How the Shefa Fund Changed America

Today’s Boston Globe carried a short piece buried on page B3 that might signal the most important change in American political campaigning in one hundred years.

Some months ago, the political campaign committee organized to defeat our proposed “English” initiative in Massachusetts received a $100,000 check from a Philadelphia- based philanthropy, the Shefa Fund, which they subsequently reported on their financial disclosure statement filed earlier this month.

Since this donation was quite large—representing nearly two-thirds of all the money raised by our opponents during that period—and the name of the donor seemed rather odd for a political committee, I investigated, and quickly learned that just as the name seemed to imply, the Shefa Fund was a 501(c)3 non-profit tax-deductible charitable trust.

Shefa is involved in supporting a wide variety of ultra-progressive political causes, and seems to specialize in acting as a conduit for earmarked donations, in which donors can use Shefa’s tax-deductible status to allocate their charitable giving to causes that they find particularly worthy.

Fine, I said, but since they are a 501(c)3 charitable trust, their donation to a political
campaign is illegal. After all, “everyone knows” that tax-deductible charities can’t directly
contribute to political campaigns or fund advertising urging a vote one way or the other on a candidate or issue.

All of modern American politics, and the tens of billions of dollars each year donated to tax-
deductible 501(c)3s and non-tax-deductible 501(c)4s is built around that fundamental rule. The most junior fundraiser in the smallest city council race knows that donors can’t take a tax-deduction on their contributions, and that co-mingling tax-deductible charitable money and non-tax-deductible political money is obvious tax evasion, soon leading to a pinstripe wardrobe, perhaps with Dennis Kozlowski formerly of Tyco as your cellmate.

But sometimes what “everyone knows” just isn’t true.

As the Globe article indicates, The Shefa Fund appears to have received an official IRS
administrative opinion indicating that they can donate their tax-deductible charitable
contributions directly to political campaigns. If this opinion stands, The Shefa Fund’s discovery of tax-deductible politics will constitute a financial innovation amounting to a magnitude twenty earthquake in the world of American campaigning.

By following the simple expedient of utilizing a 501(c)3 organization as a conduit (or more
pejoratively, as a laundromat) political campaign contributions of any size will immediately become tax-deductible—and since charitable organizations can never be forced to reveal the names of their donors—absolutely anonymous. Only the most ultra-extreme conservatives or libertarians have previously advocated both the elimination of campaign finance limits and campaign finance disclosure laws. Suddenly, a small leftist foundation has made Tom Delay look like Ralph Nader on campaign finance issues.

As one of the investigating reporters mentioned to me, the donor of the $100,000 contribution decided to make his political contribution through The Shefa Fund because he wanted to take a tax-deduction on the money and also wanted to ensure that his name remained secret. These are certainly understandable objectives, which coincidentally apply to probably every other major donor in America, both corporate and individual.

If this unprecedented development stands, any future donor who does NOT use a public charity as a conduit for his campaign donations is a complete and utter fool. I most assuredly regret that all my previous political contributions have not been made through a tax-deductible vehicle.


Consider the obvious implications for both the left and the right.

Several years ago, America’s largest tobacco companies spent over thirty million dollars in an effort to pass a California ballot initiative overturning all that state’s anti-smoking
restrictions. The effort was narrowly defeated, and lost solely because California’s disclosure laws allowed the public to learn that the source of the funding was the tobacco industry, which obviously has considerable political baggage. If that tobacco money had instead been funneled through one or more charities with nice-sounding names, not only would the measure surely have passed, but the corporations involved would have effectively received millions in federal and state tax subsidies for their political campaign.

Apply this same reasoning to all the other major corporations in America, especially those in disreputable areas such as gambling, alcohol, tobacco, firearms, pornography, and industrial pollution. Political liberals should take careful note.

So should conservatives. Most of America’s largest charitable foundations—Ford, MacArthur, Packard, Gates—are heavily dominated by liberals, whose views on social issues are especially troubling to the Right. Since these organizations have combined liquid assets in the hundreds of billions of dollars and are explicitly charged with freely spending that money to promote the policies they advocate, they have long been a source of great fear to under-funded conservatives, whose own foundations are negligible in size by comparison.

Suppose that the Ford Foundation suddenly discovered that it was free to write a small check of $100 million or $200 million to fund political campaigns aimed at enacting sweeping gun control laws in states and cities North to South, and the MacArthur Foundation decided to spend a similar sum to legalize gay marriage throughout the country?

Given this plausible scenario, I would expect Tom Delay may soon start *sounding* like Ralph Nader on campaign finance issues.
Furthermore, 501(c)3s are not only tax-deductible and completely anonymous, but have absolutely no restrictions on the sources of their funds. Forget those typical bogeymen of the Left and Right—corporations and unions—and consider foreign governments, including potentially hostile foreign governments?

If this bizarre administrative decision by the IRS regarding The Shefa Fund had become widely known some time ago, perhaps by this point in the election cycle we would have seen Republican candidates throughout America buried under an avalanche of harshly negative television issue advertising focusing on social security and abortion rights, but entirely funded by one or more innocuously named 501(c)3s that had received their $500 million advertising budget via direct wire transfer from Baghdad, or perhaps routed through Switzerland or the Cayman Islands.

501(c)3s are under absolutely no legal requirement to disclose the names of their donors, and generally don’t even have to file any reports at all more than once a year. By that time, the election involved in long over.

I suspect that the world—and certainly Congress—may soon become very familiar with the name of the highly-innovative Shefa Fund of Philadelphia.

Campaign finance regulations share with accounting regulations the important distinction of being among the least interesting and most important rules in our society. The regulatory issues raised by this small story buried on the inside pages of the local news section are similar to those obscure matters of revenue and expense recognition that
over the last couple of years have cost American investors some seven trillion dollars of their savings and may even now be propelling our country into a deep, deep recession.

Perhaps journalist will pay greater attention when one small $100,000 check from one small leftwing organization has become a flood of tens or hundreds of millions of similar dollars during the next election cycle.


On more mundane matters, several pieces in yesterday and today’s editions of the major Boston papers dealt with the potential impact of the “English” initiative on the close Gubernatorial race between Republican Mitt Romney and Democrat Shannon O’Brien. As articles and editorials both note, their conflicting views on that measure actually constituted the only real point of substantive policy disagreement during their first official debate

If so, then Democrats should be quite worried. Another article in yesterday’s Boston Globe
described how a local group of working-class Democrats—the perceived base of the state party—were surprisingly divided between the two candidates. Furthermore, even the local Democrat who remained most loyal to his party’s candidate actually agreed with her Republican opponent on the question of “English.”

This anecdotal data merely confirms the enormously strongly and bipartisan support that “English” has consistently registered in Massachusetts surveys, both my own and those of major media organizations.

By some measures, Massachusetts is the most liberal Democratic state in America. Opportunistic politicians everywhere will surely take careful note of the election results this November, both regarding our “English” initiative and the major candidates who share its ballot.

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