Vigilance in Uncertain Times

Vigilance . . .

An appropriate word to describe how those of us who work to strengthen nonprofit organizations should view the future. 

Why vigilance?  Well, bear with me.  

While I do not presume to be a prognosticator, nor would I attempt to present myself as an expert on politics, I do think we may be getting closer to striking some grand bargain to move beyond the budgetary crises du jour that have been the norm over the past several years.

It may well be that the political leaders, spurred by a citizenry that is growing weary of the impasse that is impeding our economic recovery, and pushed by business leaders who desire a climate that will allow them to plan, will reach some agreement on spending and revenues. 

I certainly hope that will be the case.

So, why the call for vigilance? 

On the one hand, in discussions about reforming the tax code, political leaders have challenged the deductibility of the charitable contributions.  In exchange for lower overall tax rates while ensuring reasonable revenues, tax deductions of all types will be examined, questioned and, in many instances eliminated or restricted. 

That reason for vigilance is something we have all been aware of for some time.  It has reared its head from time to time.   But there is a second reason for vigilance and it is a new one.

The new development relates to the tax exempt status of nonprofits—or at least some component of them.  This was recently brought to my attention by an op-ed piece written for Bloomberg News by Peter Orszag, former Director of the Office of Management and Budget and who currently is at Citigroup. 

In a nutshell, the piece, Keep an Eye on Nonprofits, begins by pointing to the role of nonprofits in the nation’s overall economy, which now constitute more than 5% of gross domestic product.  Nonprofit employment and revenues have continued to increase.  One in ten workers outside of the government is now employed by a nonprofit.  This has largely been attributable to the fact that healthcare and education are the two behemoths in the nonprofit sector with regard to revenues. 

The strong economic role of nonprofits has drawn questions from Senator Charles Grassley as to whether those nonprofits are unduly benefiting from their nonprofit status in competition with their for-profit competitors.   As a result, there are questions about whether that tax benefit is warranted.  (For those of you with some grey hairs who worked in higher education—do you remember when TIAA-CREF had special status, even though it was in competition with the likes of Fidelity and Vanguard?  How did that end?  Right.  No longer special.) 

While Orszag isn’t sure Senator Grassley is right, he writes that he is not necessarily convinced Senator Grassley is wrong, either. 

What Orszag does suggest is estimating how much tax is forgone by the tax benefits given to these nonprofits.  He indicates that the Joint Committee on Taxation doesn’t consider the exemption from corporate taxation for nonprofits to be a tax expenditure. 

Given the very real competition that exists between some groups of nonprofits with their for-profit brethren, that may not be justified and, therefore, the cost should be determined.

This is one to keep an eye on.