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Nonprofits Not Takers, as Governor Suggests

by Scott Schnapp

100 percent square for facebookIn a recent post-election interview Governor LePage made the statement that Maine nonprofits “don’t pay their fair share”, and that “they are takers, not givers.”

This kind of statement is misleading, and feeds a public perception that is just not based on the facts.

It also unfairly maligns a sector comprised of highly valued organizations such as veterans groups, domestic violence prevention programs, churches, museums and theaters, hospitals, economic development organizations, educational institutions, land trusts, social service agencies, environmental organizations, and many others that not only play a significant economic role in Maine, but also enhance our quality of life.

Here’s How Nonprofits Give

According to data from The National Center for Charitable Statistics and the Maine Department of Labor, the Maine nonprofit sector:

  • contributes 18.9% of the state’s gross product,
  • employs more than 84,000 of its citizens,
  • pays more than $3.6 billion in wages that support families and businesses throughout Maine, and
  • contributes over $10 billion to the Maine economy.

Nonprofit employers pay social security and Medicare taxes on the compensation they pay their employees, and their employees pay state and federal income and social security taxes on these earnings, as well as Medicare and unemployment taxes in most cases. These employees use their earnings to buy goods, on which they pay state sales tax, and homes, on which they pay local real estate taxes. In these ways, most of the income passing through the nonprofit sector is and has already been taxed. In addition, most nonprofits are not exempt from sales tax, and pay a state sales tax on any purchases they make.

Since the Governor’s remarks were most likely aimed at the tax exemptions nonprofits do receive, let’s examine those as well.

The history of tax-exemption for charitable nonprofits dates back all the way back to medieval England. Additionally, when the first federal income taxes were imposed in the United States a century ago, nonprofits were excluded and Congress didn’t even debate the issue. 

Here are some of the reasons why:

  • Nonprofit efforts aid the people and communities they serve, rather than advance the personal ends of individuals. Thus, profits do not flow to owners or stockholders.
  • Nonprofits contribute to the tax base by spending donated dollars and coordinating volunteer services in their communities.
  • They reduce the burdens on government, thus avoiding the need for higher taxes.
  • The nonprofit sector is primarily a service sector, which is, by nature, people-intensive, both with volunteers and staff. The largest share of most nonprofit budgets is devoted to compensating employees (i.e. individual taxpayers), and that compensation is all subject to taxation.
  • Imposing taxes on nonprofits would divert funds from the delivery of vital services.

It also bears noting that many nonprofits already make payments in lieu of property taxes to their communities in order to help defray the costs of police, fire and other services. In addition, they support and enhance their communities by opening their facilities to community members and providing free services for citizens.

Nonprofits are also critically important partners in carrying out the work that is the responsibility of government. These kinds of partnerships have been forged around working together toward the common good (“charitable purposes”), and are not merely a contractual, exchange of funding kind of relationship. As a result, our society has granted nonprofits the status as tax-exempt entities, and this exemption from taxation is good economic and social policy.

An interesting counterpoint to the Governor’s recent comment came from the Governor himself just a few weeks ago, when he responded to our candidate questionnaire regarding his personal and professional experiences with nonprofit organizations. The Governor stated during the campaign that he had been involved in multiple nonprofits and went on to say:

The work that nonprofits do in Maine is critical. These nonprofit organizations are comprised of amazing volunteers, supporters and staff that provide exceptional services and programs to the people of Maine”.

This makes his recent statement even more perplexing, as the two comments appear to be in conflict with one another.

So, as a representative of the nonprofit sector in Maine, we would like to respectfully request that the Governor consider the damage that sweeping statements like this can have on the public perception of Maine’s nonprofit sector, one that he also professes to value and admire. This kind of statement unfairly categorizes a sector that plays a huge role economically, while also enhancing quality of life of all Maine citizens. It also denigrates the 150,000 employees and volunteer board members who commit their time and talents to work that supports the values and ideals that Maine citizens hold dear.

Help Us Tell the Story: Nonprofits Are Good for Maine

Nonprofits matter. Help us make sure all Mainers know why and how. Share your stories of impact on Facebook and Twitter using #NonprofitsGoodForME.

 

Scott Schnapp is the Executive Director of Maine Association of Nonprofits.

5 thoughts on “Nonprofits Not Takers, as Governor Suggests

Maureen Duggan says:

Well said, Scott! Maine non-profits are also boosting the economy by offering programs that provide education to the public in terms of financial literacy and career development. Non-profits actually SAVE the state money in many areas from healthcare to the environment to our correctional facilities. I am disheartened that the Governor continues to make sweeping statements that harm the reputations of so many hard-working, Maine citizens who do amazing things every day to make our state a better place.

Tom Bickford says:

Too many politicians know how to come up with sound bites, but deceive about the reality.

If a non-profit were to be run as a for-profit, and spent ALL of its income to run the business, then there wouldn’t be any profit to be taxed. Let me say it again… if you turn 100% of your income into benefits for the community, through your programs and expenses, including wages to your staff… then you have no profit to tax.

There would be a difference to some municipalities that might see more property tax revenue, but I know our non-profit pays taxes through the rent we pay to our lessor. So if we were to become “profit” corporations but ran the same, it would have NO NET EFFECT on the local, state or national tax base because there would be no profit each year. Except that we would be ineligible to apply for certain grants and foundation support.

When they claim that we aren’t paying our fair share, they are really saying “I don’t even understand how taxes work, but I’ll blame you for everything anyway”.

Betta Stothart says:

The comments from Gov. LePage make me cringe right down to the bone. How can a governor not see the incredible economic and educational value bestowed by the nonprofits here in Maine? I hope as a community that many of us can help him see the light.

John Pearson says:

Gov. LePage has every right to his opinion. It is just like most of his opinions, not well informed by good information (others might call facts), disparages thousands of citizens of Maine who are doing their best to make Maine a better place for all and lacking of basic kindness and respect for those not like him.

Bill Hager says:

It is true that the U.S. in general and Maine in particular, have more non-profits per capita than most of the rest of the world. But the reason for this is simply because, in most of the rest of the world, the government has assumed these responsibilities. Here, we have chosen to provide these necessary support services through community programs rather than government employees. Second, there are simply some community needs which will be best met by a non-profit program (where you are “mission driven” rather than “profit driven.”) Third, is that all non-profit organizations are required to provide more transparency per their financial status than their for profit peers. (The annual financial report call the “990” for non-profits which will include executive salaries, administrative overhead etc., are available as a public record.) Finally, most defendable analysis of these financial records of most non-profit organizations in Maine prove that they are putting the vast majority of their resources back to the communities they serve. The concept that non-profit organizations are “takers” is, at best, a mythology of convenience that has not been validated by any level of analysis.

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