Monday, June 7, 2010


The constricted budgets of state and local governments have brought an old idea back to the table: taxing nonprofits' revenues (some already pay property and sales taxes). What about it?

Leaving aside the legislative changes that would be required to amend the IRS code what effect would taxing nonprofits have? These are some of the counter arguments I've heard over the years:
  • Services might have to be curtailed.
  • Smaller organizations would suffer disproportionately.
  • Taxation might discourage giving.
  • The theory of "contract failure" holds that nonprofits arise to provide services the government would not.
Some arguments the other way are that there are too many 501-c-3s duplicating programs and services and taxation might shrink the field; another view is that a great many charities - especially in health care and the arts - despite being established as charities don't really provide charitable services. Hospitals especially are often criticized for giving far less unreimbursed free care than the theoretical worth of their tax exemptions.

I have long thought about the practicality and desirability of a tiered system of deductions for charitable contributions - basically the larger the organization the lower the deduction - a sliding scale. This might be effected through a tax credit rather than a deduction. I don't really know - but it does suggest a parallel: perhaps it is time to look anew at both deductions and exemptions. There are over 1.6 million charities - most of them small but nonetheless drive about 10% of the economy in employment.

The sector is highly fragmented; and I don't really trust all the data. For example: Giving USA under-counts corporate giving because it cannot collect data on cause related marketing the fastest area of company "giving:" is CRM really charity? And because smaller estates don't have to file returns there are undetected bequests. Maybe more on this June 9th when GUSA's data for 2009 giving is released publicly.

Also much has been made of the multi-trillion dollar charitable wealth transfer - the Schervish/Havens model. here I am a real agnostic and hope to engineer a debate on this in December when Giving Institute meets in New York. I read not long ago that $43 trillion of wealth evaporated in the recession. Where then is the "transfer" coming from?

Despite the hullabaloo taxation of nonprofits is probably a non-starter as is my idea for tiered charitable deductions. But one never knows. Everyone once thought the world was flat. Now only a few do. They're in the other party.

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