After endless days of being rendered slap-happy from a deluge of negative political attack ads (of which both sides are guilty as sin), we can all cherish the chance to become slap-sad once more-at least until 2014. I’m sure this applies to almost everyone at whatever point they may be on the political spectrum. About the only people who feel let down by the end of this unpleasant bit of our history are the television executives, who raked in the obscene revenue, and the lying sacks of fertilizer who got rich writing the ads.
Most of these obnoxious spots ended up by telling us how manifestly unfit the target candidate was to hold whatever office he or she was running for, but a good many of these ads, especially at the beginning of the process, ended on a slightly different note, even if they displayed the same degree of vitriol throughout most of the text. These ads ended with instructions like, “Tell Obama to support the new American majority and put a stop to reckless spending.” On the other side, they may have instructed us to tell Mitt Romney to protect Medicare for our seniors. Why did these messages not end with an exhortation to all-but-beat up the targeted person? Because they were not put out by the political parties or their supporting super PACs, but by ostensibly non-profit 501(C)(4) organizations.
Presumably, by now, most people and not just tax experts, must know that a 501 prefix in an entity’s status indicates non-profit. The best-known type of organization in this category is the 501(C)(3) entity. It should not be confused with it’s very distant cousin, the 501(C)(4).
In general, the 501(C)(3) enterprise seeks to better humanity in some respect. It can range from the Salvation Army to your local community theater. While its members and executives may have their own private political feelings, the face of their organizations is and must be neutral. Whatever axes they have must necessarily be dull from lack of grinding. In return for this benevolent approach (which of course includes the same lack of profit motive that characterizes the whole category), the IRS grants such entities considerable tax exemption, both as to the receipt and expenditure of their revenues and the deductibility of the contributions they receive.
The 501(C)(4), on the other hand, does not have to feed the hungry or educate the disadvantaged or anything else like it, if the members do not want to. As long as they operate on a “non-profit” basis (you know, like no shareholders getting dividends), they can devote the biggest part of their expenditure to “education.” And what does “education” mean when we put quote marks around it, class? Why, lobbying of course. And for it, they get a tax break.
Of course there are a number of entities we might consider admirable, such as the NAACP and the AARP, which are 501(C)(4) organizations. But then, so are groups like the Center for American Progress Action Fund (left wing) and Crossroads GPS (right wing). They get to spew their venom on the taxpayers’ nickel.
So what is the bottom line, here? Are we to punish the old folks by taxing the AARP, just to inhibit the abusers of the system? In a word, yes. Keep in mind, I’m an old guy myself. There are steps the intellectually honest 501(C)(4) organizations can take to isolate the charitable elements of their activities. Then, only the money they spend haranguing Congress (even if we agree with their position) will be subject to normal taxes.
In my own experience, I have done some work for a small, not dishonorable organization called the Asian Pacific American Chamber of Commerce. Since some of their activity involved the same kind of boosterism you would expect from any chamber of commerce, they were ineligible to be classified as a 501(C)(3). What they did was to form an offshoot called the Foundation of the Asian Pacific American Chamber of Commerce, which is entirely dedicated to the expenditure of funds for charitable and benevolent purposes. For that, they could and did get a 501(C)(3), which enjoys greater tax advantages than even a 501(C)(4). I see no reason why the NAACP and the AARP could not do the same thing on a much larger scale.
How much money will our government save by getting rid of the 501(C)(4) entities? Probably not enough to balance our budget, but it could add up to a good deal. It certainly would be a good first step on the road to effective tax reform. Even better, come the next election cycle, the special interests who want us to subsidize them for the next round of televised harassment will be out of luck.