Nonprofit Community’s Contribution to Reducing National Debt

I think it’s time to change which kind of organizations are eligible for a tax exemption.

Two reasons have brought me to this conclusion. One, I don’t think it is good public policy to be providing tax exemptions – and providing donor tax deductions – for organizations that provide absolutely no charitable benefit. Big football bowls come to mind. (Check out the recent Arizona Republic article regarding the Fiesta Bowl and its efforts to save their tax-exempt status.) College booster clubs are another. Nonprofits formed by corporations simply to advance the corporation’s promotional goals, or those that provide a person with a convenient tax shelter. It’s not hard to come up with quite a few examples.

Secondly, as an American citizen, I’m concerned about the federal budget deficit and am persuaded that we need to make some painful adjustments before things get worse. It will require everyone working for the common good, rather than for ideology or party. That probably means slowly raising the eligibility for Social Security and Medicare based on income and age. A recent Washington Post article reports that the huge Defense Department budget is also being considered by both parties for cuts.

I am also persuaded that a significant opportunity exists in cutting back on “tax expenditures.” These are tax deductions – or loopholes – that lower tax obligations, thereby reducing the amount of revenue going to the Treasury. In recent weeks, we’ve seen the battle over whether ethanol should continue to receive a $5 billion deduction and whether the oil industry should receive a tax credit for new drilling. General Electric was recently in the news because it paid no taxes last year thanks to credits and deductions. Many corporations now employ a platoon of lawyers and accountants to find – or lobby for – deductions that can lower corporate taxes. It is estimated that elimination of tax expenditures could bring hundreds of billions in revenue to the Treasury.

In order for this to be as fair as possible, and not just driven by lobbyists and powerful PACs, every idea to reduce the budget should be on the table for consideration – including some that may affect the nonprofit sector. Rather than change the limits on the amount that one can deduct on personal income taxes, as the Obama administration is proposing, I would impose a “social benefit” requirement before an organization could achieve tax exemption. It would have the added benefit of reducing some of the confusion the public now has about charitable status and the meaning of being a nonprofit.

I know it won’t be easy but I think it’s worth a try. Perhaps we could consider it the nonprofit sector’s contribution to balance the budget.

What do you think?

9 responses to “Nonprofit Community’s Contribution to Reducing National Debt

  1. I would approve any effort to eliminate all tax “exemptions”, esp. for contributions to non-prophet, non-profit organizations that provide absolutely no charitable benefit. Too many tax exempt organizations that exist for the benefit of those who “work” there. I think it’s time to consider enforcement of the “Excess Benefit Tax”

  2. Bob, this is a great idea. I support it fully.

    Of course it raises the difficult question of what constitutes “social benefit” — but that question should have been on the table from the beginning. Implicitly we are now answering it in ways that would be very difficult for anyone to explain or justify. I’m curious how people will try, to explain how the current system makes sense. It doesn’t.

    Good wishes to you,

    Don

  3. This idea is so common sense that rational people couldn’t disagree. Of course, a paraphrase of the words of Justice Felix Frankfurter comes to mind in terms of defining “social benefit”: You know it when you see it. It would be cheering to see the IRS implement something like this effectively.

  4. Well Bob, that is quite an idea. I’ve noticed that Guidestar itself has become quite a big business, providing many “educational services” by taking government information and selling (yes selling, not giving away) much of it for, dare I say it, A PROFIT. I am a member of the Guidestar user community, and have been a pain in your organization’s side for years. Guidestar, having allegedly spent $1,000,000 to convert IRS 990 tapes to pdf format, feels it is charitable to charge $350 per month or $100 per search to make some of that information available to the public whose Billions of Dollars in taxes pay to collect that information. Nonprofits may pay similar amounts to collect report that data to IRS. I am told that people like me who use this information in our business should pay, and in fact I have paid money when I absolutely must look at 990s that are older than 3 years. Is that “Charitable” when Guidestar ties access to that material to “premium” packages with a lot of data you make available but I don’t need. Sounds like an antitrust violation to me. Do you think the FTC and DOJ subscribe to this list? No problem, I can shoot them a copy of this if you won’t.

    People who live in glass houses, Bob, should tread carefully on this slippery slope. Markelangelo

  5. Bob,

    You pose a good set of questions. I respectfully disagree with you on the following grounds: 1) the IRS DOES put nonprofits through a rigorous process to gain the status and is also quick to remove it if there is no social benefit. If the IRS code were to change, then it needs to change in concert with ALL the exemptions now available to both individuals AND for profit corporations. The other reason I don’t agree with you is that nonprofits represent a community’s civic efforts to address a particular cause or issue not being met by other organizations. If one doesn’t live in that community, then one is not in a position to determine whether there is benefit or not. It is purely opinion. Slowly and because of political, social and econonmic factors the nonprofit sector has been taking over government’s role at all levels (federal, state, and local)in many arenas (employment and training,education, prisinor re-entry, child development, etc.) Let the “market” of nonprofits take care of itself as it transforms through mergers, closings, and other forms of delivering services. As is the case in the for-profit market, ill-conceived services or ineficiencies have a way of precipitating their own demise. Tax exemptions for individuals represent a major source of revenue for nonprofits. As government programs are elminated and contracts issued to nonprofits are terminated, tax exemptions will become even more important. We all know why we have deficits in this country, I believe nonprofits are not the answer for deficit reduction. We need to look at the root of the conributing factors and bite the bullet at the source. I hope you get many comments to your provocative questions and spurr a dialogue. ghg

  6. Bob,

    Tax deductions for non-profits are complicated due to measuring the social benefit of each organization. As a Portland Bankruptcy Lawyer I work with individuals who need to know their financial options. Deductions for non-profit organizations could be what keeps their cash flow going and keeps them in business.

  7. Why don’t we have National TV Telethon to get rid of the Country’s Debt? (Major celebrities, sport stars and politicians could be on the phones taking contributions). Big Time acts like Lady Ga Ga and Ce Lo Green could be singing etc. Howard Stern would be a good host.(all contributions would be tax deductiable). The National debt could be wiped out in a week.

  8. We have started a non-partisan, not-profit organization that is uniting Americans to allow them to help be part of the solution to the debt crisis. We are actually helping to pay down the debt. Our success ultimately depends on the participation of as many Americans as possible. We have garnered national attention, including appearing on CNN (one of our CNN features can be seen on our website (www.reducethenationaldebt.org) and other news shows). We have had incredible success, with nearly 30,000 visits to our Facebook page and website, numerous people signing up to be part of our organization, and numerous people making donations between $5.00 and $1,000. We are considering putting together events, such as those suggested above. Together, we can help make a big difference. Please check us out, help spread the word, and support our mission. Thank you.

  9. As a co-founder of an independent 501c3, licensed and COA accredited consumer credit counseling agency in 1996 (retired due to lack of contributions in 2006), I would hold some non-profits highly accountable to assisting in reducing the national debt. I would encourage people to look to non profits that “service communities” with financial education, debt reduction services and budget planning to be at the forefront of this task as it is their business to do so for individuals within their communities.

    First however, I would call into question their funding sources. If a large percentage of their contributions, say over 33 1/3%, is coming from 1 or more for-profit enterprise(s) with a financial stake in the services performed by the non-profit, then I’m not so sure anyone should trust this type of non-profit. The credit card industry provides at least 90% of the funding for consumer credit counseling services in the way of fair share donations. Likewise, the National Foundation for Credit Counseling sits in an “advisory capacity” to many of the sub-prime lenders that played a part in the mounting crisis that exists today.

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