Section 501(c)(3)’s Legacy of Prejudice: Mark Pulliam Sees No Evil

My new book, Liberal Suppression, argues that section 501(c)(3)’s speech restrictions are prejudiced and unconstitutional. These conclusions run counter to widespread assumptions, and it is therefore understandable that Mark Pulliam and other thoughtful readers find them difficult to stomach. All the same, it is important at least to come to grips with the realities that underlie the book’s conclusions, and Pulliam’s review fails to do this. To evaluate the prejudice, one must understand its nature; and to judge the constitutional arguments, one must recognize their breadth and strength.

The prejudice underlying section 501(c)(3) arose from theologically liberal anxieties about the speech of churches. And as traced by my book, the prejudice gradually expanded into a broader liberal fear about the speech of all sort of idealistic organizations. Indeed, these liberal concerns have expanded to include fears about the orthodox or stereotypical speech of individuals. It is therefore disappointing that Pulliam reduces my account of prejudice to a simplistic complaint about narrow anti-Catholicism.

My book, in his view, argues that section 501(c)(3) speech restrictions were added “in order to reduce the influence of the Catholic Church.” Certainly, anti-Catholicism was the opening wedge. But as my book repeatedly emphasizes, the relevant prejudices were not narrowly anti-Catholic. Already in the early nineteenth, they were broadened out to take aim at business corporations, and in the strain that is central to my book, they soon reached not only churches—Protestant as well as Catholic—but also the full range of churchy organizations, including eventually all sort of idealistic groups that were not religious.

For example, nativists were not merely anti-Catholic, but often were more broadly anti-ecclesiastical than is usually recognized. And conversely, elevated theological liberals were often more narrowly anti-Catholic than is usually understood. The low and high ends of American culture overlapped.

Strikingly, the broadly anti-ecclesiastical fears were commonplace even among the men (and women) of the Ku Klux Klan. It may come as a shock to learn that the Klan’s theological prejudices were not merely narrow, or that its leader self-consciously espoused a far-reaching theological liberalism. But Imperial Wizard Hiram Evans, who led the Klan to national prominence in the 1920s, accurately understood that his organization could flourish only by espousing theological liberal anxieties about the speech of all churches. Of course, the immediate threat seemed to be the Catholic Church—as when Evans threatened that “we must make Catholics know the American meaning of freedom, equality and Liberalism.” But he framed his arguments in terms of the danger from all churches, and he demanded speech limits on churches in general.

Nonetheless, to Pulliam’s mind, “the existence of anti-Catholic sentiment in certain pockets of America doesn’t explain the adoption of even-handed restrictions on all ecclesiastical speech—and, for that matter, on all tax-exempt organizations.” But that is not my argument. Anti-Catholicism was an important element, but it was only one element of broader fears that increasingly focused on all churches—indeed, on all idealistic organizations. And far from being confined to “pockets” of America, such fears were widespread already in the nineteenth century and pervasive by the mid-twentieth century. It is therefore a caricature of my argument to say: “The anti-Papist conspiracy was broad indeed.” My book expressly and prominently denies that section 501(c)(3)’s speech restrictions were narrowly anti-Catholic or conspiratorial.

Along the way, Pulliam personalizes the history:  “The principal culprits in Hamburger’s tale are nativists such as Ku Klux Klan imperial wizard Hiram Evans and then-Senator Lyndon B. Johnson, who faced a Catholic opponent in the 1954 senatorial primary. Hamburger portrays them as the instigators of section 501(c)(3)’s ‘oppressive’ political restrictions.” Actually, no.

To be sure, my book shows that the first person to propose both of the speech restrictions was the grotesque and brilliant Imperial Wizard. But rather than a Hollywood style story about individual villains, my book is an account of shifting cultural anxieties and prejudices.

In this vein, my book observes that during the twentieth century liberal speech fears reached across American society—forming a prejudice that was as prevalent at Harvard as in the KKK. And in pursuing this point, the book dwells on the thought of John Rawls. Of course, men such as Hiram Evans and John Rawls had little in common, but they shared a desire to limit the speech of churches, not to mention other idealistic organizations.[1] Self-consciously “liberal” fears about such speech have long driven liberal democratic philosophy in America, and far from abating they have only expanded. The book is thus not merely about section 501(c)(3), but more expansively about the drift of much American political theory and public sentiment.

And the prejudiced sentiment about the speech of ecclesiastical and other idealistic organizations is painfully evident in section 501(c)(3). Pulliam protests that I have not shown this. Well, consider just one phrase—the section’s limit on “carrying on propaganda, or otherwise attempting to influence legislation.” Those words were no accident. They came directly out of nativist literature—a literature that, again, reached across much of American society, from KKK klaverns to Ivy League philosophy departments. Once more, the low and the high had more in common than the latter wanted to acknowledge.

Pulliam’s review, in short, recognizes neither the broad character of the prejudice nor its societal depth. And in taking a confined view of both, he misunderstands the antagonisms that underlay section 501(c)(3) and still undergird a host of other speech restrictions.

501(c)(3) and the Constitution

Although my book’s constitutional argument is layered, few of those layers come out in Pulliam’s review. Of course, a brief review cannot recite everything, but his review is wrong even on its three main constitutional points.

One of Pulliam’s constitutional objections is that section 501(c)(3) does not clearly limit much communication. In support of this sanguine view, he recites the extent of speech by contemporary churches and non-profits—as if the amount of speech possible under the speech limits is evidence that speech is not limited. But my point is not that all political speech by non-profits is suppressed. Instead, it is simply that some of it is suppressed.

Indeed, the book cautions against extremes of over- and understatement: “This book’s concerns should . . . be neither overstated nor dismissed. Although not near[ly] the most egregious sort of suppression, the restrictions are, in the American context, more than bad enough.”

Rather than recognize this carefully balanced argument, Pulliam relies on it to suggest that I concede there is little evidence of harm. He writes that “Hamburger acknowledges that ‘there are limited empirical data on the effects of section 501(c)(3)’s speech restrictions,’” and he speaks of my “[c]onceding that the restrictions of 501(c)(3) are not ‘distinctively severe.’” Gee. Just because there is only some suppression—not complete suppression—should we not care?

Section 501(c)(3) is not especially severe compared to the Alien and Sedition Acts or McCathyism. But it is a remarkably sweeping limitation on the political speech of most idealistic organizations, and that surely is enough to make it profoundly worrisome.

Tax lawyers and First Amendment lawyers tend to have very different sensibilities about the speech restrictions. Tax lawyers usually observe that churches etc. are only slightly quieted down, for they can convey their messages through auxiliary organizations, such as section 501(c)(4) organizations and section 527 PACs. First Amendment doctrine, however, treats even the slightest restriction on political speech with apprehension. And the freedom of speech is not merely the freedom to have one’s message come out of someone else’s mouth; most basically it is the freedom to speak—to speak through one’s own mouth, in one’s own voice.

Unlike Pulliam, most Americans, on both sides of the issue, understand that section 501(c)(3) matters for speech. It is the only subsection of the Internal Revenue Code that is widely known—even by its section number—and that is no accident. The whole point of the section’s speech restrictions was to satisfy deeply felt theo-political anxieties about speech—anxieties that remain pervasive. And this is why so many Americans care. Whether they like or fear the speech of ecclesiastical and other idealistic organizations, they understand that section 501(c)(3) chills such groups.

Pulliam’s second constitutional objection is that the speech limits in section 501(c)(3) are merely conditions on privileges, not direct abridgments of speech. As he puts it, “Tax exemptions are a subsidy.” What he does not mention is my detailed history of how that view came to prevail.

Up through the mid-twentieth century, the subsidy view was almost exclusively the perspective of radically theological liberal writers and some economists, who often shared theologically liberal sentiments. In contrast, professional legal writings did not take this stance—other than the relatively few articles that were written by overtly theologically liberal authors. It is thus no coincidence that Judge Learned Hand, who in 1930 held exemption to be a “public subvention,” was self-consciously theological liberal.

In fact, when the income tax was adopted, its exemption of nonprofits was understood to be a recognition of the tax’s baseline—a point made long ago by Boris Bitker. Churches and other nonprofits were understood to be simply outside the realm of the income tax.

How, then, did the subsidy view come to prevail? As my book explains, the subsidy view was overtly anti-ecclesiastical, and at mid-century, as theologically liberal ideas became dominant, so too did the position that exemption was a subsidy. The subsidy vision of exemption thus arose amid increasingly pervasive theo-political animosities against ecclesiastical speech.

To understand how much the subsidy view twists the law, consider two data points. Stanley Surrey—the preeminent proponent of “tax expenditure” theory—did not consider exemption for nonprofits to be a tax expenditure. Deductions for donations to nonprofits were tax expenditures, but not exemption. Similarly, the Joint Committee on Taxation annually reports that deductions are “tax expenditures,” but says that “tax-exempt status is not classified as a tax expenditure.” The very theory that is trotted out to show that tax exemption is a subsidy actually shows the opposite. In fact, section 501(c)(3)’s speech restrictions are direct constraints on speech.

A third constitutional objection is that my theory of conditions proves too much, and in support of this Pulliam cites my earlier writing on unconstitutional conditions. I am grateful to him for this opportunity to say that I think my old article on the subject (in the Virginia Law Review) was overstated and that I am currently writing a book designed to make amends. But this not to say that I am wrong in arguing that section 501(c)(3)’s speech restrictions are unconstitutional.

In arguing that the speech restrictions are unconstitutional—not as direct constraints, but even merely as conditions—my book relies primarily on familiar Supreme Court doctrine. This doctrine recognizes that disproportionate or non-germane conditions are apt to be unconstitutional, and rarely have any speech conditions been more disproportionate or nongermane than those in section 501(c)(3). And for the many organizations that have little income, the conditions imposed by section 501(c)(3) are particularly irrelevant and disproportionate, for the conditions are sweeping and the subsidizing effect of the tax exemption can only be tiny.

The government understands the weakness of its argument from exemption, and it therefore tends to emphasize its interest in preventing deductions from becoming subsidies for donations used for political speech. This very reasonable concern might well justify a proportionate condition—such as a bar against deductibility for donations that are used politically. (Such a bar could be achieved in various ways—for example, by having nonprofits use segregated accounts.) But the government has not been satisfied with imposing a condition that proportionately limits those who receive deductions. Instead, it sweepingly restricts the political speech of those to whom the donors give. This is grossly disproportionate and nongermane, and is thus unconstitutional under conventional Supreme Court doctrine.

When the law singles out idealistic organizations for sweeping speech restrictions, when the restrictions are first proposed by the imperial wizard of the KKK, and when they echo nativist and more broadly theologically liberal anxieties, it is necessary to take seriously the threat of prejudice. And when tax expenditure theory and constitutional law must be twisted to justify the restrictions, it is necessary to take seriously the likelihood that they are unconstitutional.

Pulliam correctly points out that the Supreme Court upheld one of section 501(c)(3)’s speech restrictions in Regan v. Taxation with Representation (1983). But he should reread the Court’s opinion, for it observed: “The case would be different if Congress were to discriminate invidiously in its subsidies in such a way as to ai[m] at the suppression of dangerous ideas.” The suppression of dangerous ideas, by seemingly dangerous organizations, was precisely what section 501(c)(3) was all about.

[1] Rawls, for example, wrote in Political Liberalism that “nonpublic reasons,” which must be kept out of significant public debate, included the opinions of “associations of all kinds: churches and universities, scientific societies and professional groups.”