Nonprofits Without Honor
DIIULIO, JOHN J. Jr.
Nonprofits Without Honor Sen. Grassley tackles the trillion-dollar tax-exempt sector. BY JOHN J. DIIULIO JR. Jesus, they preach, not only wants you to love the poor—Jesus wants you to get...
...They” are the Christian televangelists atop the multimillion-dollar media ministries being scrutinized by Senator Charles Grassley...
...And this doesn’t count social services supplied to nonmembers by faith-based organizations that are not religious congregations or associated with religious congregations...
...health screening...
...crime watch...
...Yet it costs low-income, nonitemizing folks who put a dollar in the collection plate a whole dollar...
...others will come out looking . . . well-endowed...
...The key nonprofit distinction is not religious or secular, large or small, national or local...
...Some tax-exempt televangelists may be abusing their nonprofit privileges, but the faith-based nonprofit subsector as a whole is not...
...Now, in Philadelphia as in other cities, faith-based organizations, almost all without government fi nancial support or technical assistance, supply scores of social services to nonmembers...
...neighborhood cleanup...
...summer day camps...
...after-school programs...
...Or, one might simply retreat to the formal-legal position that tax-exempt status is not now by law contingent on producing actual, measurable benefi ts, but hinges only on asserting a broadly defi ned charitable purpose, and in seeing to it that no excess revenues benefi t board members or other principals...
...To qualify and stay qualifi ed for these myriad public subsidies, the school need not give Uncle Sam its fi rstborn, nobody needs to work for free, and students are not restricted to studying nursing or other subjects that most citizens would consider socially useful...
...In 2006, he held hearings exposing how some nonprofi t hospital executives favor themselves with lavish travel and country club dues...
...blood drives...
...Churches” is a term that the IRS uses offi cially and generically to encompass local houses of worship and congregations (churches, synagogues, mosques, and others), plus what the IRS terms “integrated auxiliaries” (for example, church members who do church-supported work but under a separate name...
...Ask instead what they actually do for their local communities and for their country...
...Ask whether, in fact, organizations within the tax-exempt sector need all the subsidies and breaks they get in order to survive or thrive...
...In my hometown of Philadelphia, the loss is about $90 million a year...
...Instead, a nonprofi t institution needs only to avoid enriching board members or other principals as such, and use any “excess revenues” to advance its publicly (and often nebulously) stated educational, charitable, or other publicspirited purposes...
...Concerns about how tax exemptions might constitute “indirect establishment” have been dominated by concerns about how taxing religion might negate religious free-exercise rights...
...recreational programs for children and teenagers...
...Ask not what nonprofi t organizations do for their employees or members...
...computer training...
...The trouble with America’s trilliondollar (yes, trillion) tax-exempt sector, though, goes deeper than greedy executives or corrupt practices...
...those are the fundamental questions to begin asking in earnest, and they will rapidly take us well beyond concerns about the nonprofi t sector’s vulnerability to gross mismanagement, ethical lapses, dirty deeds, or felonious actions...
...The city’s black churches have led in expanding the Big Brothers Big Sisters of America mentoring program for the children of prisoners...
...The Iowa Republican has given them until December 6 to answer questions concerning their salaries, perks, and finances...
...Similarly, deductible donations to nonprofi t organizations cost the federal treasury billions of dollars that would otherwise be paid in income taxes...
...prison ministry...
...Some grassroots ministries will prove to practice even better than they preach while others will scream Elmer Gantry, or worse...
...Tax-exempt for what and for whom...
...So the judges have kept both federal and state government regulations on “entry” into the “church market” to a bare minimum...
...Many low-income or special-needs students’ tuition payments originate as government grants or loans, and many faculty and staff receive government research grants— more in government money each year, in many cases, than the school receives in alumni contributions...
...Nonprofi t-owned property costs local governments billions of dollars each year in foregone taxes...
...The primary beneficiaries are disadvantaged children and youth who are not members of the faith group that serves them...
...Senator Grassley is not just investigating nonprofi t smoke where there’s hellfi re...
...I hereby nominate the steadfast Senator Grassley...
...That is already net $50 million a year over our intentionally infl ated cost calculation...
...clothing closets...
...The IRS tax guide for churches opens by noting that “Congress has enacted special tax laws applicable to churches, religious organizations and ministers in recognition of their unique status in American society and of their rights guaranteed by the First Amendment...
...The fundamental problem is that government routinely confers diverse public subsidies on nonprofi t organizations that follow the law’s letter while doing only incidental things to benefi t their communities or the public at large...
...It’s who really serves disadvantaged members, nonmembers, or the public at large, how, and how much...
...To illustrate, let’s go back to Philly where, as noted, nonprofit property lightens city coffers by about $90 million a year...
...job counseling and placement...
...Not only,” he scolded, “is there very little difference between for-profi t and nonprofi t hospitals when it comes to serving the community, but also . . . very little difference on executive compensation...
...Or simply ask what would happen if given nonprofi t organizations disappeared tomorrow...
...The Other Philadelphia Story, a 2006 book by University of Pennsylvania researcher Ram Cnaan, counts only the social services supplied by local religious congregations...
...For Philly alone, a sure overestimate for the faith-based tax-deductibility drain on the federal treasury would be $100 million a year...
...It occupies land and buildings that generate zero local property tax revenue...
...receive contributions of cash or property that are tax-deductible for the citizens or corporations making the contributions...
...Jesus, they preach, not only wants you to love the poor—Jesus wants you to get rich, or at least to live debt free...
...Some wellendowed private universities will come out looking great and deserving almost every break in the book...
...for a more prosperous duo making $319,000 a year or more, it was just 65 cents...
...The city’s Latino community-serving ministries are major civic seedbeds of volunteering and philanthropy...
...Take your favorite private college or university...
...It can hoard a huge endowment and hire high-end talent to manage it (Harvard, with an endowment of $35 billion, just did...
...In recent years, he has proposed myriad reforms to help ensure that nonprofi t organizations put charitable good works before outsized perks...
...The IRS recognizes over two dozen categories of organizations that can be exempt from federal income taxes, ranging from country clubs to labor unions, business associations to grantmaking foundations...
...As in every big city, giant secular nonprofi ts headquartered there loom large in that loss, but let’s lay it all at the churches’ doors...
...In 2005, for a married couple earning $125,000 on their joint tax return, the net cost of a dollar donation to their alma mater was just 72 cents...
...But religious organizations dominate the sector in numbers and fi nances...
...Amen...
...The next president, Democrat or Republican, should have a “philanthropy czar” in the West Wing whose only job is to report objectively on how the nation’s massive nonprofit sector serves the public interest (or not), and to recommend legislative and other reforms to improve the sector’s self-governance and call it to public account the way that government once called for-profi t corporations to public account...
...On its annual Internal Revenue Service 990 reporting form, it can list community service initiatives that also benefi t student-members, need-sensitive but not need-blind admissions policies, and the like as proof that it is producing public benefi ts for people other than its own fullpaying customers, salary-drawing denizens, and wined-and-dined donors— never mind if the do-good-for-others items don’t sum to even a penny of each dollar that the institution expends annually...
...True, but that does not make it right...
...Call it an even $200 million...
...Ask how much, all sanctimonious or self-serving rhetoric aside, they dedicate in money, manpower, building space, or other resources to producing these benefi ts...
...outreach to the homeless...
...To name just a few: food pantries...
...day care...
...For instance, it doesn’t sit right when a secular private university that does nothing much for its local community gets a government grant to document the effi cacy of a local faith-based youth antiviolence program when the participating religious nonprofi t groups themselves are discriminated against in the government grant-making process or have been summarily denied public funding to expand their civic good works...
...anti-gang violence programs...
...Nonprofi t organizations are exempt from taxes on property and investments...
...And so on...
...and welfare-to-work programs...
...The power to tax, the federal courts have consistently and correctly reasoned, is the power to deter if not to destroy...
...John J. DiIulio Jr., a contributing editor to THE WEEKLY STANDARD, is the author of Godly Republic: A Centrist Blueprint for America’s Faith-Based Future...
...One might insist that a high-income citizen giving to her well-endowed alma mater somehow yields greater benefi ts than a low-income citizen giving to her favorite community-serving church...
...Churches need not apply for IRS recognition or fi le the 990 form in order to enjoy tax-exempt status and receive taxdeductible donations...
...This brings our purposely inflated faith-based fi nancial loss tally for the City of Brotherly Love to $190 million a year...
...But go ahead, try and prove it...
...drug and alcohol prevention...
...It is time to consider revamping federal, state, and local laws governing nonprofi t organizations so as to restrict full-fl edged tax-exempt status to organizations that predictably and reliably produce signifi cant nonmember benefi ts...
...It confi rms previous estimates that the congregations’ annual “replacement value”—what it would cost, on average, to supply the services that the city’s congregations supply each year—easily exceeds $140,000 per congregation, for a grand total of about $250 million a year...
...As Harvard’s Robert D. Putnam and his colleagues concluded in a 2006 report released by the National Conference on Citizenship: Affi liation with a religious organization is a strong predictor of secular civic habits (volunteering, giving to secular causes, voting, or giving blood) and an important incubator of social capital...
...For instance, many independent Catholic schools in Philadelphia have student populations in which lowincome non-Catholic students are the majority...
...Indeed, a case can be made that urban churches provide an especially big civic bang for the tax-exempt buck...
...Thus, a private college or university can pay its president $500,000 a year or more (scores of private colleges and universities do so, with ever more topping $1 million in total annual compensation...
...receive government funds in the form of grants, loans, or vouchers to members...
...and are free to compete for certain government grants or contracts...
Vol. 13 • December 2007 • No. 13
