Tuesday, June 18, 2013

The Non-Profit Sham

For years, the purpose for having non-profit and tax-exempt organizations was clear and acceptable to the public.  Artistic groups, hospitals, private schools, museums, and charities supporting the underprivileged, disaster victims, and medically stricken all appealed to our sense of a general good that should receive special, broad-based support.  It has been a general good that transcends politics, favoritism and self-reward.  For-profit corporations are intended to earn a surplus of revenues, pay taxes on that surplus, and to distribute those profits to its stockholders.  Non-profit corporations have no shareholders, accumulate no profits to be distributed, and if tax exempt (as most non-profits are) pay no income taxes on their surplus.  This exclusion from taxes is intended to enhance the resources for, and thereby the benefits of, their services to the public.  To further this enhancement even more, donations made to these corporations are also tax deductions for the individuals making them.  So the tax exemption created by these corporations is effectively doubled, to the tune of perhaps $50B in excluded federal income taxes annually.

It has been a tax loss we have been willing to absorb for years as a national priority.  But in light of the Citizens United decision by the Supreme Court that unleashed millions of dollars into our political debate and elections, and the genuine scandal of for-profit corporations posing as non-profits with a tax exemption, it is time that this national priority be reexamined.

One of the requirements for obtaining tax-exempt status is that an organization avoids partisan political activity, avoids endorsing any particular political candidate, and avoids trying to directly influence legislation.  But is there hardly any major national non-profit that is not seeking to do just that?  My donation to the Brady campaign that lobbies Congress for gun safety is not tax deductible.  But a donation to the NRA would be deductible as a “social welfare organization” of fellow gun owners.  To say that the NRA is less political than the Brady Campaign – two opponents in the marketplace of opinions – is laughable.  Similarly would be my donation to any number of environmental groups, who commendably seek to protect our fragile landscape, but do so by heavily lobbying legislators or filing numerous court cases over their pet causes.  Is this so different than my nondeductible donation to the ACLU who fights constitutional abuses?

The recent rise of myriad political action committees (PACs) is a more blatant example of this hypocrisy.  The claim is that such PACs fulfill a political educational function for the public by espousing certain political opinions.  But Karl Roves’s PAC and its admitted goal of promoting particular political candidates (and the Republican Party generally) based upon telling a one-sided story, or Michael Bloomberg’s PAC of mayors against gun violence, are hardly “educational” in the recognized sense of the National Geographic Society or the Museum of Modern Art.  The fact that the sources of funds for many of these political groups can be kept secret from the American public who granted them their special tax-exempt status is an added insulting travesty.

Besides these overtly political groups, another tax-exempt sham is with those non-profits who are in fact earning massive profits for their corporate officers.  To be legally correct, there are still no “shareholders” receiving dividends from the “profits” of these non-profit corporations.  Instead, the profits are going into the mega-salaries of the corporate executive team.  They are million dollar salary levels that one does not normally associate with these corporations who supposedly fulfill a “higher purpose of good.”  The most blatant examples of this increasing distortion are within the medical community.  Hospitals, doctors’ associations, and clinical chains are organized as non-profits – even buying out older, established hospitals to keep their charitable-sounding name and favorable tax status.  But they operate just as competitively and monopolistically as any for-profit counterpart.  CEOs are rewarded by corporate standards of salary and bonuses based upon increasing revenues, constructing more shiny buildings, attracting more customers (as opposed to expanding care to those who truly need it), and delivering more quantitative services (whether justified by the medical conditions or not).

We see similar things happening in non-profit higher educational institutions.  More college presidents with million dollar salaries are building bigger facilities and chasing increasingly scarce research dollars.  All in the name of size and prestige rather than educational need or supportable research opportunities.  Costs escalate, and many students needing an education to advance their lives are priced out or are drowning in taxpayer-underwritten student loans.

Finally, there is the sham of certain religious organizations.  For all too many churches and religious groups, their finances are often off-limits to public inquiring minds.  People of goodwill donate to televangelists or other religious figures with no idea of where their money then goes – all too often driven out the door in an expensive BMW.  Many religious leaders publicly decry the separation of church and state even as they enjoy many privileges from that separation, all the while fully engaging themselves in secular and political debates.  The success of religious organizations has become measured by size and influence – witness the mega-churches, religious broadcasting networks, and political elbow-rubbing.  The vows of simplicity and poverty while tending to the needy, as voiced by virtually all original religious founders, have been lost under the protective shroud of the false non-profit / tax exempt classification.

The list of supposed “non-profits” grows inexplicably and endlessly – from country clubs to the NFL, from the Heritage Foundation to the NCAA.  Hurt from “guilt by association” are the many traditional non-profit, truly public service organizations that continue to be part of the backbone of the American character.  Staffed by volunteers, providing genuine services that would not otherwise be available, with minimal paid staff receiving under-market wages, these unique expressions of good will need and deserve our support.  But tax-exempt has become a sham that needs to be reformed, at least for those corporations run by board members who live in a for-profit corporate world, and who have created an unfair trade advantage for themselves.  The continuing backlash against the Susan G. Komen breast cancer charity due to its overtly political actions and its $800K presidential salary is justified, but it is only one such glaring example of this abuse.

It is not just an issue about the obvious PACs on both the left and the right political spectrum.  It is about the use of the non-profit and tax-exempt ruse used to enrich “corporate insiders” that needs to end.  Such shams are yet another vehicle for giving unfair advantages to a privileged few, and are an insult to those Americans who truly give of themselves for “the noble cause.”  Questioning the very basis of our non-profit/tax-exempt institutions is not a conversation for the faint-hearted.  But the hypocrisy of these sham organizations threatens our trust in our fellow human beings and the institutions that make up our social contract with one another.  They contribute to our growing economic divide and an “everyone for themselves” mentality that threatens our basic moral fabric.  The very fabric that binds us together as still a nation of moral worth.

©2013 Randy Bell