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?
The preceding is a guest post by Bob Ottenhoff, Chief Executive of the Center for Disaster Philanthropy. With an entrepreneurial spirit, strong technology focus, and a quest to make an impact in the world, Bob has the ability to take an organization and lead it into strong performance, sustainability, and industry leadership.