laws through 1969’s Tax Reform Act (TRA), which still structures almost all of nonprofitdom.
Democrats have also used Presidential and Congressional power to reshape universities and other institutions. Much of the administration’s and Congress’ battle with higher education has centered on affirmative action and diversity, equity, and inclusion policies promoted by previous policymakers as part of a broad and broadening civil rights agenda. Donald Trump’s threats and rhetoric are often unseemly and inappropriate, but he and Congress are simply using their power, including Congress’ power of the purse, to undo what they see as bad policies of the past.
Given this record, why do conservatives realistically think that the next Democratic president will not use her or his power to rollback reforms? Why would they believe that a Democratic administration and maybe Congress will not threaten donors and nonprofits of a conservative bent? The Little Sisters of the Poor would certainly point out that this belief in mutual restraint is misguided at best.
An alternative
One could also argue that restraint in attacking elements of the nonprofit sector would be negative, in that it would allow the current state of affairs to become even worse than it is now. More fraud, more commercialization, and more politicization are the ultimate outcomes of mutual disarmament
As an alternative, I would like to see an environment in which donors and nonprofits were regularly, if not constantly, subjected to scrutiny by politicians, the media, and watchdog groups. Vocal criticism of how the charitable status and charitable deduction are misused might encourage all of the actors involved in this drama to be more cautious and careful and, if not, face the possibility of hearings, legal action, and new legislation.
Something like this proposed environment prevailed during the 15 to 20 years after the TRA’s passage in ’69. The ordeal of the investigations, hearings, and regulatory actions before and immediately after the passage of this legislation made donors and nonprofits very cautious and careful when, for example, they undertook projects involving lobbying and election-adjacent activities. While some viewed this as a “chilling effect” on legitimate nonprofit work, the risk of a foundation president being called before Congress or the possibility that the IRS would really investigate your voter-registration project or your environmental-lobbying initiative had the effect of curbing attempts to stretch and bend the law.
Now, over time, that effect diminished as smart lawyers, tax advisors, and committed activists tested and stretched the IRS’s ability to enforce current laws. While there were occasional political threats to the overtly commercial activities of hospitals or the clearly partisan activities of many voter-registration groups on the left and the right, an expanded—and I would say corrupted—notion of charity and philanthropy became accepted both because many politicians benefitted from it and because others simply came to believe that change was impossible.
Trump has changed that situation. He is not subtle and he often steps far over the boundary dividing appropriate and inappropriate behavior. But the aggressive actions of this administration and Congress have made philanthropic and nonprofit leaders think twice before they take on ideologically or politically motivated activities.
The real tension
In the end, the real tension is between, in the words of one writer, “status quoists and brokenists.” Prudential pluralism is a high-minded and even edifying idea that asserts that the current state of affairs is only mildly blemished by easily correctable problems. The status quo is fine, just tweak it a bit.
However, if you believe, as I do, that the system is broken, then strong medicine is warranted. A charitable community that is becoming increasingly used for activities that go far beyond our usual notions of the charitable deserves investigations, criticism, and hearings that address these weaknesses and, if we are lucky, these demands will produce serious reform of our current system.
