Tax Code Change Could Free Churches, Charities to Become Political Players

A provision in the tax code overhaul before Congress could lead to an infusion of new players in elections, including churches and charities, and prompt a significant shift in the way political campaigns are financed.

The House tax bill would allow churches and other nonprofits to advocate for candidates and take political positions without jeopardizing their tax-exempt status, rolling back what's known as the Johnson Amendment. The Senate plan doesn't take that step, meaning it will be one of many items up for debate as lawmakers work to pass a law that President Donald Trump can sign before the year's end. The conference committee is set to hold its first meeting Wednesday.

Some Republican senators have expressed interest in adopting the House's approach to the Johnson Amendment. Sen. James Lankford, an Oklahoma Republican who has long advocated for doing away with the Johnson Amendment, said Vice President Mike Pence in a meeting last week again "brought it up to me" that the House change should be included in the final tax legislation.

"The president and vice president speak often about this being corrected, in public and private settings," Mr. Lankford said in an interview. The White House has "made it clear, it needs to be in there," he said.

"If Congress is able to use the tax bill as a vehicle to repeal the Johnson Amendment, the White House would support it," White House spokeswoman Lindsay Walters said.

It is unclear if Republican senators will agree to add it to the final bill, but it they do Democratic senators are preparing to fight the move by invoking the Byrd rule, which prohibits the Senate from considering nonrevenue matters as part of any reconciliation bill. The tax plan is being legislated under the budget reconciliation process.

William Hoagland, senior vice president of the Bipartisan Policy Center and a former Republican congressional budget aide said the fact that the Senate's tax legislation doesn't include the Johnson Amendment is a clue that it might violate the Byrd rule, which is named after former West Virginia Sen. Robert Byrd.

"My gut instinct is that it is in violation, and that probably why it doesn't show up in the Senate version," he said.

To apply a Byrd test, a senator would need to raise an objection, which can happen at any point in the process. Democrats, including Sen. Ron Wyden of Oregon, are scouring the tax legislation for possible Byrd violations.

Then, the Senate's parliamentarian would make the ruling. Being deemed in violation would mean the Johnson part of the legislation requires 60 votes. There are only 52 Senate Republicans. Senate Parliamentarian Elizabeth MacDonough declined to comment.

The 1954 amendment, named after the late President Lyndon Johnson, provides a hard line against charities endorsing political candidates, campaigning or participating in political activities. Crossing it means the Internal Revenue Service can revoke the valuable tax-exempt status. However, churches and other groups can engage in voter registration drives, and some have found ways to make clear their preferred candidate without an outright endorsement.

Mr. Lankford said he is "optimistic" the Johnson Amendment meets the standards of the Byrd rule, pointing to it as a clear tax code issue that applies broadly and does have a fiscal impact. He said the Senate felt no urgency to include it in their bill since it was in the House plan.

Nonpartisan tax analysts anticipate that the proposed changes to the Johnson Amendment would actually cost the U.S. government $2.1 billion in lost tax revenue over five years -- the result of a billion-dollar-per-year shift in political money to nonprofits.

"It is a diversion of some of the substantial growth in political contributions into a deductible form that is not deductible today," Joint Committee on Taxation chief of staff Thomas Barthold told the House Ways and Means Committee last month, explaining the fiscal impact of the Johnson Amendment proposal.

The JCT estimates that between $1.2 billion and $1.6 billion of giving a year would move from traditional political operations such as campaigns and party committees into newly nontaxable entities such as churches.

"This is a radical proposal to change campaign finance laws," said Tim Delaney, president of the National Council of Nonprofits, which has been lobbying against changes to the Johnson Amendment. "Charities and foundations have worked for years, decades and centuries to build the public's trust, and we don't want to be dragged down by toxic partisanship."

Mr. Delaney and others who oppose the move say charities would come under pressure by partisan donors to engage in politics as a condition of their giving.

The National Association of State Charity Officials, which opposes the bill, said the "Johnson Amendment helps give donors confidence that their donations will be used for charitable purposes and not electioneering or other private, noncharitable purposes."

Ralph Reed, chairman of the Faith & Freedom Coalition, said the Johnson Amendment is "draconian" and has had a chilling effect on speech. "Under current law, spending one dime on politics out of hundreds of millions of dollars or making one political comment is the death penalty for that nonprofit," he said.

Mr. Reed said conservative evangelicals have been particularly wary of the existing rule and argued that opponents overstate the potential impact of rolling it back.

"We don't want churches to become super PACs, and we don't want pulpits to become political soap boxes," he said. "That's not the intention or goal, and we don't believe for one minute that would happen."

Under the House plan, set forward by Ways and Means Chairman Kevin Brady, 501(c)(3) nonprofit organizations could engage in political speech so long as that occurs in the ordinary course of business and the spending is a "de minimis" amount. The IRS would interpret those terms.

Richard Rubin contributed to this article.

Write to Julie Bykowicz at

(END) Dow Jones Newswires

December 11, 2017 05:44 ET (10:44 GMT)