Why a radical new proposal to end nonprofits’ tax exemptions is wrong.
In an article on Time’s website yesterday, Mark Oppenheimer of the New York Times and Yale University proposed that we should “abolish, or greatly diminish, [the] tax-exempt statuses” of churches, private schools, charities, and other nonprofits. He thought that Senator Mike Lee (R., Utah) was reasonable to fear that religious organizations opposed to same-sex marriage could lose their tax-exempt statuses in the wake of Obergefell v Hodges. But rather than worry about discriminatory taxes, Oppenheimer went in the opposite direction with his radical proposal to end the tax-exempt status of almost all nonprofits.
If one wants to allow the Leviathan state to devour civil society, then Oppenheimer’s suggestion is quite sensible. If, however, one wants to work for a juster, happier, and richer society, it leaves much to be desired.
According to the Urban Institute, about two-thirds of reporting public charities in the United States had revenue of less than $500,000 a year in 2012. Because many smaller organizations do not face the same reporting requirements as larger ones, the percentage of charities and other nonprofits with revenues of less than half a million a year is probably even greater than that estimate. For these organizations, there isn’t that much money to go around. Moreover, the Urban Institute found that, in 2012, all nonprofits that had to report in depth their finances to the federal government had combined revenues of $2.16 trillion and expenses of $2.03 trillion. That’s a gap of only $130 billion (about 6 percent of the total revenue). For nearly every nonprofit, therefore, increasing tax levels would lead to a cutback in services, a reduction of assets, or, potentially, bankruptcy.
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Moreover, these pressures would be felt with particular acuteness by the smallest institutions. Oppenheimer offers Yale’s hefty endowment of approximately $25 billion as a reason why we should tax nonprofits. However, I feel fairly confident that Yale, if it were taxed, would survive. I cannot write with the same confidence about the probable survival of countless other private schools, colleges, and universities. Taxation could sound their death knell.
One could make similar points about institutions in other fields. Marquee museums like New York’s Metropolitan would survive, but community art museums across the country, in towns and small cities, would soon be shuttered. Poorer congregations would be forced to sell their churches. Nonprofit theater companies without major star power would close. This would lead to a more insular cultural environment. Many on the Left fret about rising inequality, but a blanket attack on nonprofits would be felt most by the 99 percent.
The idea that government intervention is the only true way of caring about poverty reveals, perhaps, a lack of moral imagination.
Oppenheimer shrugs off the fear that ending tax deductions for charities could lower private giving by saying that government could step into the breach: “We’d have fewer church soup kitchens — but countries that truly care about poverty don’t rely on churches to run soup kitchens.” He thus suggests that we ought to accept the replacement of private works of charity with state intervention because this replacement is the sign that we “truly care” about poverty. The idea that government intervention is the only true way of caring about poverty reveals, perhaps, a lack of moral imagination.
Oppenheimer betrays a similar lack of moral imagination at the end of his piece, when he grants concessions to some nonprofits: “I can see keeping some exemptions; hospitals, in particular, are an indispensable, and noncontroversial, public good. And localities could always carve out sensible property-tax exceptions for nonprofits their communities need.” In a conceptual tic that is all too familiar in our age of the new intolerance, Oppenheimer thinks that he has settled, at last, the proper range for public debate. Hospitals, he assures us, are an “indispensable, and noncontroversial, public good.” But who is to say that most other nonprofits are not also indispensable and noncontroversial public goods? Oppenheimer specifically says that churches should be taxed, but many people, including many of those who founded the American colonies and the United States, would say that spiritual ministrations through organized religion are an incontrovertible public good. The promotion of physical health is clearly worthwhile, but so too is the promotion of other kinds of health.
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And the suggestion that localities can “carve out sensible property-tax exceptions for nonprofits their communities need” seems an invitation to increased cronyism and government favoritism. Under relatively uniform tax policies for nonprofits, every group is treated about the same; allowing carve-outs for some nonprofits would likely favor certain connected interests. Some favoritism is no doubt unavoidable, but a patchwork system of “sensible” tax avoidance could radically increase the stakes of this favoritism.
Churches and other groups performed charitable works long before the invention of the welfare state.
The errors of the present remind us of the wisdom of the past. As Edmund Burke recognized, the state is no substitute for the non-governmental institutions of civil society. Churches and other groups performed charitable works long before the invention of the welfare state, and these private actors still often provide more effective and humane services than do faceless government bureaucrats (as the recent VA scandals suggest). The efforts of the bureaucratic leviathan often fall far short of the hard day-to-day work of rabbis, artists, soup-kitchen volunteers, teachers, and nurses.
The nonprofit sector is far from perfect, and it would be a mistake to think that valuable enterprises can happen only in the nonprofit world. After all, some of the greatest American cultural achievements of the past century have occurred in the very profit-driven fields of film and television. However, the tax policies governing nonprofits have made it easier for the institutions of civil society — schools, churches, charities, and so forth — to flourish with astounding diversity. Some “progressives” might think that we should blow up these institutions in the name of increased tax revenue, but more sober heads might recognize the value of the local efforts that build and sustain our communities.
— Fred Bauer is a writer from New England. He blogs at A Certain Enthusiasm, and his work has been featured in numerous publications.