Liberal Suppression: Section 501(c)(3) and the Taxation of Speech

Liberal Suppression

Liberal Suppression

Section 501(c)(3) and the Taxation of Speech

Philip Hamburger

The University of Chicago Press

Chicago and London

The University of Chicago Press, Chicago 60637

The University of Chicago Press, Ltd., London

© 2018 by The University of Chicago

All rights reserved. No part of this book may be used or reproduced in any manner whatsoever without written permission, except in the case of brief quotations in critical articles and reviews. For more information, contact the University of Chicago Press, 1427 East 60th Street, Chicago, IL 60637.

Published 2018

Printed in the United States of America

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ISBN-13: 978-0-226-52194-7 (cloth)

ISBN-13: 978-0-226-52213-5 (e-book)

DOI: https://doi.org/10.7208/chicago/9780226522135.001.0001

Library of Congress Cataloging-in-Publication Data

Names: Hamburger, Philip, 1957– author.

Title: Liberal suppression : Section 501(c)(3) and the taxation of speech / Philip Hamburger.

Description: Chicago ; London : The University of Chicago Press, 2018. | Includes bibliographical references and index.

Identifiers: LCCN 2017034940 | ISBN 9780226521947 (cloth : alk. paper) | ISBN 9780226522135 (e-book)

Subjects: LCSH: Freedom of speech—United States. | Tax exemption—Law and legislation—United States. | Tax exemption—Law and legislation—United States—History. | Religion and politics—United States. | Religion and law—United States. | Constitutional law—United States—Religious aspects. | Religion and state—United States. | United States. Constitution. 1st Amendment. | Liberalism—United States—Religious aspects. | Liberals—United States—Attitudes.

Classification: LCC KF4772.H35 2018 | DDC 343.7306/6—dc23

LC record available at https://lccn.loc.gov/2017034940

This paper meets the requirements of ANSI/NISO Z39.48-1992 (Permanence of Paper).

For Joseph

[T]he justification of freedom from taxation of the property of religious societies is already questioned and may at any time become a practical issue. . . .

[N]either in France nor in any other State could any objection lie to any appeal to any group of people within the State to express their views and sentiments at a State election, excepting when that group of people within the State is under a compulsory obedience to a sovereignty alien to the State, and is directed as to the principles that must guide them in fulfilling their civic duties by the officials representing, within the State, that alien sovereignty.

CHARLES C. MARSHALL, The Roman Catholic Church in the Modern State (1928)

How far may a church go in teaching disloyalty to the American government as a religious principle?

How far may it go in inculcating opposition to the principles on which our government is founded? . . .

Can it be allowed to organize political machinery on a religious basis?

May it use its spiritual authority to coerce voters or members who are in public office? . . .

Catholics [must] understand exactly the political philosophy we offer them. This requires . . . a codification of the rights and duties of churches under the principle of separation of church and state. Some of the questions involved are: The legal position of all churches in respect to the State, to their members, and to each other, together with their duties toward the State and the precise limits of their right to political activity either directly or through religious power over their followers. . . . In general, we must make Catholics know the American meaning of freedom, equality and Liberalism.

IMPERIAL WIZARD HIRAM EVANS, The Rising Storm (1930)

§501. Exemption from tax on corporations, certain trusts, etc.

(a) Exemption from taxation

An organization described in subsection (c) . . . shall be exempt from taxation. . . .

(c) List of exempt organizations

The following organizations are referred to in subsection (a): . . .

(3) Corporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual, no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation . . . , and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office.

26 U.S.C. §501(c)(3)

§170. Charitable, etc., contributions and gifts

(a) Allowance of deduction

(1) General rule

There shall be allowed as a deduction any charitable contribution (as defined in subsection (c)) payment of which is made within the taxable year. . . .

(c) Charitable contribution defined

For purposes of this section, the term charitable contribution means a contribution or gift to or for the use of— . . .

(2) A corporation, trust, or community chest, fund, or foundation— . . .

(B) organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals;

(C) no part of the net earnings of which inures to the benefit of any private shareholder or individual; and

(D) which is not disqualified for tax exemption under section 501(c)(3) by reason of attempting to influence legislation, and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office.

26 U.S.C. §170

Contents

Introduction

1. Conceptual Foundations

I. Group Speech and Liberal Fears

2. Idealistic Organizations in Politics

3. Liberal Democratic Anxieties

II. The Liberal Assault

4. Influence and Propaganda

5. Segregation

6. Subversion

7. Political Theory

III. Unconstitutional

8. The Force of Law

9. First Amendment Principles

10. Licensing and Wholesale Suppression

11. Government Interests

12. Other Avenues for Speech

13. Not Only Exemptions but Also Deductions

14. Distortions of Constitutional Doctrine

IV. Divided and Subdued

15. Rights of Associators and Associations

16. Fractions of Persons and Rights

17. Government Homogenization of Public Opinion

18. Contemporary Speech Restrictions

Conclusion

Notes

Index

Footnotes

INTRODUCTION

Revenue subsections generally do not stir the passions of Americans. Nor usually do they illuminate broad developments in culture, theology, constitutional law, and political theory. Section 501(c)(3) of the Internal Revenue Code, however, is no ordinary revenue subsection.¹

It exempts religious, educational, and charitable organizations from federal income tax. But it denies them this exemption if they engage in campaign speech or if they devote a substantial part of their activities to propaganda or other attempts to influence legislation. Churches, schools, and charities thus must pay a tax for exercising two of their First Amendment rights: speech and petitioning. Most astonishingly, they must pay a tax for engaging in political speech in politics. They are entirely free to speak politically outside political contests but not in politics. This is an extraordinary abridgment of an essential freedom. Although it is not the harshest abridgment of political speech in the nation’s history, it is among the most sweeping attacks on such speech.

Section 501(c)(3) is therefore a puzzle. The First Amendment centrally protects political speech. Nonetheless, section 501(c)(3)’s broad suppression of political speech is widely considered normal and constitutional. This is odd. It therefore is necessary to reconsider the constitutionality of this tax provision. And if it turns out to be unconstitutional, it must be asked why has this not been widely recognized.

In answering these questions, this book goes beyond the narrow realm of the tax code and even beyond constitutional law. More broadly, it explores American liberal culture, including its theology, its democratic political theory, and its suppression of speech.

Put simply, section 501(c)(3) arose from liberal hopes and fears—bright hopes for the mental freedom of individuals and correspondingly dark fears of group speech, especially the speech of churches, lest it threaten individual mental freedom. The fears included fervid and often nativist anxieties about religion and politics—anxieties about propaganda, influence, segregation, and subversion that were widely voiced across the range of American liberalism, from the groves of academia to the klaverns of the Ku Klux Klan. These anxieties and resulting prejudices were pervasive, and they were eventually satisfied, in part, by the use of the tax code to suppress much of the political speech of churches and other idealistic associations.

This background makes it painfully clear that section 501(c)(3) has been a mode of suppression. Far from being a technical tax provision, it has been a mechanism for quieting down some central types of political speech, and on this foundation it becomes possible to consider the constitutional question afresh—to see how plainly section 501(c)(3)’s speech restrictions violate the First Amendment.

At the same time, the history of section 501(c)(3) illuminates some largely ignored features of American liberalism. Liberalism has done much to elevate the minds of Americans above narrow interests and prejudices. But there are two sides to every coin, and the history of section 501(c)(3) reveals much about liberalism’s theological and nativist elements, about its overheated fears of churches and other idealistic associations, about its demands that they suppress their speech, and about its justification of this in terms of political philosophy.

Somewhat similar developments can be observed in other countries—most prominently in France, where, since 1905, a "culte must confine itself to narrowly religious activities and must avoid cultural activities" such as publishing. Even more than the later American suppression, this French suppression arose from profoundly anti-Catholic anxieties for the preservation of the state. Although the French example was suggestive for some Americans, it probably did not much affect American developments. More pertinent is that the two nations had parallel responses to their versions of liberal anxieties. Their policies therefore ran in the same direction.²

Of course, there are orthodox as well as liberal assaults on speech, and no one has a monopoly of personal or constitutional virtue. Different types of speech constraints, however, have different foundations, and in order to understand section 501(c)(3) and some other speech restrictions, this book must focus on the threat from liberalism.

Overall, in studying liberal anxieties and their results in section 501(c)(3), this book explores fields that are not typically considered together. For tax lawyers the book shows the unconstitutionality of two phrases in a revenue subsection; for First Amendment lawyers it reveals the theo-political forces underlying a range of speech restrictions; for religion scholars it addresses the transformation of American theology and the declining public role of churches; and for students of government it explains the development of liberalism and the sordid foundations of liberal democratic political theory. It may seem odd to frame a reconsideration of liberalism, speech, theology, and political theory around a revenue subsection, but section 501(c)(3) opens up a window on the broad landscape of American liberalism, including not only its sunlit uplands but also its more dismal valleys.

Section 501(c)(3)

Although this book mostly avoids narrow tax questions, it must begin by laying out section 501(c)(3)—to observe that however technical it may appear, it focuses on idealistic organizations and cuts back on their political speech. At stake is not merely a tax but the freedom of Americans to join together and bring their ideals to bear on politics.a

The Statute

Section 501(c)(3) identifies organizations exempt from taxation. As a preliminary matter, subsection 501(a) provides that [a]n organization described in subsection (c) . . . shall be exempt from taxation under this subtitle—thus generally exempting some as-yet-undefined organizations from the federal income tax. Subsection (b) qualifies this exemption by taxing even the exempt organizations for their unrelated business income. Then, subsection (c) lists the exempt organizations.³

Of particular interest here, subsection (c)(3) exempts corporations and other organizations dedicated to specified purposes:

Corporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual.

It is usually said that section 501(c)(3) thus exempts nonprofits, and this anodyne technical label may suffice for calculating taxes. It may even, perhaps, be sufficient for understanding why the organizations are not subject to the income tax. The label fails, however, to capture section 501(c)(3)’s broader import, for by including religious, educational, and otherwise charitable organizations, it covers the central categories of idealistic associations.⁴

This focus is troubling, because in exempting idealistic organizations, section 501(c)(3) also requires them to limit their political participation. After reciting the types of exempt organizations, section 501(c)(3) adds that the exemption is only for an organization

no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation . . . , and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office.

The exemption for churches, schools, and charities thus comes with two restrictions on the exercise of First Amendment rights: a substantial restriction on speech to influence legislation and a complete restriction on campaigning. Section 501(c)(3) thus takes aim at, not all, but nonetheless central types of political speech.⁵

It is bad enough that section 501(c)(3) specifically singles out religious organizations for such restrictions. Even more broadly, the section imposes its restrictions on almost the full range of idealistic organizations. It targets the religious, educational, and charitable organizations through which Americans associate to pursue and espouse their ideals, in contrast to the business, labor, or other associations through which Americans organize to pursue various types of self-interest. What at first glance is just a tax provision thus turns out to be an astonishing intrusion on the liberty of Americans to unite for idealistic purposes and voice their aspirations in the political sphere.

Another Statute

Aligned with the suppressive effects of section 501(c)(3)’s exemption is section 170’s deduction. Whereas the one section exempts idealistic organizations from income tax, the other adds that a donor to such an organization can deduct his contribution from his income, thus reducing his income tax. This deductibility (as will be seen in chapter 13) is a means of indirect government support for idealistic organizations, and it has the effect of reinforcing section 501(c)(3)’s speech limits.⁶

Although section 170(a) generally allows a charitable contribution to a religious, charitable, or educational organization to be deductible, section 170(c) defines a gift to be a charitable contribution only as long as the recipient organization is one which is not disqualified for tax exemption under section 501(c)(3) by reason of attempting to influence legislation, and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office. Section 170(c) thus ties its deductions to section 501(c)(3)’s restrictions.⁷

To most tax lawyers—whether engaged in tax planning or more academic tax analysis—deductions seem at least as significant as exemptions, and such lawyers may therefore be surprised that this book concentrates so heavily on section 501(c)(3). This focus, however, is no accident.

For purposes of the history, section 501(c)(3) and its exemptions are central, because the anxieties and prejudices that underlay the tax code’s speech restrictions initially developed largely as to organizations and their exemptions. In addition, for constitutional purposes, section 501(c)(3) is foundational because section 170 does not independently impose one of the restrictions. To be sure, it recites the restriction on campaigning. But it merely piggybacks on section 501(c)(3) for the lobbying restriction. More precisely, it offers deductibility only for gifts to organizations that are not disqualified for tax exemption under section 501(c)(3) by reason of attempting to influence legislation. The lobbying restriction thus has no independent existence in section 170.

Notwithstanding the historical and constitutional reasons for focusing on section 501(c)(3), section 170 is also important in this inquiry. Section 170(c)’s speech restrictions parallel those in section 501(c)(3), and in denying deductibility on the basis of the speech restrictions, section 170(c) creates profound pressures for conformity—pressures that many nonprofits feel even more severely than those arising from section 501(c)(3). Thus, even though this book concentrates on section 501(c)(3), it also occasionally considers section 170(c) and its constitutional weaknesses.

Churches, Schools, and Charities

These two statutes speak in terms that have become part of tax law but that are somewhat distant from the realities of American life. Most centrally, they speak of organizations with religious, educational, or charitable purposes, and these terms are so bland and abstract—are so remote from the ways in which Americans ordinarily talk about their associations—that they do not adequately convey what is at stake. This book, therefore, often eschews the statute’s terms and speaks more concretely about the suppression of churches, schools, and charities. Of course, in speaking about schools, this book usually means only private nonprofit schools (unless it indicates otherwise); and in talking about churches, it typically means all houses of worship, not merely those that are Christian. Although these caveats are substantial, the words churches and schools have the virtue of clearly identifying the sorts of associations that are suppressed.⁸

It is too soon to explore what lies behind the tax code’s speech restrictions on religious, educational, and charitable organizations, but already here it is important to observe that these different types of organization are not as distinct as the statutory phrasing may seem to suggest. Although the tax code classifies them by subject matter, it recognizes that they all are versions of common law charities, and it therefore mostly treats them alike. Traditionally, moreover, many educational and charitable organizations were, in one way or another, religious. They tended to be religiously inspired or influenced, and they were often under ecclesiastical or clerical control. Readers therefore should not be surprised to find that attitudes toward churches and church schools drove much of the debate about all sorts of exempt organizations.

An Open Question

Already at the outset, readers should be cautioned against thinking that the constitutionality of section 501(c)(3)’s speech restrictions is a closed question. It is easy to assume that the matter is so settled or obvious that there is little more to discuss. In fact, the constitutional question is far more interesting and unresolved than is commonly understood.

To be sure, in Regan v. Taxation without Representation, the Supreme Court upheld section 501(c)(3)’s lobbying restriction. But when one realizes that section 501(c)(3)’s speech restrictions rest on profound theo-political anxieties and prejudices, and when one notices that even the Court’s conclusion in Regan reflected such fears and presuppositions, then the decision no longer seems dispositive. The history unsettles existing precedent.

It may also be thought that, because the speech restrictions are merely conditions, their constitutionality is too obvious to be disputed. Certainly, it is widely assumed that the restrictions are merely conditions on a government subsidy and that it is therefore an uphill struggle to argue that they are unconstitutional. Readers, however, should hold their skepticism in abeyance. They will soon find that, although section 170’s deduction can be understood to have a subsidizing effect, section 501(c)(3)’s exemption cannot so easily be considered a subsidy. They will discover, moreover, that the subsidy view of the exemption developed largely out of prejudice. And even if the exemption is a subsidy, section 501(c)(3)’s offer of either taxation or reduced speech is a direct constraint. (Offering someone a choice between two constraints does not make either voluntary.) Last but not least, even if section 501(c)(3)’s exemption is merely a subsidy, without any constraint, its restrictions still run into difficulty. For one thing, they are neither proportionate nor germane. More broadly, private consent cannot enlarge the government’s constitutional authority. And in any case, the restrictions discriminate theologically in the distribution of privileges in violation of the Establishment Clause.

Of course, readers may ultimately disagree about these conclusions. But at this stage the point is simply that the constitutional question is far from settled or obvious. Indeed, it is wide open.

Conceptual Foundations

This book sometimes departs from what may be expected, and there is consequently a risk that readers may misunderstand the argument. To minimize the danger of misreading, whether about narrow legal doctrines or broad questions of theology and political theory, chapter 1 elaborates some of this book’s basic conceptual assumptions.

Part I. Group Speech and Liberal Fears

How did idealistic group speech come to be viewed as dangerous? And how have Americans come to assume that it may need to be suppressed? The historical answer to these questions begins not in the twentieth century, but in the eighteenth and especially the nineteenth century. Part I therefore traces the early development of liberal fears of group speech. By focusing on the eighteenth and nineteenth centuries, part I lays the foundation for this book’s twentieth-century argument.

Chapters

Traditionally, as explained in chapter 2, churches and other idealistic associations played a crucial role in enabling individuals to espouse their opinions effectively in the public and political sphere. This was profoundly important for their freedom because (as Alexis de Tocqueville observed) it is only through private associations that public opinion can be preserved as a force independent from government.

Nonetheless, as explained in chapter 3, another point of view has become increasingly popular. In response to theologically liberal anxieties, growing numbers of nineteenth-century Americans came to fear the speech or opinion of churches and related organizations as a threat to the individuality of individuals and their freedom of thought—even as a threat to the nation and its democracy. Although these fears began as a matter of theology in response to relatively orthodox churches and their ministers, they soon reached all sorts of churches and even other sorts of associations and their members.

In sum, although idealistic organizations and their speech were essential for the preservation of liberty, they and their speech provoked liberal fears for the liberty of individuals and the democracy of the nation. The concerns that eventually found expression in section 501(c)(3)’s speech restrictions thus had a long history in liberalism, and this is revealing about the fears, about liberalism, and ultimately about the suppression.

Oppressive Speech

An underlying theme of part I is the notion of oppressive speech. An essential element of the liberal reconfiguration of freedom of speech was the recasting of demands for suppression in terms of demands to redress oppressive opinion and speech. American liberalism and American law are based in hopes for freedom, and they could not have turned toward suppression without a vision of speech as oppressive—in other words, without an understanding of some speech restrictions as necessary for freedom.

It may seem strange to view speech and suppression in such ways, but as already suggested, many Americans, long before the adoption of section 501(c)(3), began to worry about the opinions and speech of churches and other idealistic organizations. From a theologically liberal perspective, idealistic organizations and their speech tended to stifle the mental freedom of individuals and even threatened the nation’s democracy. And on the basis of these liberal fears of group speech, it could seem that government had to take action.

The liberal anxieties about group speech as a danger to mental freedom eventually, at least by the late twentieth century, expanded to include fears of speech that cause mental discomfort, pain, or trauma. Of particular concern has been the speech that seems orthodox, conventional, stereotyped, and in this sense illiberal, and that is felt to cause mental hurt to individuals who understand themselves to have unorthodox or unconventional identities. Not simply a rejection of verbal slights, this is more precisely a repudiation of illiberal speech on the theory that it is harmful or oppressive.

Whether aimed at the speech of organizations or at illiberal speech, liberal suppression stands in contrast to the suppression attributed to various orthodoxies. For many centuries, restrictions on speech tended to arise from anxieties about the speech that undermined orthodox truths and conventional morality. Orthodoxies have therefore often seemed the primary threat to speech—as evident from a host of examples, ranging from the medieval European repression of religious dissent to the nineteenth- and early twentieth-century American restrictions on sexual expression. In the twentieth century, however, the threats to speech were shifting. Rather than merely a product of orthodox fears, suppression has increasingly come from a different direction—from liberal fears, not least about orthodoxies and the organizations in which they thrived.

Contemporary threats to speech are widely recognized, but the liberal anxieties that underlie many of them are insufficiently understood. In his Kindly Inquisitors, Jonathan Rauch documents recent attempts to punish speech for causing individuals mental trauma or pain. He recognizes that many threats to speech traditionally came from relatively orthodox perspectives—what he calls fundamentalism. He also recognizes that the limits on speech for inflicting mental discomfort come from a different direction. But rather than analyze the new sort of danger in terms of liberalism, he says it results from an exaggerated humanitarianism and claims that, from different directions, the fundamentalism and the humanitarianism threaten liberal science. He thereby utterly discounts the possibility that many contemporary threats to speech arise from liberal fears.⁹

More recently, Greg Lukianoff condemns demands for a freedom from speech. He argues that American efforts at suppression are symptoms of a basic human weakness—an all too human desire for mental comfort, undisturbed by disruptive or painful opinion. American demands for suppression are thus, from his point of view, little different from such demands in other parts of the world and cannot be blamed on liberalism, let alone American liberalism. This generically human explanation of human failings is attractive, and at a fundamental level makes much sense, but it would be a mistake to take it so far as to blur the differences among different cultures and thereby miss the distinctive features of some types of suppression.¹⁰

America has been an unusually liberal society, with high ideals of freedom, and it is therefore not an accident that so many Americans have tended to cast their demands for suppression in terms that reflect such ideals. They have done so, however, not so much in terms of a freedom from speech as in terms of the stifling and oppressive character of some sorts of speech. This vision of some opinion or speech as oppressive initially developed as part of the theologically liberal rejection of religious authority, at first in England and then, even more vigorously, in America, and it has portrayed much speech as a threat to mental freedom or well-being and ultimately to democracy. Although this vision has spread beyond England and America, it remains very American, and it explains much about section 501(c)(3) and a wide range of liberal suppression in the United States. Among other things, it suggests how the suppression of speech in America acquired its liberal slant—its slant against the speech of organizations and against insensitive orthodox or illiberal opinion. In many cultures, group speech tends to be punished as an affront or offense to another group. In the liberal understanding, however, group speech or opinion can be viewed as oppressive to individuals and their democracy—thus allowing the suppression of speech to be justified on a theory of individual and political freedom.

Of course, liberal ideas did not accomplish this alone. They became intertwined, beginning in the late nineteenth century, with progressive ideas (drawn from Germany) about the state and the pursuit of freedom through its power. Underlying liberal and progressive tendencies, moreover, was the sociological development of the American people, who increasingly were individuated and resentful of the censorious claims of religious and other groups that claimed to speak with moral authority. On this foundation, the liberal fears about group speech can be understood as the anxieties of an individuated majority about more cohesive minorities and their expression of nonconforming ideals.

Liberal anxieties gradually reconfigured understandings of freedom of speech. Whereas the First Amendment guarantees a freedom of speech from government, liberal anxieties led many Americans to assume that, under the First Amendment, government must be able to protect individuals and their democracy from speech—not least (as traced in this book) from the speech of churches and other idealistic associations. Thus, rather than bar suppression, the Constitution came to permit it.

This reconceptualization of speech, in which freedom of speech has significantly given way to a vision of much speech as oppressive, was part of a broader transformation of ideas of liberty and oppression. The danger of oppression once seemed to come centrally, although not exclusively, from government and its constraints on freedom, and traditional liberal ideas did much to limit this danger. In an ever less cohesive society, however, the threat has increasingly also seemed to come from other Americans—not least from their freedom to associate and speak—and the evolution of liberalism has had a profound role in this shift. By envisioning much speech as oppressive to the mental freedom or well-being of individuals, liberalism as it has developed in the past two centuries has justified government suppression of constitutionally guaranteed freedoms.

Part II. The Liberal Assault

How exactly did American liberalism contribute to section 501(c)(3)’s suppression of political speech? The answer is not merely legal, or even political, but more basically cultural.

Mere law and politics cannot explain how so sweeping a constraint on speech could be adopted and quietly accepted. The sordid history of section 501(c)(3) in Congress is well known. Across half a century (from 1934 to 1987), senators responded to political opposition from idealistic associations by embellishing the section with speech restrictions.¹¹ These senators, however, did not act alone. Congress as a whole adopted the section’s restrictions, and most subsequent lawyers and judges joined them in assuming that it was a lawful tax provision. So broad an adoption and acceptance of the speech restrictions cannot be explained by narrow political desires for suppression or even by legal ideas about it. In addition, there must have been deeper and more widespread expectations of suppression.

Hence, part II’s examination of the underlying role of liberalism. Section 501(c)(3)’s restriction arose in the context of a liberal assault on supposedly antidemocratic speech. The assault initially was theological, then became more broadly cultural, and eventually was carried out through tax law. All along, and especially afterward, it was justified in political theory.

Chapters

As recounted in chapter 4, the most basic element of the attack that gave rise to section 501(c)(3) involved nativist and other liberal anxieties about the speech of churches. These anxieties prototypically focused on the Catholic Church’s propaganda and its influence on democratic elections and legislation, but the fears increasingly took aim more generally at the speech of a wide range of churches and idealistic associations. Against this background, it is no surprise that Congress in 1934 amended section 103—since then renumbered as 501(c)(3)—to restrict propaganda to influence legislation.

Chapter 5 shows how the nativist and liberal anxieties that resulted in section 501(c)(3) included concerns about segregation. Nowadays it is assumed that the only real question about segregation in the decades before the Supreme Court’s 1954 decision in Brown v. Board of Education was racial segregation in public schools. What tends to be forgotten is that theologically liberal fears tended to focus on religious segregation in private schools. It has been suggested by scholars such as Richard Garnett that section 501(c)(3) segregates religion (or at least the religion of churches) from politics, and chapter 5 observes that such observations have some foundation in history. There were widespread nativist and other liberal complaints about Catholic segregation in parochial schools and corresponding demands that Catholic children be desegregated. Interestingly, these demands contributed to the ethos of desegregation that eventually was given effect in Brown. At the same time, however, such demands were part of the circumstances that prompted Congress, in 1934 and especially 1954, to use section 501(c)(3) to segregate churches from democratic politics.

The most severe liberal anxieties, as explored in chapter 6, were about subversion. After decades of narrow denunciation of Catholic subversion, and similarly narrow attacks on communist subversion, many liberals came to view Catholic and communist organizations as a twin threat to liberal democracy. From this perspective, although it might be unconstitutional to limit the speech of either Catholic or communist nonprofits, it seemed justified, for the sake of democracy, to demand that idealistic associations of all views suppress their political speech. On these assumptions, when the tensions over McCarthyism reached a breaking point, Congress in 1954 repudiated narrow anticommunism and adopted section 501(c)(3)’s more ecumenically suppressive restriction on campaigning by idealistic organizations, regardless of whether they were communist or Catholic.

It thus is necessary to reconsider the merely political explanation of section 501(c)(3)’s speech restrictions. In 1934 and 1954—and once again in 1987—the politicians who introduced the speech restrictions resented the hard edge of campaign speech and petitioning by idealistic associations. The restrictions, however, were not merely political. On the contrary, the underlying concerns were liberal anxieties about propaganda and influence, about segregation, and about subversion—fears that made it seem desirable and even normal to suppress the speech of idealistic associations. Amid these popular anxieties, the politicians felt no compunctions about using section 501(c)(3) to tax the intrusive political speech of idealistic organizations.

Part II concludes, in chapter 7, with political theory. What began as a matter of culture was soon elevated as philosophy. It may be thought that liberal democratic demands for suppression came merely from extremists. It may also be thought that such demands can be dismissed merely as past prejudice—that they have nothing to do with the current role of section 501(c)(3) in suppressing speech and petitioning. But the underlying attacks on the speech of churches, which came from nativist and more broadly liberal commentators, became the foundation for some of the most widely admired liberal political theory of the twentieth century. The philosophy of John Dewey and John Rawls systematically, albeit not self-consciously, elevated the democratic suppression from religious prejudice to political philosophy. Although the suppression has thereby appeared to leave behind any majoritarian bigotry and any desire to stifle opponents, the high-toned, genteel generalities of the philosophers cannot disguise the underlying history of prejudice and conformism.

Recognizing the Reality of Suppression

The most basic step in the constitutional analysis is to recognize the reality of suppression. Part II’s history is thus essential for the next part’s constitutional argument.

One reason that section 501(c)(3)’s speech restrictions have been so widely accepted is that they have not been recognized as a mode of suppression. Part II’s historical account therefore explores the range of theological and cultural anxieties, even animosities, that underlay the stifling of churches and other idealistic associations. Of course, these prejudices do not by themselves show the unconstitutionality of the speech restrictions, but they force one to recognize the underlying reality and thereby leave one no choice but to take the constitutional question seriously.

The existing scholarship on section 501(c)(3) occasionally notices some of the dark clouds—in particular, the segregation of politics from religious organizations and the anxieties about subversion.¹² These glances toward the turbulent horizon, however, are all too rare, and in focusing narrowly on section 501(c)(3) and its political context, existing studies do not recognize the breadth and force of the theological and cultural storm. They treat section 501(c)(3)’s suppression of speech as if it were a narrowly legal and political matter—as if it had not evolved amid lurid theological, social, and political anxieties—and the result is to examine it on an almost entirely sanitized historical record.

In studying mid-twentieth-century America, it would be absurd to discuss racially discriminatory legislation without considering the underlying racial prejudices. Similarly, it is a mistake to examine section 501(c)(3) without delving into anti-Catholicism, anticommunism, and more general liberal anxieties about the role of private associations in a democracy. By viewing the constitutional question expansively, in a way that includes not only the discussions that rose to the surface of the political waters but also the theology, culture, political theory, and sociological divisions that lurked beneath, part II reveals the reality of section 501(c)(3)’s suppression.

Part III. Unconstitutional

The next stage of this inquiry is to analyze the constitutionality of section 501(c)(3)’s restrictions. Do they violate the First Amendment? And if they do, why has this not been recognized?

The constitutionality of section 501(c)(3) is no ordinary constitutional inquiry. Rather than one of the many incidental and marginal intrusions on speech that are the bread and butter of much First Amendment jurisprudence, section 501(c)(3) is a broad assault on petitioning and political speech by churches and other idealistic associations, and it thus threatens the core of most First Amendment freedoms. It therefore deserves much more careful study than it has received.

The constitutional question turns on five basic elements: the force of law, the violation of constitutional principles, the danger of licensing and wholesale suppression, the possibility of justification in a compelling government interest, and the possibility of justification in alternative avenues for speech. Each stage of the analysis confirms the unlawfulness of section 501(c)(3)’s restrictions.

Chapters

The initial constitutional difficulty, explored in chapter 8, is to understand whether section 501(c)(3)’s restrictions come with the force of law. They are widely assumed to be merely conditions on a government subsidy or tax expenditure. In fact, section 501(c)(3) imposes its speech restrictions as direct constraints or penalties rather than merely as conditions on government expenditures. Indeed, the assumption that the section’s exemptions constitute an expenditure arises not from the scholarship on tax expenditures but from a long history of theological prejudice. Once this prejudice is recognized, it is all the more clear that section 501(c)(3) directly constrains churches, schools, and charities.

On this foundation, it will be seen, in chapter 9, how section 501(c)(3)’s restrictions violate the First Amendment’s freedoms of speech, petitioning, and religion, including both free exercise and establishment rights. Even if section 501(c)(3) is merely a subsidy and thus does not directly constrain, its speech restrictions are unconstitutional, for they are disproportionate and nongermane, in violation of the Supreme Court’s doctrine on unconstitutional conditions, and they are part of a discriminatory privileging of one type of religion over others in violation of the Establishment Clause. In the end, it is difficult to avoid the conclusion that the section’s restrictions on political speech, on petitioning, and on churches are grossly unconstitutional.

Adding to the constitutional problems, section 501(c)(3) establishes a system of licensing speech and religion—as shown in chapter 10. This licensing violates jury, due process, and other procedural rights and exacerbates the First Amendment difficulties. The licensing even creates a system of wholesale suppression, in which it is much easier to restrict speech than in retail proceedings.

Notwithstanding these constitutional violations, might they nonetheless be justified by compelling government interests? This question animates chapter 11. For example, can the suppression of political speech by idealistic associations be justified as a means of protecting the political process? Or can the suppression be excused as a means of preventing the political abuse of tax deductions—as a means of preventing gifts to section 501(c)(3) organizations from becoming, in effect, deductible political contributions? And so forth. Such justifications run into difficulty, for even where the claimed government interests are within the government’s powers, and even where they initially seem compelling, it turns out that section 501(c)(3) is not narrowly tailored to these interests. Its restrictions are profoundly overbroad and thus clearly unconstitutional.

One of the excuses for the speech restrictions is that idealistic organizations have other avenues for speech—notably, through section 501(c)(4) organizations and section 527 political action committees. From this perspective, the suppression scarcely deserves that name and cannot be considered unconstitutional. This excuse for the suppression, however, as hinted in chapter 1 and elaborated in chapter 12, rests on a series of misconceptions about speech and about the Constitution. It assumes that Internal Revenue Service (IRS)–compliant committees are an adequate substitute for the harmonized voices of a congregation; that such committees are not subject to their own speech restrictions; and that churches and other idealistic organizations can directly control the speech of their affiliate organizations. It also fails to recognize how, by forcing idealistic organizations to speak through circuitous mechanisms, the law discriminates against the poor and some of the relatively orthodox.

Above all, the alternative-avenue excuse incorrectly focuses on the total amount of messaging from the points of view of idealistic organizations rather than on their freedom of speech—meaning, most basically, their freedom to speak for themselves, in their own voices. In other words, the alternative-avenues excuse fails to appreciate that, even if the total amount of messaging remains constant, the idealistic organizations are still severely suppressed. Put in narrow doctrinal terms, the tax code’s pressures on idealistic organizations to speak through other organizations is anything but narrowly tailored. Thus, although idealistic organizations can partly compensate for the suppression by working through other organizations, the suppression of their own speech remains serious and utterly unconstitutional.

Although this book focuses on section 501(c)(3)’s speech restrictions on exempt organizations, chapter 13 examines the constitutionality of the parallel restrictions that section 170 ties to deductions. Section 170’s grant of deductions undoubtedly has a subsidizing effect. Its speech conditions on this subsidy, however, are so broad as to be nongermane and disproportionate, and therefore, like the speech restrictions in section 501(c)(3), they are unconstitutional. Indeed, in at least one way, they are worse than those in section 501(c)(3). Section 170 benefits churches that conform to the government’s vision of appropriate ecclesiastical political engagement, and this discriminatory privileging of churches creates profound Establishment Clause problems.

All of this prompts a final question: If section 501(c)(3)’s suppression is so flagrant a violation of basic constitutional principles, how has it been considered lawful for so long? Chapter 14 observes that the suppression has been upheld only with a distortion of constitutional doctrines. For example, the tax expenditure theory has been applied in an entirely selective and discriminatory way to justify section 501(c)(3)’s suppression of speech. Such distortions are illuminating, for they show how the very fears and prejudices that produced section 501(c)(3)’s restrictions have also left commentators and judges blind to the constitutional problems.

When the doctrinal distortion is understood, one can begin to see the constitutional questions afresh. The warping of constitutional law that underlies section 501(c)(3)’s alleged constitutionality confirms what otherwise is evident—that section 501(c)(3) suppresses Americans in their exercise of several constitutional rights.

Part IV. Divided and Subdued

Although espoused with elevated intentions about preserving liberal democracy, section 501(c)(3) has the effect of dividing and subduing Americans. At the very least, it is part of a broader tendency in United States to divide Americans and allow them only fractions of their rights. Not coincidentally, it is also part of a tendency toward government homogenization of opinion in which outlying perspectives are subdued.

Chapters

Section 501(c)(3), as seen in chapter 15, interferes with the constitutional freedom of Americans to speak in unison. It thereby violates the rights both of associators and of their associations.

Chapter 16 explores how section 501(c)(3) is part of a broader trend in liberal jurisprudence to confine specialized types of speech to specialized speakers. The effect is to treat speakers as only fractions of persons with only fractions of their First Amendment rights. The government thereby fragments the interests of the people in their rights and undermines the structural protection for rights that comes when all persons have an equal claim to rights and thus an equal interest in defending them.

Chapter 17 shows that the divisions have come with demands for homogenization. At the same time that section 501(c)(3) has contributed to the division of Americans and their First Amendment rights, government has increasingly been asked—not least by liberals—to homogenize public opinion. And section 501(c)(3) itself has had an homogenizing effect by discriminating against the political expression of some types of outlying beliefs.

Finally, moving beyond section 501(c)(3), chapter 18 considers other liberal restrictions on speech. Current speech restrictions often seem unconnected to each other. Academic speech and harassment codes are said to reflect political correctness. Federal restrictions on corporate speech allegedly remedy the crowding out of other political speech. As for the licensing by Institutional Review Boards of speech in or about human-subjects research, it is depicted as an ethical reaction to the danger from researchers who are led astray by curiosity or money. And so forth. Considered functionally, the restrictions seem too diverse to have much in common. Nonetheless, amid a swelling wave of speech restrictions, it is odd that each sort is understood on its own rather than as part of a common development.

Of course, demands for suppression have come from many directions, not all of them liberal; but in a liberal society, it is no surprise that there has been increasing liberal suppression of speech. The point is not that there is any concerted liberal attempt to suppress speech, but rather that many speech restrictions have arisen from shared liberal anxieties. When examined against the background of liberalism as it developed over the last two centuries, numerous contemporary speech limits turn out to be manifestations of expanding liberal anxieties for the mental freedom or well-being of individuals or, more broadly, for the democratic character of the nation. From this perspective, many types of organized or group speech, and dogmatic or opprobrious speech, have seemed so dangerous as to merit public constraint.

Section 501(c)(3) thus illuminates a sort of suppression that can be observed across the spectrum of contemporary speech restrictions. And as already suggested, it is a sort of suppression that fractures Americans and their rights and that homogenizes public opinion—that divides and subdues.

Religion and the Polity

Along the way, there will be occasion to observe the costs for religion and the polity. Although these losses are difficult to evaluate, they clearly are profound.

The implications for traditional religion are sobering. For example, it often is said that religion, especially in its traditional modes, is in retreat, and it is suggested that this is a natural response to reason, science, and modernity—a response, that is, to religion’s own failings. The truth of this thesis need not be explored here, but even if it is partly true, it must be added that the retreat of religion from public life has been accelerated by law.

Most centrally here, section 501(c)(3) has excluded much religion from public life by denying churches and related idealistic associations the ordinary rights of petitioning and political speech. As with some of the other legal assaults upon religion, the underlying animosity comes from theological and broader forms of liberalism. Put bluntly, institutionalized liberal prejudice, in the form of section 501(c)(3)’s discrimination against ecclesiastical speech in politics, has sidelined churches from much active participation in the nation’s public life—thereby limiting their ability to protect their liberty and marginalizing them even in the minds of many of their adherents.

On the other side of the equation, the polity has also suffered. The shift from theology to ideology and the liberal suppression of the political speech of idealistic organizations, especially churches, has left moral opinion, and thus public opinion, largely without a strong anchor independent of government. And the theological loss has obvious structural costs for liberty. Whatever the failings of traditional American religion, it at least had a profound role in preserving a source of authority apart from the demos and its government, and what else can serve this function remains disturbingly unclear.

· · ·

Four broad inquiries—about liberalism, demands for suppression, the unconstitutionality, and the dangers of dividing and subduing—thus arise from a narrow tax provision. The overall effect is to question more than a century’s worth of liberal prejudice in theology, tax, speech restrictions, constitutional law, and political theory. Magnum in