The US charity contract goes something like this: Nonprofits are created and recognized because they perform a service that is believed to be good for society and often relieve the government of performing the same functions. In return for their contribution to the “common good”, they are considered tax-exempt organizations, which means that they usually do not pay any income tax, sales tax or property tax to local, state and federal governments. Also, donations to support these organizations are sometimes tax deductible, resulting in the loss of additional tax revenue.
At the federal level, the effect is enormous, affecting the funding of programs ranging from military defense to environmental protection. Local and state tax exemption means nonprofits do not help pay for essential public services like police and fire safety, public education, roads and more. For example, in 2015, New York state evaded $ 26 billion in religious organization property because of tax exemption.
What exactly is the definition of public good?
There are nearly 1.6 million tax-exempt, nonprofit, and nonprofit organizations in the United States. Most of us who are committed to philanthropy assume that the vast majority of them are for the common good. However, there is no accepted definition of the term “public good”. Without a clear, shared understanding of what it means, it is often difficult to understand how the charity contract works. Here are a few examples where lack of definition raises serious questions.
There are nonprofit organizations across the country for the rescue of fat belly pigs. I have nothing against pot-bellied pigs, and I understand that they may need to be rescued like any other animal. The question is, does saving potbellied pigs create the kind of public good that warrants significant tax breaks and the loss of government revenue? If the pigs rescue pen catches fire, the nonprofit will call the fire department – despite being exempt from paying property taxes to support this critical public service.
What about the charitable status of dozens of hate groups across America? As disgusting as their speech is, hate speech is protected by the First Amendment and is allowed to exist by law. Do these organizations, although legal, fit into a definition of the public good? What impact does it have on the moral fabric of our society to subsidize non-profit hate groups with tax exemptions?
When these hate groups, like some recently, advocate violence or rioting, their otherwise protected language crosses the line of what is permissible. Do such organizations grant the enormous tax advantages of non-profit status with the corresponding loss of government revenue? Is this how the charity contract is supposed to work?
Another example is the charitable status of televangelists. Religious organizations, as a group, are tax-exempt non-profit organizations. Many televangelists have built enormous businesses and amassed millions of dollars in untaxed income, not only from charitable donations, but also from music, publishing, and other related endeavors that lead to luxury homes and complexes, private jets, and undisclosed salaries. These “charities” raise serious questions about the purpose of the charity agreement and whether they warrant such generous tax breaks.
The benefit of charities puts a burden on all taxpayers
A year after the pandemic began, governments at all levels are struggling to make ends meet and provide the essential public services that our society depends on. Government budgets are being cut and many of the tax revenue-based services are cut or canceled.
We all pay more for the essential services provided by local, state, and federal governments as tax revenues are lost due to the special tax treatment of nonprofits. It is time that the charity contract was re-examined by asking some very important and difficult questions, starting with:
- How does society define the “common good” in such a way that the non-profit programs our country needs are prioritized and their tasks actually promote our common values?
- Are the costs / benefits of charity exemptions and donation deductibility reasonable for 21st century society economically and politically?
This re-examination includes the honest dedication of policy and tax experts, economists, elected officials, and the nonprofit sector itself to ensure that the Charity Treaty actually helps improve our cities and states, our country and our world in ways that the best of them makes sense for the times we live in. Without such a commitment, the non-profit sector will continue to be an all-rounder.
Charitable of the month
For over 30 years, Energy Outreach Colorado has provided warmth and comfort to families across Colorado. One in four households is struggling to afford energy bills at home, and the impact of the COVID-19 pandemic has increased that number by over 40%. Through energy support, furnace repairs and weathering, Energy Outreach Colorado ensures that no one lives in a house without heat or light at this critical time. https://www.energyoutreach.org.
Bruce DeBoskey, JD, is a philanthropic strategist working with The DeBoskey Group in the United States to help families, corporations, foundations, and family offices design and implement thoughtful philanthropic strategies and actionable plans. He is a frequent keynote speaker at conferences and workshops on philanthropy. Visit deboskeygroup.com or @BDeBo