Special Tax Status for Non-Profits?

Non-profits in America get several tax benefits:

  • Contributions to them can be deducted by donors.
  • They do not have to pay sales or property tax.
  • Exemption from corporate income tax

Should they?

There’s a number of problems with this.  One, it makes deciding what is and is not a non-profit really important.  I’m fine with government subsidies (which is what tax breaks are) to help poor people eat, but not for rich people’s entertainment.  Those two are easy to distinguish, but there’s a lot of room between homeless shelters and operas, and I’m uncomfortable with the government drawing the line. Or what about charities that have beliefs you find abhorrent?  Bob Jones University lost its tax-exempt status in 1983 due to its ban on interracial dating, and fear of a repeat apparently drives a lot of the religious objection to same sex marriage.  I think people who oppose interracial dating or same sex marriage are wrong and should be shamed, but I’m really uncomfortable having that much money riding on values judgments by the government.

The sales tax thing isn’t that big a deal, as witnessed by the fact that a lot of charities don’t even bother with it.  But property tax is.  It starves the tax base of municipalities with a large percentage of land occupied by non-profits.  It’s something of a problem in DC and an enormous one in some university towns, especially if the surrounding area is poor.  That’s hard to stomach when prestigious universities have endowments in the billions and a good chunk of their work is making the rich richer.  Lack of property taxes pushes charities to buy property when they would otherwise rent (which means it benefits only those charities with consistent funding), and to occupy more valuable real estate than they otherwise would.

I like that I get a tax deduction for my donations, and I’d probably donate less without that.  OTOH, it creates a distinct gap between “people organizing to do some good things” and Official Charity, which creates a barrier to entry.  It’s not a trivial barrier either- I’ve served in the leadership on both official (my old dojo) and unofficial (Seattle EA) charities.  Among other things, official recognition forces a fairly specific kind of hierarchy on you.   In Utopia of Rules, David Graeber talks about the strain his autonomous non-hierarchical collective experienced when someone had the gall to give them a car.  It ends with them destroying the car with a sledge hammer.

Now we see the violence inherent in the system.
Now we see the violence inherent in the system.

Removing the benefits of official incorporation would let more organizations find their natural structure, rather than a one size fits all government imposed one, and also lead to fewer car destruction parties.

My opinion on the corporate income tax is a post in and of itself, so let’s put that aside for now.  I think there’s a very good case for not exempting non-profits from property tax, and not making charitable contributions tax deductible.  I also think it would be extremely disruptive to abruptly switch, so we should ease over gradually, and the change should be revenue neutral.*

*People say I’m cynical but then I write things like “the government should raise this tax and lower another one so they get the same amount of money” so I don’t know what they’re talking about.