Trump Deregulation and Its Impact on the Nonprofit Sector

Introduction

President Trump touted deregulation as one of the central issues he would pursue during his 2016 campaign. Once in the White House, he followed through on that commitment, and his deregulation policy has had a notable impact on the nonprofit sector in the United States. This paper examines how that impact has benefited the nonprofit sector in some respects while leaving open the question of whether negative consequences will emerge over time.

Specifically, this paper explains how deregulation under the Trump Administration is affecting nonprofits in beneficial ways—such as by allowing certain organizations to keep donor names anonymous, and by capping the cost burdens that federal agencies can impose on nonprofits. It also addresses the reality that deregulation carries unforeseen consequences that may adversely affect nonprofits, particularly those operating in the environmental sector, and that the full scope of these outcomes will only become clear with time.

Donor Anonymity and 501(c) Organizations

Under the Trump Administration's deregulation policy, certain tax-exempt 501(c) organizations—excluding those described in 501(c)(3) and section 527 organizations—are no longer required to file personally identifiable information about their contributors in their annual tax returns (Brookings Institute, 2020). This means that donors can remain anonymous and organizations do not have to disclose who is providing financial support unless directly compelled to do so by the government. Organizations must still keep this information in their records, but they are no longer required to report it annually. That is a significant win for nonprofits, because the loss of donor anonymity can sometimes discourage major donors from making the kinds of contributions that create a meaningful difference for these organizations.

The fact that some nonprofits will no longer have to identify all their donors to the IRS also represents a gain in organizational autonomy and independence. This rule applies to 501(c) organizations, which can receive unlimited donations from individuals, corporations, and unions. While these nonprofits no longer have to disclose donor identities in their tax filings, they must still maintain those records and provide them upon request. This arrangement allows major donors to collaborate more closely with nonprofits without concern that every contribution will become public knowledge—a benefit that ultimately strengthens these organizations' ability to operate independently from the government. In a free-market system, independence from the state is among the most important factors for organizational effectiveness. Major donors can help nonprofits achieve greater societal influence and are more likely to do so when they perceive these organizations as genuinely independent.

Executive Order 13771 and Regulatory Cost Caps

Another way in which deregulation under the Trump Administration positively affects nonprofits is through Executive Order 13771. This order calls for a new regulatory budgeting process designed to control the overall cost of each agency's regulations. President Trump sought an "annual cap on the additional cost burdens that an agency is allowed to impose on the U.S. economy" (Belton & Graham, 2019, p. 15). Belton and Graham (2019) demonstrate that EO 13771 is aimed at curbing federal agency overreach by capping agencies' ability to shift costs onto nonprofits and other organizations. Because agencies are already constrained by congressional appropriations in terms of direct spending, they have historically pursued their own policy goals by transferring those costs to nonprofits and other entities. EO 13771 is intended to end that practice and thereby free nonprofits from regulatory burdens that, in the Trump Administration's view, hinder economic growth.

This executive order effectively limits the degree to which federal agencies and departments can impose prohibitive costs on nonprofits through their own regulatory frameworks. The Trump Administration's deregulatory philosophy rests on the belief that over-regulated organizations are inherently inefficient. EO 13771 therefore prevents the federal government from pursuing hidden regulatory costs embedded in its own policy structures. The less money nonprofits must spend on agency fees and compliance costs, the more resources they can reinvest in themselves and in the communities they serve.

Unforeseen Consequences of Deregulation

Not every aspect of deregulation is viewed as beneficial. As Morrow (2017) observes, "Deregulation efforts impacting nonprofits are similar in effect to what happens in the private sector—there are immediate winners, some negatively impacted, and landscape changes that unfold over time." In other words, not every nonprofit is treated equally under deregulation. Some benefit more than others depending on their sector and position within it. Some nonprofits rely on regulation in their field—whether for research grants or other forms of funding—and deregulation can have both direct and indirect effects on them. A surface-level assessment of deregulation's impact is therefore limited and fails to account for the full scope of consequences. Some indirect effects cannot be evaluated for years after implementation: "It's not easy to predict the long-term changes and consequences that deregulation will create" (Morrow, 2017). The timing and visibility of consequences will vary significantly across sectors.

Benson, Stadler, and Pontell (2019) extend this cautionary perspective, arguing that the Trump Administration's deregulatory agenda will negatively affect several areas of American life, "including consumer financial protections, environmental controls, and workplace safety among others" (Benson et al., 2019, p. 1063). These researchers contend that the administration's rapid pursuit of deregulation is likely to produce harmful collateral effects for organizations because regulation, at its core, is an exercise in risk management. Relaxing regulatory requirements can create a riskier operating environment than is appropriate or sustainable.

Nonprofits will be affected by Trump-era deregulation in various ways, but the net effect will take time to assess fully. Certain sectors—such as environmental organizations and Planned Parenthood affiliates—are likely to be adversely affected, while others may benefit depending on the services they provide. Weaver (2018) argues that the benefits of regulation for nonprofits actually exceed the costs of deregulation, and that deregulation is not as advantageous for the nonprofit sector as its proponents claim. Weaver's (2018) concern is that supporters of deregulation focus almost exclusively on the costs organizations bear in complying with regulations, overlooking the protections and savings that regulation provides. As she notes, "proponents of deregulation would argue that there are simply too many regulations that result in high costs and regulatory burdens on regulated entities including businesses, universities, hospitals, labor unions, and nonprofit organizations."

What these proponents fail to consider is that regulation also shields organizations from other, less visible costs. They examine only a narrow set of figures rather than the full picture. This selective use of data leads Weaver (2018) to conclude that "legal scholars question the validity of such data, weakening the notion that these numbers are indicative of a systemic problem." Cherry-picked data never tells the whole story; it omits context that would allow for a more accurate understanding of both the benefits and costs of regulation and deregulation. As Weaver (2018) ultimately points out, "proponents of deregulation overlook the fact that, according to OMB, benefits far exceed costs" (Weaver, 2018, p. 500). The benefits of regulation include enhanced security, clear frameworks for managing risk, and reduced exposure to litigation when things go wrong. For this reason, the true impact of deregulation on a nonprofit is often not apparent until something does go wrong—at which point the real costs of reduced regulatory oversight are finally brought to light.