WSJ Editorial: Free Speech vs. Tax Code

[question everything]

The Wall Street Journal

Free Speech vs. Tax Code
December 14, 2004; Page A14

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Back in October the NAACP was informed that it may have violated a law that prohibits charities, churches and other nonprofits from engaging in partisan activities.... According to the IRS, Mr. Bond explicitly "condemned the administration policies of George W. Bush," which is a no-no if your organization is tax-exempt and wants to stay that way.

Some conservative groups, which have found themselves under similar IRS scrutiny during Democratic administrations, can barely contain their schadenfreude. But perhaps they should be less concerned with political payback than with the implications of such a powerful agency haphazardly policing speech... The NAACP is just one of 60 or so nonprofits now under investigation by the tax police. Our sources tell us that some of these outfits are conservative, and all fall under the 501(c)(3) section of the tax code, which prohibits them from endorsing candidates, making campaign donations or otherwise engaging in partisan conduct. Since the groups receive tax-deductible contributions, goes the reasoning, allowing them to engage in such activities would amount to an indirect subsidy from taxpayers.

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Congress has already determined that organizations engaging in political conduct should not receive tax exemptions and that responsibility for enforcing the code rests with the IRS. Fair enough, though there's nothing in law that says the IRS must therefore use the nuclear option of revoking tax-exempt status. The agency has other tools that would preserve free speech principles while still disciplining those who have wandered into partisanship.

One option is simply to tax the errant remarks. The seldom enforced 527(f) section of the code says that if a 501(c)(3) organization engages in campaign intervention, the amount that it expends on that activity is subject to tax at 35%. Why not tax the speech, thus eliminating the subsidy, and leave the status alone?

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