As the debate on the estate tax heats up again, its opponents argue that its most negative impacts are on family farms and small businesses. This may be true, but its effects reach much further than that. One area in which estate taxes have a major impact is on America's nonprofit sector, yet its impact in this area rarely is considered.
Experience has shown that foundations tend to support left-leaning causes after a period of time, regardless of the intentions of the donors when the foundations were established. For decades the so-called superrich have attempted to shield some of their property from the estate tax by creating nonprofit foundations. The foundation can engage in a wide range of activities, following the direction of its founder, and can continue those activities long after the person who created it has died.
Foundations are funded from the earnings on the endowments left by their founders, so they have a perpetual source of income. Foundation trustees can fund whatever causes they like without having to answer to anyone. Those who run foundations tend to be more liberal than the typical American because people drawn to that line of work tend to see greater advantages to income transfers as opposed to the creation of wealth by producing goods or services.
Not surprisingly, the social activism of foundations after the deaths of their benefactors often does not represent the ideals of the donors who created them. Henry Ford, for example, was very uncharitable in his lifetime, and believed (probably correctly) that the best thing he could do with the profits from his Ford Motor Co. was to reinvest them in the business to give hard-working Americans good jobs. After his death, most of his wealth went into the Ford Foundation as a way for him to avoid the estate tax and to enable his heirs to maintain control of the Ford Motor Co. In the decades after it was founded, the Ford Foundation was notorious for funding anticapitalist groups and causes, including communist groups that disseminated pro-Fidel Castro propaganda and radical left-wing campus groups that promoted campus violence to try to change university policies. Surely Ford would have disapproved.
Many of the Ford Foundation's activities were even more overtly political. In 1967, the Ford Foundation financed a voter-registration drive in the predominantly black areas of Cleveland to elect Carl Stokes the first black mayor of the city. Around the same time, it provided substantial financial support to organizations that provided jobs for politically active members of the Democratic Party, including many who worked in the presidential campaigns of Bobby Kennedy and George McGovern.
The radical political projects of foundations, led by the Ford Foundation, so infuriated some lawmakers that in 1969 Congress substantially overhauled the laws governing foundations to make it more difficult for them to finance political activities. …