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Tax-Exempt for What and for Whom?

December 19, 2007

That's the question John J. DiIulio Jr. asks near the end of his article, "Non-Profits Without Honor," in the Dec. 10 issue of The Weekly Standard. You might remember DiIulio as the person tasked with selling George Bush's faith-based initiative to a skeptical public in the early, pre-9/11 days of the first Bush administration. The initiative itself never really made it out of the starting gate, and DiIulio resigned his position after only seven months on the job.

Well, he's back, and he has a book to flog (Godly Republic: A Centrist Blueprint for America's Faith-Based Future). DiIulio's chief complaint, in both book and article, is that "government routinely confers diverse public subsidies on nonprofit organizations that follow the law's letter while doing only incidental things to benefit their communities or the public at large."

He's especially critical of nonprofit hospitals and private colleges and universities, which occupy "land and buildings that generate zero local property tax revenue" and benefit from "myriad" government subsidies. To support his argument, he cites his hometown of Philadelphia, which by his estimate forgoes $90 million a year in property taxes from tax-exempt colleges and universities.

(The issue of nonprofit property tax exemptions is examined in detail by Rick Cohen in his most recent article for The Nonprofit Quarterly.)

What really bothers DiIulio, however, is the fact that religious congregations and faith-based organizations -- which, he notes, provide "scores of socially useful services to non-members" -- are excluded in most cases from applying for government grants and loans. And that's not only unfair, he says, its discriminatory. "The key nonprofit distinction," he adds, "is not religious or secular, large or small, national or local. It's who really serves disadvantaged members, non-members, or the public at large, how, and how much. [Therefore] it is time to consider revamping federal, state, and local laws governing nonprofit organizations so as to restrict full-fledged tax-exempt status to organizations that predictably and reliably produce significant non-member benefits."

Leaving aside the impracticality of such an idea (who would define -- and enforce -- the standards against which tax-exempt organizations and the social benefit they provide are evaluated?), we've seen this movie before -- and it ended badly. DiIulio is a smart man and a respected researcher. But his is an idea whose time has passed. In an age of global competition -- and global threats -- Americans want more from the nonprofit sector than services that only address the symptoms of existing social problems. Yes, those services are vitally important, and we're not suggesting that the sector doesn't have a role in their provision. But our sector is about much, much more than social service provision. And we would all be poorer if that were to change.

-- Mitch Nauffts

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