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.”

Reader Discussion

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on October 02, 2018 at 09:35:31 am

What exactly is the "suppression" that 501(c)(3) organizations endure? That they might have to pay taxes--like, say, EVERYONE ELSE? If that's suppression, then neigh unto 100% of the population is being suppressed. ("Come see the violence inherent in the system!")

Hamburger appears to have buried his lede: His real argument appears to be that, because every dollar paid in taxes might otherwise have been used for speech, all taxation is unconstitutional. THERE's a best-seller--at least, among the share of the population who would be inclined to buy his 501(c)(3) argument.

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on October 02, 2018 at 09:58:02 am

I do not believe that Hamburger is selling what you assert him to be selling but rather is arguing that on 1st amendment grounds, we must recognize the 501(c)3 restrictions on SPEECH as impermissible. Granted, the argument of "subsidy" vs non-subsidy may lead us afield in our analysis BUT in the end we are still confronted with a real (albeit somewhat limited and somewhat rarely enforced (or selectively enforced)) LIMIT upon Speech, and speech of a specific nature.
Hamburger may be correct (or not) as to the origins of this "animus" towards theological (churchy?) speech BUT the fact remains that restriction are to be placed upon speech.
What if those receiving "negative income" tax credits were told that they must limit their speech? Any difference?

And as before (even if it was from INDIA - HA!) how is it that contributions to political parties are not treated as taxable income; yet, clearly those organizations engage in (what today passes for) political speech).

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on October 02, 2018 at 10:49:43 am

What exactly is the “suppression” that 501(c)(3) organizations endure?

[W]e must recognize the 501(c)3 restrictions on SPEECH as impermissible.


Compare the state of any 501(c)(3) origination to Hobby Lobby, a for-profit (and presumably tax-paying) corporation that the Court found has a religious perspective and mission. In what way is any 501(c)(3) origination subject to greater "suppression" or "restrictions" than Hobby Lobby? At worst, a 501(c)(3) organization risks losing its tax-exempt status--landing it in the same position that Hobby Lobby currently occupies.

I'm reminded of Prospect Theory, a cognitive bias whereby people focus on their status relative to some frame of reference (e.g., where they were, or where they expected to be) rather than any objective measure of status. Thus, people will willingly accept the idea of buying a $1 lottery ticket for a 1% chance to win $100, but will reject the idea of receiving $99, but with a 99% chance of losing $100--even though these are the same scenarios described in different ways. Hamburger seems to obsess over the threat of lost tax-exempt status, divorced from the gain of tax-exempt status.

Maybe Hamburger could fashion some kind of argument that 501(c)(3) organizations have a property right in their tax-exempt status? Cuz this oppression/restriction angle isn't working for me--regardless of the allegedly nefarious origins of the tax code.

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on October 02, 2018 at 10:54:26 am

Again, I'd be curious to know Hamburger's views of Agency for International Development v. Alliance for Open Society International, Inc., as a case that marks (if vaguely) the limits on government's power to use financial incentives to limit speech.

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on October 02, 2018 at 12:59:05 pm

I really don't see how you can get around Regan v. Taxation with Representation (1983). Are you arguing that was wrongly decided? Here is the critical part for this argument:

"Both tax exemptions and tax deductibility are a form of subsidy that is administered through the tax system. A tax exemption has much the same effect as a cash grant to the organization of the amount of tax it would have to pay on its income. Deductible contributions are similar to cash grants of the amount of a portion of the individual's contributions....

TWR contends that Congress' decision not to subsidize its lobbying violates the First Amendment. It claims, relying on Speiser v. Randall, 357 U. S. 513 (1958), that the prohibition against substantial lobbying by § 501(c)(3) organizations imposes an "unconstitutional condition" on the receipt of tax-deductible contributions....
TWR is certainly correct when it states that we have held that the government may not deny a benefit to a person because he exercises a constitutional right. See Perry v. Sindermann, 408 U. S. 593, 408 U. S. 597 (1972). But TWR is just as certainly incorrect when it claims that this case fits the Speiser-Perry model. The Code does not deny TWR the right to receive deductible contributions to support its nonlobbying activity, nor does it deny TWR any independent benefit on account of its intention to lobby. Congress has merely refused to pay for the lobbying out of public moneys. This Court has never held that Congress must grant a benefit such as TWR claims here to a person who wishes to exercise a constitutional right."

Maybe the Court was wrong that exemption = benefit (like a government grant). But I would like to see the argument against that made clearer.

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Devin Watkins
on October 02, 2018 at 16:26:30 pm

And again:

How about the Elephant Theory, a cognitive bias that causes (compels?) us to deny the presence of an elephant (and in this instance also a donkey) in the room:

"A political organization is subject to tax on its political organization taxable income. Generally, this tax is calculated by multiplying the political organization taxable income by the highest rate of tax specified in §11(b). If the organization is the principal campaign committee of a candidate for U.S. Congress, the tax is calculated using the graduated rates specified in §11(b). The tax is paid with Form 1120-POL , U.S. Income Tax Return for Certain Political Organizations.

The political organization taxable income equals its gross income (excluding exempt function income) less deductions allowed by the Code that are directly connected with producing gross income (excluding exempt function income), computed with certain modifications set forth in § 527, including a specific deduction of $100. The exempt function income of a political organization is income that the organization sets aside for use for its exempt function that was received as one of the following four types of income: (1) a contribution of money or other property; (2) membership dues, fees, or assessments from a member of the political organization; (3) proceeds from a political fundraising or entertainment event or from the sale of political campaign materials, which are not received in the ordinary course of any trade or business; or (4) proceeds from conducting bingo games that are defined in § 513(f)(2). Thus, investment income, or income from a trade or business (such as renting excess office space to an unrelated organization), of a political organization is not exempt function income and is subject to tax. Taxable income includes exempt function income (such as contributions) for any period of time that a political organization does not file a Form 8871 as required."

The elephant is the exempt function income of POLITICAL PARTIES that most assuredly "lobby" for, indeed *legislate* for / on and about policy preferences.

So why is a Political Party exempt from taxes (in most instances) and not other 501(c)3 organizations.
Why is the "lobbying" of these non-exempt 501(c)3's viewed askance as an improper state subsidy / entitlement, etc? What is the specific nature of the differences in the lobbying efforts of these respective organizations?

Bear in mind that the funds donated by corporations / individuals to Political Parties WHILST those Parties are engaged in "lobbying" are not taxed as income to the 501(c)3 Political Organization; BUT the same $2.75 I may donate to the Zoroastrian Resuscitation Society (as an example) would be taxable should my Zoroastrian friends seek to influence a political party, a candidate or the local dog catcher.

Why is that? In the former instance, lobbying dollars are free and clear? In the latter they are subject to taxation as income.

What is the "thread" justifying these two different applications of the taxing power.

Could it be that Hamburger may have a point? and that American's (w/ British roots) historical antipathy toward religious involvement in the political sphere may in fact be operative in these particular sections of the tax code.

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on October 02, 2018 at 17:22:59 pm

1. To clarify, the tax code says that when a political organization receives money via donations/dues/fundraisers/bingo to promote the election of a candidate (an "exempt function"), and then files the correct form, that money would not be regarded as taxable income. According to the IRS,

The exempt function of a political organization is influencing or attempting to influence the selection, nomination, election or appointment of an individual to a federal, state, or local public office or office in a political organization. The election of Presidential or Vice-Presidential electors is also part of the exempt function of a political organization. Activities that directly or indirectly relate to or support an exempt function are exempt function activities.

This exemption would NOT cover money collected for the purpose of lobbing officials regarding how to vote on any given issue--you know, activities traditionally regarded as lobbying--but, of course, the boundaries between exempt and non-exempt activities are fuzzy. Nor would it cover money raised via other means (e.g., from a business, or selling real estate), even if used for campaign purposes.

2. Shooting from the hip, I'd favor treating political organizations like 501(c)(3) organizations--that is, I'd favor eliminating their tax-exempt status, too.

3. That said, I'd like to see some studies of the issue. The biggest consequence might be to favor the wealthy. After all, rich people can influence a campaign via direct donations, or via "independent expenditures" (e.g., taking out an ad promoting a candidate, but putatively without coordinating the expenditure with the candidate). That action would be tax-free to the campaign they're supporting, because the money would not pass through the campaign's hands. People with more modest resources, even if there are lots of them, may not have a practical means to make independent expenditures on a candidate's behalf. Thus, their only option is to make direct donations to the campaign. If we tax those campaign donations, but not the independent expenditures, this could be seen as diminishing the influence of the poor relative to the rich. So this might warrant additional reflection and analysis.

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on October 02, 2018 at 18:13:42 pm


Stop splitting hairs.
1) Money collected for lobbying - Ha! Now when does a political party announce that it is going to lobby. They don;t have to *lobby* as, in point of fact, a) they are the ones being lobbied and b) Is not Congressional debate the functional, if not legal equivalent of "lobbying."
Then, of course there is the other Elephant in the room, and again the theory that something which is SO BIG, So prevalent, so obvious that it obscures the entire field comes into play, and that is the fact that CongressCritters devote a rather significant portion of their time *LOBBYING* the Executive Agencies on behalf of their CLIENTS, oops, I must mean their constituents. This is the ombudsman theory of Representative Gubmint!

2) I agree. Either nobody gets an exemption (and OUR nobody surely deserves an exemption, if not a dispensation - Ha!) or everybody gets one.
I wonder how many pages we could cut from the Tax Code.

3) And TAX the *independent expenditures*. Heck, I would go so far as to tax the NY Times for editorial endorsements of candidates. Tax at the rate that commercial ad space is charged, X $$'s per column inch!

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on October 02, 2018 at 19:04:18 pm

A little bit of an infringement on a Constitutionally protected right is like being a little bit pregnant. And, in a country where it has been decided the right to life is forfeitable to the whims and purposes of another, how much easier will it be to decide the right to speech may be forfeited when speech becomes an inconvenient impediment to a purpose?

It may be a stretch, but since Pulliam seems to have opened the door to Constitutional elasticity, I feel somewhat justified in stepping through it. Prof. Hamburger is admirably moderate in his assertions, even if it is received as radical thinking by current Academic standards.. My lack of standing within Academia, unencumbered by letters, permits me a certain level of eccentricity unavailable to him, another suppression not unlike 501(c)(3).

As such, I would go even further and suggest 501(C)(3) at its worse (and as he says, even a little free speech violation is worse enough), can violate the “Establishment Clause". When a minister feels compelled to refrain from speaking on a doctrinal issue that possesses a duel religious-moral and political character, or can be misconstrued as such by a determined SJW, such as abortion, contraception subsidy, capital punishment, (and, maybe) immigration, it not only suppresses speech, but doctrine, the end result being a broad acceptance of diluted doctrine that does not accurately represent the authentic doctrine. This, (in my view), constitutes a governmental establishment (albeit covertly) of acceptable religious doctrine, punishable by taxation.

This theory, of course, needs developed, but I think it’s within logical progression, however remotely, of Hamburger's scholarship.

Lastly, those who prefer to see this section of the Tax Code as a subsidy should, therefore, be willing to have general accounting principles applied to it and factored into to the federal budgetary calculations.

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Paul Binotto
on October 02, 2018 at 19:07:45 pm

I might rightly have phrased it, (and, maybe), capital punishment and immigration...

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Paul Binotto
on October 02, 2018 at 19:18:09 pm

If its a government grant, how does this not violate the establishment clause, at least involving religious or religious affiliated organizations. That having been said, if a proper accounting were completed, not only considering the so-called subsidy of non-profit tax exemption, (I do not agree that it is), but also the "reverse grant" of governmental services provided by these organizations, more efficiently and less expensively, than were the government to recall them unto itself, (which in fact, they are little justified doing so in the first place, its likely the government would still be ahead.

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Paul Binotto
on October 04, 2018 at 22:27:21 pm

To clarify my point. I should have noted, I recognize that Prof. Hamburger does indeed assert the Establishment Clause implications in his book, and that Pulliam cites that assertion in his review. My point above, is it's my view that violation of the E. C. is not limited to merely favoring "privilege of exemption to churches that bow to a theologically liberal understanding of ecclesiastical speech, [the restrictions clearly violate the Establishment Clause.]" *

But, in my view, the coercion goes further than inhibiting the natural tendency of some religions to participate rigorously in political debate. 501(c)(3) requirements can cause ministers to become reluctant, in fear it may be received as "political speech" from the pulpit, because of the duel religious-moral and political character of some issues (i.e. abortion, same sex marriage, etc.), to proclaim forcefully, fully, or at all, religious and moral truths held as doctrine. And, thereby, depriving or confusing the congregation of the Religious faith's authentic doctrine and teaching.

The result is a dilution of the Religion’s authentic doctrine. And, as in the case of Catholicism, most often the Protestant-ization of its doctrine. I see this coerced religious doctrinal dilution, under penalty of taxation, as a more insidious violation of Establishment because it not only restrains speech and doctrine, but changes (dilutes) doctrine to be more favorable not only to government, but that favors Mainline Protestant Doctrine, which (501(c)(3) does not similarly dilute.

*Liberal Suppression, Section 501(c)(3) and the Taxation of Speech by Philip Hamburger, The University of Chicago Press, Ltd., London © 2018, (pp.224)

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Paul Binotto

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