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.