The Problem With Using the Tax Code to Punish Israeli Settlements

Why J Street’s push to revoke tax exemptions for groups supporting Jewish communities in the West Bank is unconstitutional

J Street and like-minded progressives are campaigning to eliminate U.S. tax exemptions for charitable groups that provide support to Jewish communities in the West Bank. The reason: the communities’ existence contradicts the views of President Obama. J Street’s campaign violates the law and the Constitution, and it also suggests an alarming trend that in which critics of Israel get a free pass from the Left’s overall strong commitment to civil liberties and distrust of authoritarian government.

While J Street claims that its demand is justified on the grounds that private Americans’ support for settlements contravenes “established public policy,” J Street is calling for the administration to do something unprecedented and clearly unconstitutional. To put it simply, J Street et al are asking that some non-profits be denied tax exemptions because they disagree with the President on diplomatic matters. That’s what going against ”public policy” means here—not violating any statutes, but pursuing goals at odds with the foreign policy of the President.

J Street hides its effort behind language in Treasury regulations allow restricting the tax-exempt status of groups that act “contrary to clearly defined and established public policy.” But what J Street fails to mention is that groups only act “contrary to clearly defined and established public policy” when they contravene a policy established by law and the Constitution. According to the IRS itself, the public policy exception applies only to one context: racial discrimination. The public policy exception provides no basis for the idea that the IRS can revoke tax exemptions for groups that favor policies disfavored by the White House or State Department.

Unlike presidential disdain for Israeli settlements, the legal background of combating racial discrimination is enshrined in several Constitutional Amendments, numerous statutes, and countless Supreme Court precedents. The legal pedigree of combating racial discrimination is vital to the legal validity of applying IRS exception, as the Supreme Court stressed in narrowly upholding the racial discrimination exception several years ago. J Street makes a mockery of the law and the nation’s long struggle for equality when it attempts to assimilate the “crime” of donating ambulances to communities living in Shilo or the Jewish quarter of Jerusalem’s Old City into what the Supreme Court justly called the unique “stress and anguish” of racial discrimination in the nation’s law and history.

To get an idea how shocking J Street’s suggestion is, consider its potential scope. During the Bush Administration, it was the firm policy of the U.S.—repeatedly endorsed by Congress and the President—to fight a global war on terror and detain suspected terrorists in Guantanamo. Under J Street’s rule, anti-war groups or civil rights groups protesting Gitmo could have their tax exempt status revoked. After all, protest groups are often explicitly at odds with government policy.

But one need not go outside the umbrella of Israel-focused groups to see the extreme nature of J Street’s proposal. For example, anti-Israel groups like Jewish Voice for Peace that endorse boycotts of, divestment from, and sanctions against Israel (BDS) take a position that directly contradicts the clear U.S. policy of opposing BDS (which is articulated in numerous statutes). Indeed, J Street itself has opposed the U.S.’s anti-BDS policy.

J Street’s approach is a frighteningly illiberal. Its adoption would have disastrous consequences for free speech in general, as well as for particular groups with which J Street supporters sympathize. And that makes matters worse. Presumably J Street does not mean to trample free speech generally—so it must be assuming that the principle it is now endorsing it would be applied, arbitrarily and discriminatorily, only against certain Jewish groups.

In it’s effort to find a legal basis for its illiberal campaign, the most J Street can invoke in favor of its claim of a clear “public policy” is political statements from the Executive Branch, and a non-binding and long-rejected 1978 letter from a State Department legal adviser. But as frustrating as this may be to J Street, there is no U.S. law or clearly established U.S. policy which indicates that settlements are illegal, notwithstanding the Carter Administration-era letter claiming Israeli settlements are “inconsistent with international law.”

A State Department memo is not a law or even an agency regulation. It does not bind the U.S., or change citizens’ rights, or “define and punish offenses against the law of nations,” which only Congress can do. No official has ever mistaken the memo for a legal enactment; indeed, a mere two years after the 1979 letter, President Reagan announced that settlements are lawful, and Presidential Administrations in the 35 years since have studiously avoided expressing any opinion on the lawfulness of settlements. Meanwhile Congress has passed numerous laws—which do establish U.S. law and policy—that clearly show ISRAELI settlements are not illegal. Even the anti-Israel Foundation for Mideast Peace has complained that U.S. settlement policy is “schizophrenic”—hardly the “clearly defined and established” public policy J Street now claims.

Worse yet for J Street is the fact that even if there were a U.S. policy that Israeli settlement construction violates international law, that policy would have nothing to do with U.S. citizens supporting libraries, schools, and other services in those communities. The rule of international law invoked by opponents of the legality of Israeli settlements clearly only applies to a transfer of population carried out by the Israeli government. Most anti-settlement scholars are forced to concede that settlers themselves do not violate international law. Certainly nothing in international law regulates the charitable or other dealings between third-country citizens and people living in settlements. And just as certainly there is nothing in the Carter-era State Dept. letter that claims that charitable contributions by Americans to settlements violate the law.

This is no small distinction. One would search in vain for any claims that there are legal problems with charitable giving to settlements in other occupied or disputed lands. For example, no one has suggested that 501(c)(3) groups that support Armenian settlements in occupied Azerbaijani territory pose any problems. Indeed, a leader of one such group is also a prominent BDS activist.

Finally, even if the U.S. did regard private charitable contributions to foreign civilian groups in settlements as a violation of international law, that would not make them a violation of U.S. law. Because international law is so vague and debatable, the Constitution forbids the president from taking action against people by simply pointing to “international law.” Instead, a statute is required, as has been clear ever since the uproar over the 1793 Neutrality Proclamation.

J Street seeks to portray itself as both a liberal and a pro-Israel organization. But its actions in the anti-settlement campaign tell a different story. While the very notion of a tax status denial for critics of U.S. policy is repugnant, J Street did not even extend its request to anti-Israel groups that work against U.S. policy, or to groups that work against U.S. policy in other disputed territories, but only to “Israeli settler” groups. That may be “anti-settler,” but it is not pro-Israel in any way.

J Street is too careful to come out and call for a stripping of its targets’ charitable status. Rather, it is calling for (and mounting a campaign to induce) the Treasury Department to investigate the groups. This is no idle banter. In the early days of the Obama Administration, J Street andThe New York Times called for similar probes of ideological opponents. They got it—and what became a central part of the broader IRS audit scandal.

There is great irony in the timing. J Street’s call for a tax inquisition is authoritarian, anti-democratic, unconstitutional, arbitrary, vindictive, and, to put it delicately, uncharitably focused on the Jews—all attributes JStreet’s sympathizers ascribe to the Republican presidential candidate. Nevertheless, there is good reason to think J Street’s views have a sympathetic ear in a Democratic administration. The Obama Administration has worked to mainstream J Street. At the same time, as this episode shows, J Street has pushed fairly extreme positions, and through its campaigns popularized such extremism in the larger progressive camp. Progressive defenders of the Constitution and friends of Israel have not denounced J Street’s efforts, raising fears they cannot be counted on to police constitutional overreach in this area.

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Eugene Kontorovich is a professor at Northwestern University School of Law, and the head of the International Law Department at the Kohelet Policy Forum.