Philanthropy and the American Regime: Is It Time for Another Congressional Investigation of Tax-Exempt Foundations?

This essay was written in November 2004.  A Bradley Center panel discussion on the essay was held on November 30, 2004.  The commentary attached to the essay was drawn from the panelists' remarks. 

A description and summary of the essay, commentary, and panel discussion appear below.

Introduction to the Panel Discussion

"What is the proper relationship between American philanthropy and the American regime?" asks Hudson Institute senior fellow John Fonte at the beginning of his essay "Philanthropy and the American Regime," written for a Bradley Center panel discussion held on November 30, 2004. 

In the 1950s, Congress twice investigated tax-exempt foundations for funding projects that, some maintained, tended to undermine the American political order.  In the report of the Reece Committee, released in November 1954, chief counsel Rene Wormser observed that it was fundamental to the entire concept of tax exemption for foundations “that their grants are to be primarily directed to strengthening the structure of the society which creates them.” Almost exactly fifty years later, the members of our panel addressed the question: Was Wormser right?

To lead off the discussion, the Bradley Center asked Hudson Institute’s John Fonte to present an essay he had written, “Philanthropy and the American Regime: Is It Time for another Congressional Investigation of Tax-Exempt Foundations?” Panelists included Georgetown University’s Teresa Odendahl and John Earl Haynes of the Library of Congress.

Summary of the Essay

In his essay and in his presentation to the audience on November 30, John Fonte set up our question of whether Wormser was right by drawing upon the (Bradley Foundation-funded) work of James Ceaser , who elucidated four possible types of relationships that American philanthropy could have to the American regime: (1) “Regime maintenance” consists of philanthropic programs and activities which “strengthen the nation’s political and cultural institutions and help affirm and perpetuate the regime.” (2) “Regime improvement” involves philanthropic efforts to reform and improve the current regime, broadly defined as the American way of life. (3) “Regime transformation” implies that the regime is flawed and must evolve into something different, and that philanthropy should take this as its goal. Finally, (4) “regime revolution” refers to the overthrow of a regime perceived as illegitimate as the goal of philanthropic efforts.

While it did commit some errors (including overreach), “the Reece committee understood that it was dealing with crucial questions concerning the maintenance and transformation of the American regime, while Big Philanthropy refused to engage in any serious discussion of regime questions,” Fonte argued.  The Reece Committee charged some of the larger foundations (Rockefeller, Ford, Carnegie) with “violating their public trust as tax-exempt institutions by supporting projects undermining the American Regime.” Fonte agreed with this judgment of certain philanthropic institutions, and lamented the fact that foundation projects undermining the American regime continue today. Fonte cited three examples, and suggested that a new Congressional investigation might target them:

1. Philanthropy's role in the United Nations' World Conference against Racism held in Durban, South Africa,

2. The work of the Ford, Rockefeller, Casey, Charles S. Mott, Open Society, and Tides foundations on "structural racism," and their "rhetoric of de-legitimization," and

3. Foundation attacks on the Clinton administration's report to the U.N. for the Convention on the Elimination of All Forms of Racial Discrimination (CERD). 

"The goal of a new Congressional investigation would be to facilitate the transparency of tax-exempt foundations and to foster a debate within philanthropy, not to devise new proscriptions on activities, although reforms should not be precluded. Put otherwise, the goal of a new Congressional investigation would be to concentrate the mind of the foundations upon their responsibility to the public in working to perpetuate the American regime," Fonte concluded his essay and his remarks to the audience. 

Summary of the Discussion

In her remarks, Terry Odendahl disagreed with Fonte that foundations were or had ever taken part in any kind of regime transformation (with perhaps one exception: conservative foundations during the Reagan years). That is to say, foundations aren't doing enough to transform the American regime, according to Odendahl; whereas Fonte (and Wormser) thought that foundations should be prohibited from using tax-exempt money to fund regime transformation or revolution, Odendahl hoped they would do just that. As creations of capitalism controlled by the elite, Odendahl argued, "foundations are—and always have been—doing what Dr. Fonte thinks, and Congressman Reece and Counsel Wormser insisted they should have been doing: protecting the American regime." But the American regime is outmoded, Odendahl argued—"an 18th century paradigm."  "It's time for a change," she went on to say. "Isn't transformation something we want?  Don't societies evolve all the time?" For one, Odendahl expressed her wish to see foundations do more to rid the United States of its structural racism by funding diversity. Odendahl also encouraged funding of precisely those activities the Reece Committee had identified as subversive: progressive education, guided by a globalist worldview and moral relativism.

John Earl Haynes, in contrast, shared many of Fonte's views, but saw the problem of regime transformation and regime revolution as much broader. The activities of liberal foundations are symptomatic of the rise of a new, self-defined elite who would empty majoritarian democracy of authority by placing the power to govern in the hands of "responsible, non-elected bodies" of people "fit to exercise it"—their own hands, perhaps.  (Haynes did not say.)  Haynes argued that American society is so divided—presumably into camps that support or oppose the new elite—that mere statutes cannot reinforce democracy. "This really is an internal argument within American society and culture about the future of the American regime—in my view, about the future of popular elected majoritarian democracy," he concluded.

Question-and-Answer Session

Peter Frumkin of Harvard University made the first comment from the audience during the question-and-answer session. In the name of pluralism, Frumkin argued, nonprofits should be free to work in any of Ceaser's four categories. Frumkin echoed something that Bill Schambra had said a moment earlier: In today's polarized society, one man's "dangerous regime transformation" is another man's "beneficial regime reform." Fonte spoke up to disagree, arguing that the "transformation" advocated by certain groups—for example, radical Muslims—is dangerous by anyone's definition and should not be given a platform of any kind.

Alan Abramson of the Aspen Institute and Emil Kallina, tax attorney, both argued for funding of research on the nonprofit sector—something which could help Congress decide whether and how to enforce accountability.

Mark Rosenman asked whether anyone believed that the troubles in the nonprofit sector are truly structural, or whether they were due to something temporary and benign. Sarah Melendez picked up on his question, yet argued that she found a discussion of such matters to be beneficial in any case. Melendez question only the necessity of enforcing accountability in the nonprofit sector using tactics of intimidation, such as the threat of hearings.

Several more interesting questions followed; they will not be summarized here.  For further details, please see the full transcript.