I understand where this is coming from, but I’m not sure I would trust a legislature to fairly determine which organizations deserve a tax exemption more than the courts.
If such an amendment were to ever pass, I imagine lobbyists who represent nonprofits in the state capitol would see a nice little uptick in their business.
In case you missed it, the House Ways and Means Committee released a 558-page (!) report earlier this month detailing a range of options for overhauling the tax code. For those of us who work in the nonprofit sector, the report is of some significance because it summarizes all of the proposals for limiting or changing the charitable tax deduction that have been bandied about over the last several years. A recent article in the Chronicle of Philanthropy helpfully pointed out that the section on charitable giving begins on page 491.
Not sure there is an easy answer is to this, even if part of the problem is that the IRS and state regulators are too understaffed to provide sufficient oversight (the author of the article didn’t pursue this suggestion, although it doesn’t sound implausible).
All nonprofits are businesses. It’s a common misperception that nonprofit organizations aren’t supposed to make a profit, or aren’t allowed to. But that’s not the case. The difference between a nonprofit and a for-profit company is in what they do with those profits. Nonprofits, in return for a tax exemption, are restricted in terms of what they can do with the money they make: they are supposed to reinvest all it back into the organization in order to advance their mission. But that doesn’t mean it can’t pay high salaries or provide perks to employees. There is purposefully broad (though not unlimited) leeway given to organizations to determine what is necessary to spend (or hold) in order to further that mission.
When most people think of nonprofits they think of charities, religious organizations, hospitals and schools, but they also include trade associations, unions, governing bodies, and social welfare groups. I assume that no one quoted in the article would argue for changing the tax code so that these kinds of organizations can no longer operate as nonprofits. And it’s not as if squirreling away profits and paying large salaries is unheard of at charitable or educational institutions: Harvard sits on an endowment of over $25 billion, and prestigious university presidents can make over a million dollars a year.
Pablo Eisenberg, a senior fellow at the Georgetown Public Policy Institute, wrote an opinion piece last week for The Chronicle of Philanthropy that was critical of the Independent Sector’s new report on nonprofit advocacy, Beyond the Cause, arguing that is was undermined by “a self-serving agenda and an implicit, if not intentional, suggestion that Independent Sector become the central hub of the [nonprofit] sector’s advocacy efforts.”
The Chronicle headline would lead you to believe that the article was primarily about Eisenberg’s discomfort with the notion of Independent Sector serving as the voice for all on nonprofits, but the meatier part of his critique actually concerned the specific policy issues that they reported as the most critical to the field. He doesn’t agree with their choices, and suggests five policy changes that he thinks would make more of a difference. Those changes are (in a nutshell):
- Improving what he labels as a “dysfunctional” nonprofit regulatory system.
- Mandating an increase to the share of assets foundations must distribute annually.
- Encouraging greater socioeconomic diversity on nonprofit boards of both foundations and nonprofits.
- Closing the growing gap between large and small nonprofits. He notes that small organizations are shrinking (or closing) while large nonprofit are thriving and that tis disproportionately hurts the poor and disadvantaged, who typically get services from smaller, community-based nonprofits.
You can read the entire article to read his arguments in depth.
It’s useful to think about the most pressing policy issues impacting nonprofits, even though I don’t think it’s easy to come up with a list that every nonprofit would agree on, considering the size and diversity of the sector—which includes organizations ranging from universities with multi-million endowments to small, all-volunteer organizations with tiny budgets. And sometimes we forget that the sector includes a wide variety of political points of view as well.
For his part, Eisenberg thinks it’s impossible for nonprofits to share a broad consensus about which issues are most important, and that “the best that nonprofits can accomplish is to strengthen their individual advocacy and lobbying activities and join with other organizations in coalitions that fight for specific policy changes.”
But is it really impossible to come up with a short list of changes that a broad consensus of organizations could agree are important? And while I agree that working via coalitions is an effective strategy, the reality is that the best coalitions often are led by a trusted leader that pulls everyone together and keeps things organized. While I don’t think a single entity could speak for everyone on every issue facing nonprofits, a lead organization that was able to bring the sector together on a handful of the most critical issues, if it resisted the temptation to dominate the advocacy space on its own, could be very effective. The more groups there are advocating here in Washington on behalf of this sector, the more likely we are to drown each other out.
For the record, here are the issues that Independent Sector picked as most important:
- Protecting against proposals that could limit the organizations eligible for charity status.
- Protecting against proposals to limit or remove charitable tax deductions for donors.
- Clarifying advocacy and lobbying rules for charities and private foundations.
- Guarding against any proposed revisions to Internal Revenue Service disclosure forms that could hamper nonprofit operations.
- Reducing/eliminating overly burdensome paperwork and red tape involving government contracts with nonprofits.
- Providing more government-financed research on the nonprofit sector.