Comment: How Nixon-era idea could bring dark money into light

A tax reform act in 1969 set national rules for philanthropic giving, providing a template for campaign finance.

By Bo Blew / Special to The Washington Post

Despite pleas from President Biden, Senate Republicans blocked the Disclose Act, legislation that would require advocacy groups to provide names of donors who give $10,000 or more if they advocate for particular candidates or issues.

Biden stressed the need for such legislation by pointing to last month’s stunning revelation that Barre Seid, founder of the electronics company Tripp Lite, had sold his firm and donated $1.6 billion to nonprofit groups led by conservative operative and former vice president of the Federalist Society Leonard Leo. Biden called this move “one of the biggest dark money transfers in our history”; one that came to light only through the work of reporters.

Biden tried to paint the cause as bipartisan, recalling the late GOP Sen. John McCain’s efforts to increase transparency in political advertising through his work on the Bipartisan Campaign Reform Act of 2002.

Yet the better example of how to address the flood of dark money in politics may come from before the fight over modern campaign finance laws. In 1969, President Richard M. Nixon signed legislation that set rules to bring transparency and order to private giving in the name of safeguarding the public interest. The bill was more than a half-century in the making and showed that legislators in both parties could come together to ensure that the tax code encouraged charity without allowing for chicanery that starved the public of critical tax dollars.

As Congress debated enacting the income tax in 1910, oil tycoon John D. Rockefeller Sr. made an unprecedented offer. Rockefeller wanted a federal charter to permit the creation of a philanthropic corporation that he said would promote the welfare of the entire country. In return, he wanted the money given to this new foundation to be exempt from personal property taxes. In a period marked by staggering income inequality, Gilded Age business magnates like Rockefeller had served the nation’s patrons, but in the face of progressive taxation, they wanted special exemptions like this to continue their philanthropic endeavors.

Many in Congress feared that writing such an organization into law would open avenues for abuse and corporate misdeeds and could eventually become a platform from which Rockefeller could wield undue influence over public affairs.

But Rockefeller made major concessions, and the House eventually passed a bill with a two-thirds margin that gave Congress tremendous influence over the operation of the proposed foundation, including the power to dissolve it. The bill also created a system for appointing trustees that required input from public figures, including the president.

But a small group of senators rebelled, blocking the bill’s passage in the Senate, despite a favorable recommendation from a bipartisan committee. So Rockefeller pivoted and convinced the New York legislature to pass a state-level version of his original proposal with none of the concessions he had made to try to secure passage at the federal level.

Over the next few decades, foundations became the preferred vehicle for large private giving as the post-war economic boom buoyed the wealth of America’s richest families. Foundations multiplied throughout the nation as philanthropists sought ways to minimize tax burdens and retain familial control of assets. Figures like Henry Ford II and Eli Lilly Jr. became the faces of a new generation of philanthropy, launching projects to fund universities, investing in community programs and creating institutions that still shape the arts, education and policy conversations.

However, because Congress never passed national legislation setting rules for foundations, states began rapidly issuing charters with few explicit guardrails. Philanthropy was so inconsistently regulated at the state level that by 1961, the IRS could not even say with certainty how many foundations existed in the country.

In the 1960s, Rep. Wright Patman, D-Texas, launched a decade-long study to bring oversight and accountability to the foundation world. First elected to the House in 1928 and a committed populist, Patman maintained an early-New Deal suspicion of economic concentration. He soon found that some of the nation’s largest foundations were also some of its largest shareholders. A survey of 534 foundations showed that 111 of them owned more than 10 percent of a single company’s stock. This included the Ford Foundation, which held 100 percent of the Ford Motor Company’s class A nonvoting stock, making the nonprofit organization the largest stockholder of one of the country’s most important corporations;and leaving a staggering amount of wealth beyond the reach of taxation. And while organizations like the Ford Foundation spent millions of dollars on programs that developed public educational television, among other charitable endeavors, the Treasury Department estimated that 10 percent of foundations merely functioned as tax shelters to promote private profit.

Patman’s investigation brought these stark cases of abuse to light, including that of Americans Building Constitutionally, an organization designed to help the moderately wealthy create foundations with the sole purpose of avoiding taxation. Taking advantage of a growing movement pushing for “tax equity,” Patman used the results of his investigation to urge his colleagues to eliminate these “tax dodges” that the wealthy were disproportionately able to utilize.

This push for change and oversight led to the passage of the Tax Reform Act of 1969. The legislation included a mandatory payout provision that forced foundations to donate a minimum percentage of their assets each year. It also forced them to be more transparent about their expenditures and holdings, set limits on family involvement on foundation boards and limited the amount of shares foundations could hold of a single company. Notably, by a narrow margin, the final bill eliminated plans for a foundation “death sentence,” which would have forced foundations to disburse their funds in a set number of years.

The act passed with overwhelming majorities in the House and Senate. Support came from a diverse coalition that included Southern segregationists, liberals seeking “tax fairness” and politicians from both parties who saw the tax code being exploited for political gain. While not all of these supporters agreed on the extent of the regulations on foundations, Congress implemented recommendations from Patman’s study and from officials from the Kennedy, Johnson and Nixon administrations.

By the mid-1970s, the legislation had forced foundations to become more professional because it required more transparency, higher levels of compliance and more stringent oversight of grants. These regulations also helped foundations gain legitimacy as respected centers of philanthropy and knowledge production rather than avenues for corruption and tax avoidance.

While the world of large foundations may appear somewhat different from the advocacy organizations and super PACs blitzing the airwaves in 2022 with political ads, as they professionalized, foundations became intertwined in the policy process by funding the briefs and analyses lawmakers rely on. Foundation staffers began to staff presidential administrations, and foundation leaders became pundits shaping media conversations about issues like energy and health care in the burgeoning 24-hour news cycle.

At the core of the debate that produced the 1969 bill was the question of the proper level of influence for the wealthy in public affairs. By working together, presidents and legislators from both parties, along with federal agencies, created institutions with greater oversight that garnered greater public acceptance.

Something like that is possible, maybe even necessary, again today as the wealthiest donors exert increasing amounts of political influence through ever larger gifts. Advocating for new regulations on private giving, Biden argued that the problem with dark money goes beyond a monetary arms race to influence elections. It also “erodes public trust”; just like the situation with foundations in the 1960s.

At a time when democratic institutions and norms face repeated attack and challenges, restoring trust in the political system is critical. The Tax Reform Act of 1969 provides a template for how to do that. That law indicates that while partisan divisions thwarted passage of the Disclose Act again, everyone would benefit from finding a way to legislate greater transparency.

Bo Blew is a doctoral candidate in history at Purdue University, where his research explores the influence of private foundations in modern American political history.

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