With Congress in Turmoil, Philanthropy Reform Seems Unlikely — Which Is How the Sector Likes It

Will the field of philanthropy ever face severe and sustained public backlash? And will that backlash spur lawmakers to drastically alter the laws governing how philanthropic dollars move?

Those are questions we’ve been asking pretty much since Inside Philanthropy got started. During that time — roughly a decade — numerous sector trends have invited that backlash: the rising influence of billionaires, the ongoing politicization of nonprofit giving, the explosive growth of donor-advised funds and much else besides. And in some ways, we have indeed seen discontent with the sector manifest itself in Americans’ declining trust in nonprofit organizations, and in suspicion of big-dollar giving in general. From time to time, a billionaire donor suffers a fall from grace and society shakes its collective head: “They’re all the same.”

But as of right now, what we haven’t yet seen is the backlash that sector leaders truly fear: the kind with legislative teeth. The provisions of the Tax Reform Act of 1969 — which set out the current regulatory regime governing philanthropic giving — remain in place. We’ve often wondered why so few in the sector have budged when it comes to tolerating the idea of reform to these outdated rules, even amid growing backlash and unease. One definite possibility is that the sector is riding out a bet that seems to still be paying off: that Congress will simply never get it together, or simply never get around to overhauling the nonprofit sector’s systems of oversight and regulation.

As an example, take the latest events around potential philanthropy reform in Congress. Following the apparent death of the Accelerating Charitable Efforts (ACE) Act with no bang and barely a whimper as the 118th Congress succeeded the 117th, advocates for the status quo seemed mostly in the clear. That is, until this summer, when the House Committee on Ways and Means put out a public “request for information” on what it called the “political activities of tax-exempt organizations under Section 501 of the Internal Revenue Code.”

Issued by two Republican congressmen, the request was a blatantly partisan one that cited only progressive and Democratic-oriented donors as examples of possible 501(c)(3) impropriety. Mark Zuckerberg and Priscilla Chan figured prominently, as did Hansjörg Wyss. Most likely, the whole thing amounted to unserious political posturing. Perhaps it was a scare tactic to discourage what many on the right characterize as a flood of left-leaning billionaire money flowing into Washington, with some justification. But whatever it was, it was alarming enough to cause consternation among philanthropy stakeholders for a time.

That is, for a month or so, until the old bet seemed to pay off yet again — that nonprofit regulation is still just too wonkish, too boring, too in-the-weeds, to merit sustained attention from lawmakers who’d much rather bite into redder political meat.

For the current House GOP Ways and Means Committee, that tastier fare has been its pursuit of Hunter Biden. But even that preoccupation now seems sidelined following the removal of Kevin McCarthy as House speaker and the chaos that continues to engulf the chamber (last we checked, no speaker). And now, with war in the Middle East demanding even more political oxygen, the thin gruel of nonprofit reform appears to lie untouched and abandoned once again.

In this case, that’s likely for the best. Without going too deep into what it would mean to give the Tax Reform Act of 1969 an update for 2023, I think it’s safe to say very few people in the philanthrosphere would like to see today’s Republican Party preside over such an undertaking. Even the Philanthropy Roundtable, otherwise aligned with the Republican right in many ways, was quick to denounce the Ways and Means Committee’s apparent probing. And for those of us further to the left, it’s pretty clear the committee’s request was purely partisan in nature, and that the legislators involved will never acknowledge that the problems they cite cut both ways. There is, after all, also no shortage of conservative 501(c)(3) dollars being marshaled to purposes that toe the line separating charity and politics.

With that in mind, the ongoing left-right arms race of politics-adjacent nonprofit funding — which ramped up significantly in the past decade, and especially circa 2016 — has ironically been a boon for the opponents of nonprofit reform. If only one “side” were operating in the grey area between charitable and political spending, it would be easy for its opponents to push reform. But the reality is that both sides partake, and the philanthropic establishment has little wish to burn that all down.

We witnessed that dynamic in action earlier this year, when a cross-ideological set of sector heavyweights authored that now-infamous op-ed arguing for “philanthropic pluralism." The piece ticked off a lot of folks, and generated what seemed like a veritable cottage industry of think pieces and social media threads. As much as anything else, the op-ed came across as a way for the philanthropy establishment to protect its above-the-political-fray image, while warning the sector’s more radical cadres against ideological and partisan attacks that might lead to legislative backlash and punitive reform.

It’s doubtful the rather ham-handed op-ed succeeded in that aim, but what seems clear is that given the current state of the legislative branch, any push by Congress to reform philanthropy in the near future will be unacceptably partisan. And the likelihood that preoccupied lawmakers will prioritize such an effort, let alone any less-partisan one, seems remote.

Those concerned about Congress overhauling the rules governing philanthropy probably still don’t have much to worry about, and judging from the past decade or so, even a tumultuous 2024 election may do very little to change that dynamic.

However, we shouldn’t mistake that for believing all is well. Whether we’re talking about DAFs, the c3-c4 nexus, foreign donations, transparency, or even the diminished ability of the IRS to keep track of it all, many aspects of modern-day philanthropy blatantly flout the spirit of the law, even if they adhere (loosely) to its letter. And that’s a problem not just for purism’s sake, but because of how the appearance of corruption and the steady diminishment of what it means to be a tax-exempt nonprofit will hollow out American civil society over the long term — or else push it to a boiling point at which drastic, punitive legal change becomes inevitable.

The upshot: We doubt any serious philanthropy reform proposals will move forward anytime soon. But assuming that deadlock means a desirable outcome for philanthropy and nonprofits? That’s a terrible bet.

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