Tax Tussle

Vets could lose a break

The 29 million U.S. taxpayers who even now are itemizing their deductions always feel a bit more charitable toward groups that give them a tax break on contributions. Many organizations would have trouble surviving if they could not offer such a sweetener. In exchange, the IRS requires that the groups--the American Red Cross, the Wilderness Society and private schools, for example--must not devote a "substantial" part of their efforts to political lobbying. With one striking exception. Congress never applied the lobbying restriction to veterans' groups like the American Legion and Veterans of Foreign Wars. But now the vets' special situation may change. The U.S. Court of Appeals for the District of Columbia has ruled 7 to 3 that Congress violated the Constitution's equal protection guarantees by in effect "subsidizing the lobbying activities of veterans' organizations while failing to subsidize the lobbying of... other charitable groups."

Oddly enough, veterans' groups did not even know that their status was before the courts. Said Bertram Davis, national judge advocate of the American Legion: "We were taken quite by surprise." The lawsuit was filed by Taxation with Representation of Washington, a nonprofit group set up to fight for tax-code reform. The group went to court to win the right to a tax deduction for its own contributors; it had no desire to take the long-standing right away from veterans' organizations.

Shortly after the federal income tax made its unwelcome debut in 1913, charitable groups were given two important benefits: they did not have to pay any tax, and donations to them would be deductible. But after some heavy lobbying during the New Deal by groups that raised tax-deductible funds, Congress in 1934 imposed restrictions on such activity. For reasons that are unclear, veterans' organizations were listed in a separate subsection of the tax code, and so the limitations did not explicitly apply to them.

It was that mysterious exercise in legislating that troubled the appeals court. Noting that lobbying is a form of speech protected by the First Amendment, Judge Abner Mikva, speaking for the majority, reported that the court had searched the remarks and actions of Congress for indications of why the veterans were granted special status. There seemed to be none, said Mikva, a former member of the House for nine years. "It is therefore difficult to resist the conclusion that the tax preferences for lobbying by veterans' organizations reflect no policy but simple lack of attention and consistency."

The three dissenters chided their brethren for showing too little deference to the Legislative Branch. "Congress is not an administrative agency that is required to state the grounds upon which it acts," wrote Judge George MacKinnon, himself a one-term Congressman. Moreover, he argued, veterans' groups are distinctive. Said MacKinnon: "War veterans have made unparalleled contributions to the creation and preservation of this nation."

The Supreme Court will probably review the decision. If the Mikva ruling survives, a lower federal court will face a difficult choice: whether to remove the tax benefits given to veterans' organizations or to extend them to all charitable groups that lobby. The latter possibility naturally appeals to many organizations. Says Hope Babcock, a lawyer for the National Audubon Society: "Anything that will increase our ability to lobby will be beneficial." But the appeals court majority worried that enhancing this ability "might open a Pandora's box of woes and abuse." The IRS recognizes 328,000 charitable groups whose voices are now muted. Erasing the rule would doubtless add many decibels of lobbying volume.

On the other hand, changing the status of veterans' organizations would be very difficult politically. They have well learned how to make themselves heard. In recent years they have lobbied on everything from the Panama Canal treaties to Saturday mail delivery. Now that they are aware of the threat to their capacity to speak out, they are sure to fight in court--and in Congress. There, they could lobby for legislation to solidify the lobbying right they thought they already had. -

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