Does an obscure tax law undermine democratic voice?

The Chronicle of Philanthropy carried an interesting story recently about what liberal advocacy organizations, which had fought so long for meaningful health reform, are going to do now. Buried in Suzanne Perry's excellent article is a tidbit of profound importance.

She reports that the Atlantic Philanthropies, a New York-based foundation created by an Irish duty-free-shop magnate, had given $26.5-million to Health Care for America Now (HCAN), a legislative advocacy coalition representing more than 1,000 liberal and labor groups. That's a lot of money to throw at a legislative campaign.

What's interesting about this little-reported fact? Federal tax laws bar U.S. foundations from funding legislative advocacy. In practice this means that those groups most likely to speak on behalf of politically underrepresented groups -- poor people, sick people, children, large diffuse publics -- can't get financial support from the institutions most likely to give it. Since the nation's 70,000 foundations give out more than $44-billion a year, the tax laws have important implications for democratic voice, equality, and public policy.

Barred from receiving foundation grants, advocacy groups must rely on generous individuals who are willing to give without any tax incentive or other tangible inducement -- just the good feeling you get from advancing your beliefs. Industry groups can't deduct lobbying expenses, either, but they don't need to worry so much about a steady source of income. By their nature, they provide incentives to people to give them money -- these incentives are called products and services. One logical result of this funding imbalance is that non-profit advocacy, a public good, is undersupplied relative to that of its for-profit adversaries.

Which brings us back to Atlantic. Turns out, as The Chronicle reports, the foundation's $26.5-million donation toward health-reform lobbying didn't break any laws. Atlantic is incorporated in Bermuda, about 800 miles outside the reach of the U.S. tax code.

Gara LaMarche, Atlantic's New York-based president, told The Chronicle that Atlantic had funded HCAN "to ensure that 'the progressive side was not as outgunned' as it had been during the Clinton years by industry groups opposed to the legislation."

Health reform passed for many reasons. One of them was that the guardians of a pot of offshore wealth boldly decided to do what the U.S. government bars American funders from doing: stand up for the public interest when it matters most.

The Chronicle article is here:
http://philanthropy.com/article/Advocates-Plot-Next-Steps-i/64801/