Billionaires are weaponizing “nonprofits” to evade taxes and shape politics.
Patagonia founder Yvon Chouinard and GOP billionaire backer Barre Seid are demonstrating exactly how.
Last week, Patagonia founder and longtime climate activist Yvon Chouinard made headlines when he committed his entire company to fight global climate change. The move was hailed as the dawn of a new era in climate philanthropy, the triumph of altruism over corporate greed.
But the reality is more complex.
Chouinard donated 98% of his $3 billion company to a 501(c)4 organization, a special kind of nonprofit organization that can engage in political activities. The remainder was donated to a family trust that will oversee the 501(c)4.
Unlike its 501(c)3 cousin, contributions to 501(c)4 groups are not tax deductible — but they’re not taxed, either. That means that Chouinard’s charitable contribution has the venerable advantage of saving hundreds of millions of dollars in gift and estate taxes he would have had to pay if the company remained private. That sets up a situation where Chouinard’s heirs can remain under the employ of these entities with no limits on the salaries they take from this new organization. Slightly less charitable when considered under this light, no?
Analysts were quick to point out that Chouinard’s “gift” was functionally equivalent to what Republican billionaire Barre Seid did a few weeks earlier. Seid sold his electronics company for $1.6 billion and then donated the proceeds directly into a 501(c)4 managed by the founder of the Federalist Society.
Outside spending — money spent to influence elections that isn’t spent by campaigns themselves — has skyrocketed since the Supreme Court’s disastrous Citizens United decision.
That decision interpreted corporations as people under the Fourteenth Amendment, and money as speech under the First Amendment. Corporate money became equivalent to human speech — and it opened the floodgates to this kind of outside spending. In doing so, it vastly increased the power of America’s richest people — those who have the means to bankroll these outside groups.
But 501(c)4s are the vehicle that puts Citizens United on steroids. Billionaires can hide their money in 501(c)4s, allowing them to evade hundreds of millions in taxes. Beyond robbing the federal government of the funds it needs to build the roads and bridges, or pay for the healthcare and schools that all of us rely on, these vehicles then allow billionaires to weaponize that money to reshape the government so that it doesn’t do these things at all.
Consider Barre Seid’s contribution of $1.6 billion. It will radically transform the power of ultraconservative advocacy in America. Assuming a low baseline return of 5%, the 501(c)4 he funded will have $160 million to spend every two-year cycle pushing conservative causes and candidates without even touching the principal.
In Yvon Chouinard’s case, I have no doubt that the 501(c)4 his billions will build will actually fight climate change. Yet the system that allows for it undercuts our society’s most potent weapon against climate change: the U.S. federal government. Despite the fact that Chouinard may be leveraging our broken system for ends we may agree with, we cannot mistake those ends for the caustic influence of the system that allows it.
To push back, President Biden and Sen. Majority Leader Chuck Schumer have announced the DISCLOSE Act, which would require dark money groups to disclose the names of donors who give more than $10,000 in a given election cycle. As President Biden put it, “dark money erodes public trust.” It’s a start — but only just that. Requiring disclosures assumes that those disclosures will either keep big money donors from giving, or that the public will be able to draw a line between a political donation and a donor’s self-interest. Neither of those are for certain. Campaigns are required to publish the names of their donors as it is, and rarely do the names of those donors penetrate the public discussion. And in an increasingly polarized world, making political contributions to a political cause can reap social rewards.
Ultimately, unless Citizens United itself is reversed, it will be difficult to reverse the flow of dark money itself beyond disclosures. There’s no doubt that the very donations of billionaires we are discussing today is pushing that possibility further away. But the only way around it is through it — at the ballot box.
The DISCLOSE Act will likely be stymied by Senate Republicans. But what we choose in the midterms could weaken their grip on the Senate. Just two more Senate Democrats willing to scuttle the filibuster takes the chokehold off this and so many other critical pieces of legislation. Billionaire money, or not.