This is the tenth essay in the series, A Soft Landing, which explores how we might achieve a more just, equitable society without violent revolution.
Here is a non-obvious suggestion to make our society more just and equitable: eliminate non-profit status for any organization. Actually, let’s eliminate the entire notion of private non-profits altogether.
Our society currently operates under a triumvirate of economic sectors: for-profit, private non-profit, and public.
For-profit is easy to define: an organization that provides a good or service and sells it on the open market. For-profit companies are the fundamental component of capitalism. When they make a profit—revenue minus expenses—they pay taxes to the public coffers.
The public sector provides goods or services through governmental entities, usually at free or greatly reduced cost. These include providing services that are spread across the entire population, like the cost of legislative bodies, public education, and national defense; as well as those that provide a collective health and safety net, such as sanitary water systems, food stamps, and Medicaid. Public sector services are paid for by a variety of taxes, including those collected from for-profit organizations (see A Soft Landing: Impact Taxes).
The non-profit sector is squishier to define. These are private organizations that do not pay taxes. They provide basic goods and services that may not be offered by the public sector to people who cannot afford to purchase them from for-profit organizations. Non-profit organizations offer a huge array of services: healthcare, housing, supplemental education, scientific research. They are exempt from paying taxes because, in theory, they are motivated beyond the bottom line: prioritizing charitable goods and services over making a profit. Much non-profit revenue comes from charitable donations, and many of those can be deducted from the donor’s taxes.
There are three major problems with non-profit organizations as they exist today. First, they provide exorbitant tax shelters to the rich, who further increase their outsize influence in our nation in the name of philanthropy. Second, this in-between sector dilutes the effectiveness of both the for-profit and pubic sectors. Third, non-profits enjoy economic advantages without having to meet what ought to be fundamental to all social service programs: universal access.
From Andrew Carnegie to Bill Gates, generations of super rich have docked their money in foundations to extend their influence and refashion their legacy. Rockefeller, Ford, and Getty’s foundations soften our perception of these capitalist cut-throats long after they’re gone, just as the Sackler family’s named places at Tufts, Harvard, and Yale, as well as the Metropolitan, Guggenheim, and Smithsonian Museums sugarcoat their role in the opioid crisis. If moguls want to spend their money in charitable ways, fine by me; even the richest men in America are allowed to indulge in reinvention. But that doesn’t mean our tax structure ought to enable it.
The second problem may be less narcissistic, but is even more corrosive. The American fixation on individual freedom is joined at the hip to our fantasy of minimal government. The more tasks and services advocates of less government can pawn off on non-profits, the fewer services the government has to actually provide. Similarly, non-profit facades enable for-profits to dodge social responsibility, all the while leaning into it. Have you seen a Whole Foods wall of ‘affiliated non-profits’: warm feeling without actually committing receipts from grocery cash registers.
Our government is the only institution tasked with providing services to all. When we shift social services to other providers, we dilute universal access. This is most true among faith-based organizations. In a country based on the separation of church and state, why are these organizations tax-exempt? They should not be.
Here’s my recipe to simplify. Every company, every organization, is either private or public. Private companies make products and services according to regulatory and marketplace rules; they pay taxes on profits. Public entities provide the universal services and infrastructure we, as a nation, agree that we need. Public entities also determine and provide social supports available to all.
If people want to engage in humane and charitable work like feeding the hungry, teaching the illiterate, and inoculating the ill, terrific. They are entitled to the satisfaction of lifting up their fellow man, but they should not be entitled to tax deductions. If a religious community wants to erect a church and hire a pastor to shepherd their flock, fine, but that should not exempt their property from taxes levied by a secular government. If Jeff Bezos wants to establish a foundation to cure the world of whatever ill he decides is most pressing, go for it, but don’t let him transfer Amazon’s profits out of our taxable pool to fund it.
Rather, tax all private profits and distribute them collectively, democratically, according to a consensus of the people over the preferences of the rich.
Eliminating non-profits will not be easy; they are entrenched in our economy and culture. Virtually everyone has a ‘favorite charity’ they support. We like to feel like we make a direct difference. The benevolent rush we get from writing our end-of-year charitable checks is much more satisfying than the April woe we feel in paying the IRS. We distrust our government to allocate tax revenues in the way we want.
And yet these are the very reasons why non-profits muddy our economic system. In a democracy, it is our responsibility to make sure the government allocates revenues according to our wishes. And if we get a rush in writing a charity check, that should be reward enough. No need to tag on a tax deduction.
The idea of a private non-profit is both inspiring and effective, yet non-profits simultaneously boost our noble intentions while indulging our baser instinct. Two days a week I volunteer at Mount Auburn Hospital, a gig I love. In 2015, President and CEO, Jeannette Clough received $6.5 million dollars in compensation to captain our 213-bed community hospital. For every $100 people in our community spent on healthcare at Mount Auburn, two bucks went directly into Jeanette’s pocket. I have never met Ms. Clough, and hope I never do; I would find it hard to be civil to such virtue-cloaked greed. Yet, I am confident that Ms. Clough’s feed at the non-profit trough is not a singular example.
Let’s get rid of such duplicity. Let’s abandon the inherent contradictions of state-subsidized private non-profits. Let’s make a strong private sector, economically efficient, to placate our competitive natures. Then, let’s support a strong public sector that mediates private excess and spreads our wealth equitably.
Environmental nonprofits have filed 93 lawsuits against the Trump administration. When the public sector isn’t fulfilling its obligations, someone else, some well-organized entity, needs to step up and challenge the government. I agree with you that the CEO of a nonprofit shouldn’t be making an exorbitant salary from charity, and that nonprofits shouldn’t be tax shelters for the rich, but right now, we need the work many of these organizations do. They provide a portion of our society’s checks and balances, filing Freedom of Information Act requests, and doing other things that neither government nor businesses are inclined to do.
Thanks for addressing this aspect of the non-profit world that my essay does not. I focused on service providers, but non-profit status is often a structure for advocacy groups. The role of advocacy is not something well suited to either the public or private sectors (sad but true) and the Fourth Estate has pretty much abdicated its role as watchdog to non-profit advocacy groups. So the question is, in a state that strives for equity and balance, what is the preferred way to organize the whistleblowers? I will give that some thought.
I really appreciate that you are such a regular reader and give me such good thoughtful feedback. On your recommendation, I read Affluence without Abundance, found it insightful, and have recommended it to other. Thanks!
I was thinking along the same lines as Amber. Also, because capitalism does not equal equity, and because throughout human history there are people unable to care for themselves, through illness or mental illness, or disability, we have philanthropy. You could say, well people can just share their wealth with their neighbors if they want, but by what mechanism can I determine who is waorthy? Perhaps I need to means-test people, so then maybe I need a staff, and then a foundation, etc. I think your argument is really about taxes, isn’t it? I am kind of with you there but I’d need to do more research. I do think it is dangerous that a few very wealthy people-Bloomberg, Gates, zuckerberg, etc, get to decide public policy priorities and dictate in what direction social change should move. Lastly, I just won’t tolerate carping about non profit leaders’ salaries unless we also take on athletes, celebrities, and outrageous corporate salaries. Nonprofit jobs are just as hard as business. What is a comparable salary for an executive of a company of the same revenue as Mt. Auburn? Thanks for this thought provoking essay.
Thanks for your comment. The whole point of these essays is to prompt thoughtful dialogue about ideas that are not yet in the mainstream. You are correct that capitalism does not equal equity. In fact, it often is just the opposite. And if we want a soft landing to future justice, capitalism will have to change in fundamental ways.
You are also correct – this essay is really about taxes. It is not against philanthropy, it is about government supports of philanthropy that twist philanthropy’s purpose, give even more influence to those with money, and reduces our collective responsibility to care for one another.
I hear your point about the hazard of comparing a non-profit CEO’s compensation to those in the private sector, but don’t agree with you there. True, private sector CEO compensation is absurd; the entire structure of private wages among workers and management is appalling. But non-profits, by definition, by mission, and by action, are not the private sector. Working in various sectors of our economy, whether public, private, of non-profit, offers different rewards. In my experience those who work in the non-profit sector are quick to claim the value of their efforts as somehow more noble than for-profit workers. That argument can be made. But if you are enjoying non-monetary benefits, then perhaps your compensation is not equal to those in the profit world.
In any event, I did a bit of checking to see how many CEO’s take in 2% of their company’s total profits: darn few. In fact, a study showed that when a CEO’s compensation gets to 1% or revenue or so, that usually triggers a board reaction and removal.
Perhaps in future essays I will call out other CEO’s for their questionable value, but I have no problem calling out Jeannette Clough here and now. She should be ashamed of the compensation she has received from Mount Auburn Hospital.
As an individual who is currently an administrator in a non profit, and was formerly a peon in a foundation, I wholeheartedly agree that the whole system is flawed. That said, until a better system dawns, I feel comfortable making a more effective difference where I’m currently at than I ever did in public schools.
Point of clarity though: non profits do pay gross receipt taxes if they provide goods and services. For example, we have a catering company that does both private events and after school meals in local schools. The revenue we receive from private events is beholden to taxes, even though we’re a non profit. Same hold true for a community screen print shop we run.
Thanks for the clarification. And yes, I support many non-profits in both time and contributions, until such time we can evolve towards a better system.