The Regulatory Compromise
As American foundations pursued a new open-ended philanthropy, one that broke away from centuries of targeted giving, and mass philanthropic institutions systematized fundraising to the broad American public, the nonprofit sector quite naturally began to weigh in on public issues. The growth and rising influence of this privately-funded sector posed anew the old question (at the origin of the British 1601 Statute of Charitable Uses) of what constitutes an eleemosynary (or charitable) gift and what its role should be in public discourse and policy. At the dawn of the twentieth century, many Americans found themselves using philanthropic resources to which they had access, including some very large ones, to wage political campaigns and push for new legislation. Inevitably the intersection of philanthropy and politics would become explosive.
The federal government welcomed the wealth of new resources that could be applied to the common good. Congress and the Treasury Department adopted the long-standing tax-exemption policy already benefitting philanthropic institutions in the individual states. Even more importantly, as the opportunity arose with the dramatic growth of both taxation and philanthropy during World War I, they extended the exemption policy not only to philanthropic institutions but also to the men and women who underwrote them.
Before tax exemption became a major issue in regulating gifts, the probate courts were the main arena for controversy. Probate judges were of two minds when they ruled on a challenge to a will intended to support political activity or to otherwise confront the law. Even though American states had abolished British laws during the Revolution, the early seventeenth-century statute continued to carry much weight in many American courts. It listed acceptable categories of gifts—for relief of the indigent, medical care, learning, religion, and other objects of public utility. Some judges relied on these precedents to invalidate a will and return the money to heirs in cases where the charitable gift was intended to support a politically controversial activity, or propaganda, as it was called time and again. Other judges interpreted these precedents loosely or ignored them, and in doing so they not infrequently broadened the scope of philanthropy.
As time went on, however, the question arose as to whether philanthropic institutions and the donors who supported them deserved tax exemptions. The issue of political activity began to be a factor in administrative rulings and tax courts under pressure from politicians who did not welcome challenges to their constitutional privilege of lawmaking. In essence, the state proposed to sponsor an apolitical philanthropy that would not limit its ability to legislate.
It is remarkable how much effort lawmakers, regulators, and philanthropists alike have invested throughout the twentieth century in the nearly impossible task of maintaining a solid distinction between philanthropy and politics. Promoting the common good often leads to political advocacy. All the same, the prevailing view was that philanthropy could educate but it could not advocate, a distinction that depended on an artificial boundary between communication and lobbying. In this dichotomy, policymaking is eligible for a tax exemption but political strategizing is not. Such rules were just as impossible to precisely define as it would be to construct a biracial society where blacks and whites were “separate but equal,” another dramatic invention of the same period.
How the Courts Let Politics and Charity Mix in the Nineteenth Century
American probate courts, traditionally the main regulators of charity, took a permissive approach towards advocacy in the nineteenth century. Judges left a great deal of leeway in the interpretation of what was permissible in philanthropic funding, including in the area of engagement with politics.
The Second Great Awakening of the 1830s prompted the appearance of all kinds of charitable associations on the American scene. These associations did much more than help indigents. They promoted contentious ideas, such as temperance, and the reform programs to implement them. Frustrated heirs, objecting in the courts to bequests for these controversial projects, gave an opportunity to judges to affirm, if only circuitously, a broad mission for charitable institutions. Judges considered the legal charitable rationale behind the gifts and their consistency with previous interpretations of the eleemosynary statutes. Their landmark decisions are very instructive of the arcane ways judges, when free from issues of taxation, in effect recognized the indissoluble combination of giving and advocacy.
Judges always asked first whether a contested gift could be used for challenging existing laws. They declared time and again that citizens could not attempt to alter the law through a bequest of their private wealth. Lawmaking had no place in philanthropy. A gift must be “applied consistently within existing laws,” wrote Massachusetts Chief Justice Horace Gray in Jackson v. Phillips, a famous civil rights case of the Reconstruction years. Gray cited previous authorities who insisted, “the bounty must be ‘according to the law, not against the law’ and ‘not given to do some act against the law.’”1
The seeming simplicity of Judge Gray’s dictum hid subtleties that he himself was about to resort to in mixing giving and politics. Centuries of precedent had defined the proper spheres of charitable giving, but Gray now had the authority to interpret the precedents and to broaden charity. Although it may seem obvious that the first rule to follow for a donor is to make a lawful gift to a lawful cause, in an imperfect world it is often necessary to challenge bad laws in order to better society.
Judge Gray’s moment came when heirs to Boston merchant Francis Jackson protested the latter’s 1861 bequest to a prominent group of abolitionists and feminists. Jackson had written his will in the days when the two movements were still closely allied, that is, when advocates of civil rights for blacks and women argued together that race and sex were merely “two ‘accidents of the body’ unworthy of constitutional recognition.”2 In 1867, one year before the case was first heard, Susan B. Anthony, one of the bequest’s beneficiaries, founded with Frederick Douglass the American Equal Rights Association for a joint fight for gaining the vote.
In the bequest, the clauses pertaining to African-Americans and women were differently worded, and this proved to be critical. The money was to be used on behalf of African-Americans “for the preparation and circulation of books, newspapers, the delivery of speeches, lectures and such other means as in their judgments will create a public sentiment that will put an end to Negro slavery in this country.” There were also some funds “for the benefit of fugitive slaves who may escape from the slaveholding states of this infamous Union from time to time.”
The testator’s heirs claimed that the trust had failed simply because the Thirteenth Amendment abolishing slavery had made a gift to slaves and fugitives obsolete. The court, however, held that the doctrine of cy-près (or respecting the donor’s original intent under new circumstances—see chapter 1) was applicable, for “neither the immediate purpose of the testator—the moral education of the people; nor his ultimate object—to better the condition of the African race in this country; has been fully accomplished by the abolition of slavery.” “Slavery may be abolished,” the court recognized, “but to strengthen and confirm the sentiment which opposed it will continue to be useful and desirable so long as selfishness, cruelty, the lust of dominion, and indifference to the rights of the weak, the poor and the ignorant, have a place in the heart of men.” Moreover, and perhaps more importantly, what made the court so sure that it could uphold the bequest turned on the question of political activity. According to the ruling, “the manner stated of putting an end to slavery is not by legislation or political action but by creating a public sentiment … or another name for public opinion or a harmony of thought.”3 For the court, creating public opinion was nonpolitical.
For women, the gift was intended not simply to shape public opinion but to intervene directly in the political process. It was meant to help “secure passage of laws granting women, whether married or unmarried, the right to vote; to hold office; to hold, manage, and devise property; and all other civil rights enjoyed by men; and for the preparation and circulation of books, the delivery of lectures, and such other means as they may judge best.” The court denied the validity of the gift for women’s rights precisely because it was aimed “directly and exclusively to change the laws; and its object cannot be accomplished without changing the Constitution also.” The cause might be just, the judge admitted, but “in a free republic, it is the right of every citizen to strive in a peaceable manner by vote, speech or writing, to cause the laws, or even the constitution, under which he lives, to be reformed or altered by the legislature of the people.” Judges should administer the laws “as they exist.” Therefore “trusts whose expressed purpose is to bring about changes in the laws of the political institutions of the country are not charitable.” Not on the list of charitable uses sanctioned by precedent, they are not “entitled to peculiar favor, protection, and perpetuation from the ministers of those laws which they are designed to modify or subvert.”4
The civil rights case Jackson v. Phillips was only an initial installment in a long series of court battles involving philanthropy and advocacy. Barely two years after Judge Gray rendered the court’s decision, the alliance African-American leaders and feminists had forged dramatically collapsed, and it would take the civil rights movement of the 1960s to rebuild it. Women, excluded from the Fifteenth Amendment (ratified in 1870) that guaranteed the right to vote irrespective of race but not gender, angrily broke their civil rights alliance with blacks. The Amendment forced them to forge ahead and stage their own independent battle for enfranchisement.
Judge Gray had been keenly aware that women did not have the right to vote. This had a major bearing on his resolution of the case. In his reasoning, the judge articulated an evolving theory of separation between thinking politically and acting politically. It was possible to construe the first as educational, but not the second. The court sustained the gift to advance the cause of justice for blacks because of its didactic means; those for women, the court rejected as narrowly political. In deciding the case, the court laid out not a firewall between philanthropy and politics, as some later regulators would insist, but a more subtle rule to separate permissible educational action from non-permissible political lobbying, which was increasingly described as “propaganda.”
Thus American lawyers, judges, politicians, and other interested parties worked together to differentiate between different realms of philanthropic intervention. Financing for a political campaign, even when the ultimate goal was to change the law, was permissible, but only if the funds were allocated for the education of the public and not for direct lobbying of those in a position to act. Giving could serve advocacy at a remove, so long as it did not technically encroach upon the territory of formal politics.
The distinctions were influential even if ambiguous. As a result of this decision and others, giving for advocacy was increasingly directed at educating the public rather than influencing lawmakers. A close reading of the cases clearly shows that the important distinction was not between the political and the apolitical; it was between the broadly political and the technically political. Donors could serve political ends if they could find nonpolitical means for doing so. It became critical to word their intentions carefully so as not to arouse suspicion and challenge.
A few other late nineteenth-century court cases help us see that under the rubric of education, judges affirmed charitable trusts whose underlying purpose was in the final analysis political advocacy. This is an important point to establish because the Treasury Department would at times be far less flexible than the probate courts when regulating tax exemption for charities. The goal of the probate judges, one should keep in mind, was to add as much charitable money to special causes as possible. Treasury officials wanted instead to set limits on exemptions so as to add to their revenues.
To keep plaintiffs at bay, probate judges adhered to a very narrow technical definition of politics. So long as the challenged charity did not directly intervene in the government, they could legitimize its purpose, and they did. When Henry George’s great campaigns in New York City against “unearned” “speculative profits” led to a landmark race for the mayoralty in 1886—George’s third party received significantly more votes than Republican Theodore Roosevelt and kept the Democratic Party on high alert—many gifts went to the single-taxer. One of George’s supporters left him his fortune in 1887 “for the express purpose of ‘spreading the light’ on social and political liberty and justice” by means of the “gratuitous, wise, efficient and economically conducted distribution all over the land of said George’s publications,” including his Progress and Poverty and his Problems of the Times. When the supporter’s heirs attempted to recover the money for themselves, they failed. Changing public opinion, the court told them in 1889, was legitimate so long as it was not designed to promote a specific political action.
Thus, while distributing the works of Henry George obviously served a political agenda, it was understood as “public education.” In other words, the dispersal and explanation of George’s works and ideas represented a worthy charitable cause at law, provided the works contained “nothing hostile to morality, religion or law.” In Henry George et al., appellants v. William S. Braddock at the New Jersey Court of Errors and Appeals, Judge Beasley seized on the African-American portion of the Jackson case to affirm his position. He further asserted that unless this bequest was upheld, it would become “altogether impracticable to disseminate, by means of a charitable use, the works of any of the leading political economists, either of the present or past age, for it is believed that none can be found that do not, in material particulars, make war, more or less aggressive, upon some parts of every legal system as it now subsists. Certain it is that neither the Political Economy of Mr. Mill, nor the ‘Social Statics’ of Mr. Herbert Spencer, could be so circulated.”5
Conceptually, the judge added additional maneuvering room for those tax-exempt organizations later facing tax examiners whose ultimate goal was political advocacy. He legitimized a powerful new way for philanthropy to engage politics. All trustees had to do to fulfill their duties was simply to proceed within the framework of existing laws and they would not have to worry about their charitable status. The judge was very clear on this: “A proposition to alter the law according to the law” had a legitimate charitable purpose.6
How does one, then, alter the law in accordance with the law outside the formal realm of democratic politics? Again, the key lay in resorting to educational means of persuasion rather than the technically political ones of changing the law. Consider the case of a bequest to further racial integration that the plaintiff firmly believed to be invalid, but that the Supreme Court of Pennsylvania adjudged valid in 1893. In Lewis’s Estate, the court upheld a gift to prevent “discrimination by the well-known persons and places, viz: Labor organizations, common carriers, hotels, business houses, schools, all places of moral amusement, cemeteries, and in defense of all other rights to which any respectable citizen is entitled by moral right.” The donor’s intention was to “protect citizens of the United States of African descent in the enjoyment of their civil rights, as provided by the first section of the Fourteenth Amendment to the Constitution of the United States and the Civil Rights Act of Congress based thereupon, and so also of the Fifteenth Amendment thereof.”
The plaintiff thought he could not be on firmer grounds. As he correctly argued, the Supreme Court had overturned the Civil Rights Act of 1875 precisely because the Fourteenth Amendment forbade segregation of African Americans only in publicly-owned places. Not only was the will “inconsistent with existing laws,” “it is hardly conceivable,” the petition read, “that a trust could be valid which had for its object to overthrow a decision of the Supreme Court.”
The judge simply retorted that the will was perfectly legal because it did not recommend any direct means of action, political or not, to help the beneficiaries. This made it a valid trust. “It does not offend against any rule of public policy and the main object sought to be promoted is not only lawful, but commendable.”7
When in doubt, the judges usually sided with the charitable cause. In the new age of open-ended philanthropy, judges actually welcomed a level of vagueness in the bequests they reviewed. Donors responded by being fuzzy. To put philanthropy to the service of advocacy, it was best to leave the means untold and give every appearance of staying within existing laws. Thus giving became another instance of American pragmatism, where ambiguity was elevated to a philosophical principle. When the political encompasses the “educational,” as has happened time and again, form matters more than substance, and equivocation becomes a way out of political and legal dilemmas.
An 1897 Illinois case concerning women’s rights, Garrison v. Little, is telling in this regard. The trust did not tell the grantees what to do with the money for the attainment of woman suffrage. Rather, they were merely to use “their best judgment.” Because the means to the political end remained pragmatically unspecified, the judge argued that the court was “bound to carry the gift into effect, if it can see a general charitable intention.” A possible illegal application was no deterrent. Rather, “the word charity in its widest sense denotes all the good affections men ought to bear toward each other. A charitable use, where neither law nor public policy forbids, may be applied to almost anything that tends to promote the well doing and well being of social man.” Charity is “whatever is given for the love of God or the love of your neighbor, in the catholic and universal sense—given from these motives and to these ends—free from the stain or taint of every consideration that is personal, private or selfish.”8
This judicial interpretation of charities’ purposes continued well into the 1920s in probate cases, even though federal tax policy simultaneously initiated a far more restrictive track. Thus the Pennsylvania Supreme Court decided in 1922 in favor of “improvements in the structure and the methods of government.” The decision clearly authorized the trust to fund political action. Its ambitious agenda was to reform “the initiative, referendum, and recall; proportional representation; preferential voting.” The sponsor did not want the funded work to be theoretical (limited to an academic political science that was hardly established) but to make a difference in “ballot reform; the simplification of municipal, state and national government; and the revision or remaking of city charters, state constitutions and our national constitution.” The broader idea was “to promote efficiency and popular control of government.” And the means were expansive, including an effort “to employ and pay lecturers and writers,” “to print, publish and distribute pamphlets, magazines and newspapers,” and in fact “to use any and all lawful means to increase the knowledge of the citizens of the United States of America upon these governmental and political questions.” Trust monies might be used to draft “bills and acts, laws and other legislation and use all lawful means to have them introduced and passed to the end that popular democratic and efficient government may be promoted in the United States of America.”
Was the gift to be understood as political science or political advocacy? In validating the trust, the court struggled with the boundary between the two but decided that even though success for the new institution “might involve changes in the Constitution and existing laws,” this was no reason to rule against it. Instead the judge in the case argued forcefully that Americans had to engage in a continuous study of the laws of politics, lest they would “discourage improvement in legislation” and be compelled “to continue indefinitely to live under laws designed for an entirely different state of society.”
Another estate case that came before the California Supreme Court at the end of the decade confirmed the important distinction increasingly made between policy expertise and political advocacy but protected the latter. At issue this time was the creation of a foundation to promote a broad miscellany of causes: improvements in the structure and methods of government in the United States; in living and working conditions for the working people; the economic conditions of the country; cooperation between employer and employee; education; the practicable application of the “science” of eugenics; prohibitive legislation affecting intoxicants and narcotics; justice for American Indians; and the right of free speech and assembly. After reviewing all the available case law since the Jackson case, the court recognized that the opportunities for slipping into pure politics were plentiful but affirmed the trust on educational grounds. At issue was “the creation of a more enlightened public opinion.” The “consequent change in laws,” should it happen, was merely a consequence of “human relations” and “rights in a republic.”9
How the United States Treasury Kept Advocacy and Education Apart
With the growing importance of the income tax over the tariff in financing the federal government and the enormous increase in the sums devoted to philanthropy, tax-exemption policy eventually became much more salient than probate rulings in determining the purpose and limits of philanthropy. Twentieth-century federal regulators and lawmakers took a more restrictive view of the adjective “educational.”
The Federal government at first took its cue from state governments in defining its own tax-exemption policy. State governments granted not only charters of incorporation but also exemption to organizations devoted to religious and eleemosynary purposes. In the late nineteenth century, about a third of the states revisited their constitutions to take into account changes in the scale of philanthropy. The new provisions fused rationales from common law and equity, some of which had prevailed since colonial days, in defining exemption policy. They reaffirmed the exemption of institutions dispensing social benefits through their religious activities and/or discharging state burdens through charity.10 Colleges (whose main function prior to disestablishment was to train ministers for the national church) continued to benefit from exemption during the great expansion of higher education, when reformers called on new fortunes to build the American academic system.
All states periodically reviewed their provisions. New York legislators, worried about the negative market effects of land held in perpetuity, had capped the amount of property an exempt institution could hold. But in due course they realized the needs of large universities like Cornell (see chapter 1) and raised the property limit they had initially set on educational institutions.
Harvard president Charles W. Eliot defended the Massachusetts tax-exemption provisions for eleemosynary institutions in 1874 as “not a form of State aid” but “an inducement or encouragement held out by the State to private persons or private corporations, to establish or maintain institutions which are of benefit to the State.” As Eliot explained it, the income churches, academies, colleges, hospitals, asylums, and similar institutions of learning and charity were earning was already committed “forever” to public use; therefore it could not be “diverted by the State to other public uses.”11
There was no reason for state tax policy to affect the broad definition of philanthropy or to curtail the permissiveness toward advocacy that the courts had been inclined to allow. But that changed dramatically when the federal government adopted its own tax policy towards charity. Federal tax policy, which had played no role in the initial surge of American philanthropy, became the major instrument by which the government could define how much to subsidize giving, under what circumstances, and for what reason. With the rise of direct taxation on individual income and inheritance, exemption became a mechanism to encourage individual taxpayers to make gifts to existing charitable institutions or to create new ones.
While nineteenth-century probate judges had asserted that “an appeal to political institutions to improve the lot of mankind” was “entirely consistent with a broad and dynamic conception of charity,” treasury officials instead saw an apolitical philanthropy as a necessary justification for the exemption.12
Federal tax policy towards charity began with the doomed federal income tax introduced as part of the Wilson-Gorman Tariff Act of 1894, which lowered protective duties on manufactured goods. The income tax, designed to make up for the loss of tariff revenue, included exemptions for “corporations, companies, or associations organized and conducted solely for charitable, religious, or educational purposes,” but the Supreme Court struck down the proposed tax because it violated the constitutional provision of uniformity. Only with the Sixteenth Amendment did Congress gain the power to collect income taxes without “regard to any census or enumeration.”
What is known of the legislative history of the exemption provision does not suggest a rationale for it other than the long history of state precedents.13 In 1909, a federal corporate excise tax exempted institutions “organized or operated exclusively for religious, charitable or educational” programs. The Revenue Act of 1913 added “scientific” organizations to the exempt list. The Act of 1916 expanded it to include those “for the prevention of cruelty to children or animals.” Literary groups were added in 1921, as were community chests, funds, or foundations, the latter under the impulse of the U.S. Chamber of Commerce, which pressed for an exemption for the civic and social welfare organizations that had benefitted from the dramatic expansion of mass philanthropy.
The states had also pioneered in providing exemptions to individual taxpayers for donations to charitable, religious, and educational institutions, as had North Carolina in 1901 for gifts above $2,000.14 But it was only in 1917, with the war, that the federal government extended the exemption to individual taxpayers contributing to charitable causes. Senator Henry French Hollis from New Hampshire introduced an amendment to the War Revenue Act of 1917 that allowed 15 percent of personal income to be deducted.15 Many senators considered the deduction a temporary wartime measure. This new charitable deduction arguably contributed significantly to the success of the United War Work Campaign.16
What was supposed to be temporary became permanent. The 1918 Revenue Act not only kept the personal income tax deduction but also widened it to allow estates and trusts to take the deduction for charitable contributions. The Revenue Act of 1924 permitted a small group of taxpayers who had contributed over 90 percent of their income to charity in each of the preceding ten years to deduct all charitable giving, not just 15 percent of personal income.17 Personal deductions encouraged a great many more Americans to participate in philanthropy and so became an important factor in the success of mass philanthropy. Enshrining the deduction in statute also reinforced the notion that contributions were part of an American’s civic obligation.
Thus the principle of encouraging individual Americans to give to exempt institutions, prompted by the national emergency of World War I, was written into federal tax policy almost at its birth. It did not matter much at first, for only 2 percent of the work force had to fill out the first income tax form 1040, produced in 1914. The federal income tax contributed only 9.7 percent of the government’s revenue, almost all of which still derived from customs and excise receipts. But modern direct federal taxation had come to pass. Two years later, the Revenue Act of 1916 doubled the income tax rates. Soon after America’s entry into the war, Congress dramatically expanded them again. By the 1920s the combination of corporate and personal income tax accounted for 55 to 60 percent of federal tax revenue. By then, exempting individual gifts to charity was becoming a major regulatory tool to make the cost of giving more affordable for many Americans. But the corresponding revenue loss was also a liability for the federal government. Treasury officials were therefore keen to limit it. As donors came to use the increasingly complex tax code creatively to push their political agenda onto the public scene, the Treasury Department responded by drawing a line in the sand. In 1919, the principle of no political advocacy for charities appeared for the first time in Treasury regulations declaring that “associations formed to disseminate controversial or partisan propaganda are not educational within the meaning of the statute.”18 The choice of the adjective “educational” was certainly consistent with past court rulings on bequests, but its application was now much narrower and therefore a significant departure from the legal precedents.
Regulators wanted to make sure beneficiaries of the tax exemption did not engage in politics under the cover of educational activity. During the 1920s, the Treasury Board of Tax Appeals, which reviewed disputed cases before they went to the federal courts, increasingly tightened the definition of “education” that had guided judges in their decisions on challenges to bequests. The Board rejected not only political lobbying but also anything they could construe as propaganda, as they called it, being disseminated as education. The compromise rulings of the probate courts, premised on broad definitions of charity and judicial discretion, were no longer acceptable models. The mere intention of being charitable was not enough. Instead, there was a hardening of the line against charitable corporations and associations that, in the words of the 1919 tax law, disseminated “controversial or partisan propaganda.” By using exemption as a tool to regulate charity, Treasury officials sharpened the distinction between knowledge and advocacy, which judges had left vague.
Some cases of 1926 and 1927 settled by the Tax Appeals Court are particularly telling because the charities’ objectives seem hardly controversial, and yet the donors were denied a tax exemption. Treasury lawyers advanced a very narrow conception of education. They argued against exemptions for activities that would have easily passed for education or “raising a public sentiment” among most observers. The first case included a 1919 donation to the League to Enforce Peace, as well as a gift to the Mining and Mechanical Institute of the Anthracite Coal Region in Pennsylvania, which had been incorporated in 1894 for the purpose of affording educational and scientific advancement for the men and boys in those fields. The court upheld the gift to the institute because with its narrowly defined educational purposes, it could be considered a charitable organization. The gift to the League was disallowed because the court deemed the “win-the-war” program it had adopted upon America’s entry into the war, political. Even though the donor had given his money to a patriotic cause, he was denied the tax privilege.19
The Tax Appeals Court issued another ruling that confirmed the anti-propaganda principle in a case otherwise as suggestive of consensus as they come. The court denied a tax exemption for a gift to the North American Civic League for Immigrants, “a group of philanthropists, social workers, writers, and industrialists” who promoted nothing else than Americanization, a campaign of persuasion broadly endorsed by industrialists around the country during the World War to assimilate immigrants into the American melting pot.20 Again, the probate courts would have easily passed such a program as educational. The tax board also turned down donations to the Scientific Temperance Federation, the Massachusetts Anti-Saloon League, and the Massachusetts Anti-Cigarette League, arguing that they were all formed to disseminate “controversial or partisan propaganda” and therefore “not educational within the meaning of the statute.”21 A gift to the International Reform Bureau (later called the International Reform Federation), a missionary and prohibitionist organization, met the same fate because it “supported candidates for public office who stood for the principles advocated.”22 By the late 1920s, then, the Treasury Department was set on making the tax exemption available only to those donors committed to helping noncontroversial educational causes that could not be construed as remotely political or even merely ideological.
The enormous difficulties in sustaining the distinction between education and advocacy were thrown into high relief when the matter affected all Americans, as did the battles for the legalization of birth control in the 1920s and 30s. American women’s right to make their own reproductive decisions was morally controversial and yet central to all aspects of marriage and education. No issue came closer to embodying all the difficulties inherent in attempts to define the proper nature of philanthropic causes and the limits on philanthropic action and its interaction with democratic politics. Proponents of distributing birth control information battled on two fronts: that of legalizing distribution, and that of securing a tax exemption for their funders. While birth control advocates eventually won on the first front, they lost on the second; that is, they were unable to change Treasury’s position that the state could not subsidize challenges to existing law, regardless of the flaws of that law.
Victorian laws considered birth control pamphlets pornography (thus illegal). Educated women knew better, read them, and practiced birth control. Those who wanted to change the obsolete laws often broke them. And those who provided them with the funds to break the law were guilty as well. If the latter claimed a tax exemption for giving support to a cause they believed in, they were directly challenging the state.
Margaret Sanger’s successful fight on behalf of birth control did not prevent the simultaneous strengthening of the judicial firewall between philanthropy and politics. Sanger won her case, but the court battles waged on behalf of her Birth Control League did not make it easier for donors to support birth control or other controversial causes. When birth control was finally legalized in 1936, donors could claim a tax exemption when supporting the clinics, but by that time the restriction on political activity had been inscribed into the 1934 Revenue Act, thus making it the law of the land, not just an administrative regulation.23
Federal obscenity laws had targeted birth control ever since young dry goods clerk Anthony Comstock launched a social purity crusade from New York City’s YMCA in the 1870s.24 As a result, using the mail to distribute information on contraception was a serious offense. Medical journals refused to publish papers on birth control for fear of losing their mailing permit. For the same reason, standard medical textbooks often ignored the matter. Poor women most in need of reliable information could not get it by any practical means, even though everybody knew the hypocrisy involved in withholding the facts of birth control when it was widely practiced by the Protestant American middle class.
Margaret Sanger, a nurse practicing in New York’s Lower East Side slums early in the century, was among the many social workers who witnessed time and again the devastating consequences of the lack of birth control for poor women, unsafe and often fatal cases of abortion being the most poignant. Both federal and state statutes stood in the way of Sanger’s efforts to distribute birth control information. She and her estranged husband William were constantly harassed by the authorities. Comstock himself, still leading the New York Society for the Suppression of Vice he had started as a young man, arrest warrant in hand, detained William Sanger for illegally distributing his wife’s pamphlets in 1915. Margaret Sanger went to jail in 1917, engineering her own imprisonment in part by refusing to acknowledge wrongdoing.
Sanger fairly rapidly realized that if she was to be successful in convincing judges and the public alike of the righteousness of her crusade to legalize birth control and in raising money for her campaign and clinics, it was important for her to move out of the feminist and radical camp and into the center of American politics and culture. Only then could she make her cause palatable enough to gain political traction and acceptance. She transformed herself, therefore, from a controversial Wobbly organizer, which she had been during the Lawrence textile strike of 1912, into the respectable leader of a movement that the middle class could embrace. The less controversial the campaign, the less likely it was to be treated as political propaganda.
Sanger won her first major victory in January 1918 when a New York judge construed the state’s obscenity law as allowing physicians to prescribe contraception “for the cure or prevention of disease.” This gave the campaign credibility, and some physicians joined Sanger’s birth control clinics once they could distribute birth control information for medical reasons.
From then on, Sanger continued to target the center of American politics. She became especially eager to embrace eugenics, which had gained influence in scientific and policymaking circles. The term “eugenics” was coined in 1883 by Francis Galton, Darwin’s cousin, to describe scientifically informed efforts to encourage persons with high intelligence to have children and to discourage reproduction among persons thought inferior. Charles Davenport, America’s principal investigator in the field, and his associates collected data from prisons, almshouses, institutions for the mentally deficient, the deaf, the blind and the insane to measure the transmission of character traits. The result was a huge “inventory of the blood in the community,” Scientific American noted.25 Having learned eugenics from her British friend Havelock Ellis, Sanger campaigned for controlling the birthrate of the “unfit.” She found natural allies among social workers, public health workers, charity volunteers, and medical personnel, who worked daily with tragic cases of people afflicted with hereditary diseases. Sanger also adopted Malthusianism—which insisted that population growth pauperized—for much the same reasons that she had embraced the precepts of eugenics: to justify the one movement she cared about and raise the necessary funds for it.
Davenport (who himself stayed aloof from Sanger) had attracted large donations from wealthy philanthropists, irrespective of a federal tax exemption that did not yet exist. His funding was never challenged under the new tax rules as eugenics was widely considered a mainstream science. In the summer of 1905, Davenport approached the mother of Mary Harriman, a Barnard undergraduate, settlement-house worker, and student in his Cold Spring Harbor Biological Lab, and stimulated her interest in the cause. Mrs. E. H. Harriman, who had recently taken over the management of her late husband’s immense railroad fortune, rapidly agreed to fund Davenport’s research on a grand scale. She established the Eugenics Record Office and turned the entire establishment over to the Carnegie Institution of Washington, which incorporated it in 1918 as its Department of Genetics. Mrs. Harriman’s gift to the Carnegie Institution amounted to $300,000. John D. Rockefeller, Jr., also supported Davenport with fellowships for the summer training of field workers. College women with some background in biology were the most common recipients.
The American eugenics movement received its most official sanction when Congress passed the Immigration Restriction Act in 1924 to keep, its sponsors believed, undesirables out. Then, in 1927, the Supreme Court upheld the 1924 Virginia sterilization act, and Justice Holmes declared that “three generations of imbeciles are enough.”26 The irony in the Court’s decision was not lost on Sanger. The state could legally sterilize people deemed mentally deficient and yet simultaneously prevent the distribution of birth control information, products, and services designed to help all individuals to make their own reproductive decisions.27
Moving to the center of political and scientific discourse paid off. Integrating eugenics into a larger rationale for birth control got Sanger closer to real money. She began to attract the attention of the major philanthropists who were funding eugenics. While Comstock had proudly reported to John D. Rockefeller, Sr.’s staff, in 1899, on his good work with “86 arrests, 78 convictions and more than two tons of obscene matters seized,” Sanger received help from the younger Rockefeller.28 Ever since his college years John D. Rockefeller, Jr., had been thinking through the lessons of Brown University professor Elisha Benjamin Andrews, a disciple of Thomas Malthus, on overpopulation.29 After his grueling experience on the White Slave Grand Jury on prostitution in New York City in 1910, Rockefeller decided to fund a Bureau of Social Hygiene. He hired Katherine B. Davis, former New York City Commissioner of Corrections, and others who had investigated human sexual behavior, endocrinology, and the hormonal regulatory system, to run the Bureau. Davis reported in 1924 that 75 percent of college-educated women practiced birth control.30
Raymond Fosdick, who served briefly as the general counsel for Sanger’s Birth Control League and also as a consultant for the Bureau of Social Hygiene, steered Rockefeller, Jr., toward Sanger. Sounding the Malthusian threat, Fosdick wrote the philanthropist, “I believe that the problem of population constitutes one of the great perils of the future, and if something is not done along the lines that these people are suggesting, we shall hand down to our children a world in which the scramble for food and the means of subsistence will be far more bitter than anything we have at present. Scientists are pointing hopefully to such methods as Mrs. Sanger and her associates are advocating.”31 As a result, Rockefeller personally authorized grants to Margaret Sanger’s Birth Control Clinical Research Bureau and Dr. Robert L. Dickinson’s newly formed National Committee on Maternal Health. Well aware of the contentious nature of the gift and not intending to challenge the IRS, he made these grants anonymously. Other potential donors such as the Milbank Memorial Fund also came through.32
The federal government rarely prosecuted cases of mail fraud for literature on contraception or contraceptive material. Still, the state was likely to deny a tax exemption to any contribution openly made to alter these laws. The exemption issue came to a head when Noah Slee challenged the IRS. Sanger had agreed to marry the wealthy and conservative manufacturer on the condition that they maintain separate quarters and he finance her birth control clinics. The older suitor, who never gave up pursuing a wife who preferred her life without him, went through extraordinary efforts to keep the clinics running. He gave large amounts of money and also smuggled birth control material from Canada into the United States.
Although Sanger’s Birth Control League was officially chartered as a charitable and educational association under New York law (a status it lost and regained several times), the IRS rejected Slee’s return on the grounds that he supported an organization devoted to political lobbying on behalf of a controversial issue. Slee challenged the ruling in 1926 but lost in 1930 after four years of legal wrangling in federal court.
The Court of Appeals for the Second Circuit affirmed the decision of the Board of Tax Appeals, holding that gifts made by a taxpayer to the American Birth Control League could not be deducted from income. In his decision, Judge Learned Hand, otherwise a noted free speech advocate with libertarian inclinations, made it clear that tax exemption could not be used for “political agitation.” Judge Hand was not afraid of innovating in legal matters. But in this case, he had no legislative statute to elaborate on. He stuck to Treasury Department rules.
Judge Hand questioned the tax-exempt status of the League itself, but he admitted that “a free clinic, or one where only those who can pay, is a part of nearly every hospital, a recognized form of charitable venture.” He appreciated “the good faith of the enterprise.” But he found that the League had gone beyond its initial stated goal of disseminating “lawful information regarding the political, social, and economic facts of uncontrolled procreation” to enlist legislators for “the lawful repeal” of statutes regarding the “prevention of conception” and to publish a magazine. Hand confirmed the Board of Tax Appeals’ view that an exempt civic league must not be operated for “effecting the removal of state and federal statutes,” even though these very statutes encouraged “dysgenic breeding.”33 It is the almost exclusive dedication to “political agitation,” Hand made clear, that “must be conducted without public subvention.”
Hand took issue with labeling political “agitation” “propaganda.” He even admitted that “there are many charitable, literary and scientific ventures that as an incident to their success require changes in the law.” He went on to explain: “A state university is constantly trying to get appropriations from the legislature; for all that, it seems to us still, an exclusively educational institution. No less so if, for instance, in Tennessee it tries to get leave to teach evolutionary biology.” But in these other cases, “the agitation is ancillary to the end.” Concerning the efforts to control the procreation of children, Hand saw the political agitation as the primary purpose. He could not describe it as educational, the adjective he rightly chose from the statute that defined charitable activity.34
It was common enough for reformers and advocates of various causes, Hand recognized, “to say that the public must be ‘educated’ to their views” while they are in fact engaged in a political campaign. Hand thought “it would be perversion to stretch the meaning of the statute to such cases; they are indistinguishable from societies to promote or defeat prohibition, to adhere to the League of Nations, to increase the Navy, or any of the many causes in which ardent persons engage.”
Slee lost the exemption in 1930. After a $40,000 settlement with the IRS, he was effectively bereft of disposable funds and was therefore unable to help the League any longer. The case was closely watched by philanthropists of all stripes, as other foundations and donors feared running the same risk if they contributed to charitable organizations engaged in political activities.
The court proceedings did not deter Sanger herself, who, without waiting for the outcome, further broadened her fundraising campaign. The question for her was never one of choosing between legislation and education; new legislation was required in order to proceed with education, and vice versa.35 Quite cognizant of the modernization of fund raising, Sanger selected an expert in mass campaigns to achieve her goals. She turned to professional fundraiser John Price Jones for advice on mass solicitation (see chapter 2). Jones was unsure whether Sanger could control the required networks of volunteers and organizers necessary to implement a mass fundraising campaign. He feared that the anticipated solicitation might be handicapped by the continued dissension within the movement over the proper type of legislative amendment.
But if Jones doubted Sanger’s ability to recruit enough volunteers to raise money broadly, he underestimated her. She launched a nine-month campaign in January 1930 to raise $100,000 nationally “to promote legislation which would allow physicians to give contraceptive advice and to aid the further dissemination of birth control information.”36
In 1931, Sanger located the National Committee’s headquarters in Washington, D.C., as a lobbying office. From 1932 to 1936, she and her chief financial assistant raised more than $150,000, much of it in the form of small contributions. A direct-mail campaign produced hundreds of $25 gifts. Wealthier women in the New York area gave money in increments of $1,000. Although the Bureau of Social Hygiene in New York turned down an initial request on grounds that it did not support lobbying, the Rockefeller family contributed to the campaign and the Milbank Memorial Fund agreed to finance an effort to have poor women seeking contraceptive advice write to their congressmen.37
Whether Sanger’s contributors could deduct their gifts was no longer an issue after the legal battle was won. In 1936, the rarely enforced Comstock laws were finally rendered moot by the courts. The United States Court of Appeals for the Second Circuit legalized contraception under medical control in United States v. One Package of Japanese Pessaries. Judge Augustus Hand wrote the majority opinion. His cousin, Learned Hand, who had ruled against Slee, was also a judge in the case. He wrote a concurrence to express his reservations that the liberalization should have come from a legislative act rather than a judicial decision. But all agreed on the ruling. It took a few more years for federal programs to be actively involved in promoting birth control, now repackaged as “planned parenthood,” in an organization one step removed from the fiercely contentious leadership of a victorious but aging Mrs. Sanger.
But whereas Margaret Sanger had won her long battle, J. Noah Slee had lost his. Slee’s loss did not appear to be very critical at the time, but in effect it was. The principle of the separation of advocacy from giving endured. Philanthropy could not underwrite lobbying or any other means of influencing legislation. The case set the precedent for impending disputes over the definition and regulation of philanthropy. Conceptually, the Slee loss coupled with the Sanger victory revealed a schism between social support for reformist philanthropy and the legal strictures placed on the lobbying activities of charities. The principle of giving for education but not for advocacy would only be reinforced in the coming decades, and it would leave a deep and lasting impression on modern philanthropy.
Affirming the Separation of Education and Advocacy in the Tax Code
The inscription in the Revenue Act of 1934 of the formal separation between education and advocacy was a major turning point in the regulation of philanthropy. The first such act formally to single out political advocacy as a reason for not granting a tax exemption, it was a direct outcome first of the Slee case and then of a battle in Congress over veterans’ benefits.
Learned Hand’s motivation for keeping advocacy out of philanthropy went beyond the blind application of some Treasury Department rule. It was also an expression of his belief in expertise as the source of policy. For a generation, professionals of all stripes had grounded their authority on “scientific” knowledge, which had to be free from political influences. They saw objectivity and advocacy as separate endeavors, and objectivity as the reliable source of authority. At the Laura Spelman Rockefeller Memorial Foundation, Beardsley Ruml put the full weight of Rockefeller money behind the emergence of a distinct “policy science.” Charles Merriam championed it at the Social Science Research Council, while the historian Charles Beard, a progressive fighter for just causes, often learned the hard way that funding was going in the other direction, toward scientific inquiry.38 Critics charged that funding an objective social science was an easy way out of contentious issues, and yet it became the project of a new generation. Hand saw Slee entrenched in the political rather than the educational camp.
Hand wanted to do the right thing in the Slee case. Most politicians, however, were more grounded. They saw the removal of tax exemption as a tool to silence their opponents. Such strategic attempts, often the outcome of bitter disputes between exempt groups, frustrated those regulators who hoped to manage the state subsidy to philanthropy to serve widely shared purposes sanctioned by law and practice. But competing interests turned the exemption into a political weapon.
As the Great Depression set in, a group of taxpayers advocating for good government, who wanted to help alleviate the government deficit, created the tax-exempt National Economy League. The association, a “non-partisan citizen’s organization for public service,” was organized in May 1932 under the chairmanship of Antarctica explorer Rear Admiral Richard Byrd. Archibald B. Roosevelt (FDR’s distant cousin) served as secretary. The association recruited a distinguished roster on its national advisory council—including Calvin Coolidge, Al Smith, Newton Baker, Elihu Root, and General Pershing. Their general purpose was to secure “the elimination of wasteful or unjustifiable governmental expenditure.”39
This was of course a worthy goal in those years of economic collapse, but it was at the same time a politically contentious one, especially as the National Economy League targeted for budget reduction “benefits to veterans of the Spanish and World Wars who suffered no disability in fact through war service” or who were no longer handicapped. Veterans were the one group in America granted preferential tax treatment regardless of the Treasury Department’s 1919 rules on political lobbying. In the Revenue Act of 1921, Congress had specifically listed contributions to organizations of war veterans and their auxiliary units as deductible from taxable income. Although Congress did not identify the American Legion by name among the exempt organizations, it was widely recognized that the Legion was more than a fraternal order, a recreational club, and a service organization; it regularly lobbied for legislation of interest to veterans.
The National Economy League (whose membership included distinguished veterans) developed a strong case against the veterans as the Depression deepened. In late December 1932, William Marshall Bullitt, onetime Solicitor General of the United States, appeared as the league’s volunteer lobbyist before a joint Congressional committee investigating veterans’ legislation with the mission to “lop some $450,000,000 from the $1,000,000,000-per-year appropriations for veterans.” This was only five months after President Hoover had ordered the troops to remove the “bonus army” of unemployed World War One veterans who were haunting the Capitol grounds asking for advance payments on their benefits. “Pitted against the League” was the American Legion and its “super-lobby.” Bullitt was “severely heckled” by some senators. “Chief heckler” was Indiana’s Republican senator and World War I veteran Arthur Robinson, who denounced the league for supporting wealthy taxpayers “trying to shirk their share of war costs.” Robinson extracted from a reluctant Henry H. Curran, director of the National Economy League, the promise that the organization would release names of all its contributors of $25 or more. Curran in turn argued that the American Legion should also be required to make public a list of the sources of their financial supporters.40
Once more the debate centered on the appropriateness of tax-exempt organizations engaging in law-making. “Your purpose is to influence legislation,” Robinson rightly observed in a jab at the National Economy League’s tax-exempt status. The League vehemently denied that they were engaged in a political rather than an educational mission. “Our purpose is to get the facts before the people—and I believe they will influence legislation,” Curran disingenuously replied.41
The National Economy League won the first round. One of its directors, lawyer Glenville Clark, a former classmate of Franklin Roosevelt at Harvard, drafted the Economy Act of 1933 in the New Deal’s first hundred days. The measure cut drastically the veterans’ pension and disability budget.
The league pursued its educational-political campaign by sending to every member of Congress evidence that disabilities not infrequently due to causes other than war service accounted for an increasingly large share of the cost of veteran relief. Already 8 percent of the veterans’ budget in 1925, the cost of disability had jumped to 40 percent by 1933.
Having suffered a defeat at the hands of the league, the veterans responded by developing a different strategy. They pulled strings in the Senate to have the National Economy League’s tax-exempt status revoked. They charged that, despite its official claim of being educational, the Economy League was nothing but a political advocacy group. In 1934, in the second round of their battle, the veterans, confident that their own (well-known) preferential status was safe, backed a rewriting of the tax code to restrict the political activities of tax-exempt organizations. This was an important move that inserted restrictions heretofore existing only in Treasury regulations into the code itself. Meanwhile, Congress restored some of the veterans’ benefits over FDR’s veto.
To proceed with the change in the tax code, Senator Byron Patton Harrison, Democrat from Mississippi and chairman of the Committee on Finance, proposed an amendment on the Senate floor. Although there was little discussion, its origins in the political infighting over the veterans’ budget were clear. Senator David Reed of Pennsylvania revealed as much by declaring on the floor, “There is no reason in the world why a contribution made to the National Economy League should be deductible as if it were a charitable contribution if it is a selfish one made to advance the interests of the giver of the money.”42
As if to keep their options open, legislators remained hesitant to define exempt categories as they wrote the revenue act. The House struck as too vague a clause forbidding “participating in politics.” In the Senate, Robert La Follette, Jr., supported broad language because it would facilitate enforcement by the IRS.43 In the end, a seemingly innocent adjective provided the compromise language needed to pass the legislation. The tax code would now include as a prerequisite for tax exemption that “no substantial part of the activities” of “corporations, community chest, fund or foundation” operated “for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals” “be carrying on propaganda, or otherwise attempting, to influence legislation.” Contention would hence revolve around the meaning of the adjective “substantial.” By inserting the modifier, Congress made some room for the proposition that it was acceptable to “alter the law according to the law” or to allow efforts to change sentiment “by lawful means.”44 There would be countless interpretations of what constitutes a substantial attempt to influence legislation, as well as of what constitutes controversial and partisan action.45
Senator Reed had hoped to bar tax exemption for “any organization that is receiving contributions, the proceeds of which are to be used for propaganda purposes or to try to influence legislation.”46 But Congress chose instead to favor some tax-exempt organizations over others. When Congress amended the law in 1934, it did so in both the sections on exempt organizations and on individual deductions. Both sections included the propaganda clause. Veterans, quite conscious that their voting power protected them, fully expected preferential treatment, and they were not disappointed. They were technically permitted to lobby, as Congress did not insert the firewall language in the special section concerning them.47 Fraternal societies operating under the lodge system were similarly spared. So were labor organizations. With the addition of the adjective “substantial” to the tax code of 1934, Congress formalized restrictions on the political activities of all other charities and educational institutions. Thus Congress made for the first time a distinction that has become increasingly important between different kinds of exempt groups, a distinction that reflected political muscle more than logical categorization (a feature of the law to which I shall return in examining the civil rights era 1969 tax code—see chapter 7).
The new legislation was as much the fruit of recent political infighting as of any sustained reasoning on membership composition or the meaning of advocacy. But it was nonetheless critically important in the sense that Congress posed anew the large question of how to support philanthropy’s contribution to the common good.
Could the act of giving be meaningful in a democracy and yet not encroach on politics? “It must be hard sometimes to draw the line between education and propaganda,” answered the New York Times in 1928, commenting on a tax audit of the Anti-Saloon League.48 That the 1934 legislation was, in part, the outcome of a rivalry between two lobbying groups proved sufficient indication that it would indeed be complicated to distinguish between the two purposes. The 1934 legislation became to American philanthropy what the 1601 statute had been to philanthropy in the British kingdom. But the language of the act clarified matters much less than its sponsors intended. Lawmakers would find that maintaining a firewall between education and advocacy would require them to compartmentalize thinking and acting in American life, a task that was rarely, if ever, possible.