Why Nonprofits Should Be Talking Taxes
I have been in fundraising for almost forty years. In my experience, one of the most chronic problems in the nonprofit sector is our failure to make a connection between fundraising and the rest of our work. Yet, as many of us have experienced over and over, how we raise money and where we get our money is as much a part of our work as any of our other goals and objectives. Many nonprofits that have received government funding and then experienced cuts move quickly to raise money from foundations or individuals with no discussion about the larger issue of the role of taxes in providing funding to nonprofits.
Fundraising and taxes are both about money—where to get it, how to use it, what issues ought to be addressed by public funding and what by private funding. Most developed nations support health care, education, or the arts through taxation. In the United States, we have the distinction of having almost 10% of our workforce employed in organizations that receive a significant share of their funding from voluntary gifts. Is this a distinction to be proud of or is it a benchmark to measure against? Does it depend on what type of nonprofit you are? Without robust discussion we will never know.
Most people have limited opinions about taxes. Those at the “less government” end of the spectrum tend to think that with lower taxes, people will give away more money and the lack of government funding will be mitigated by private donations. They often feel that government is inefficient; however, there are no hard and fast party lines here. Those who believe that taxes should pay for social services are also often critical of government waste and bureaucracy. Those who believe that the government should pay for as little as possible often support a strong military, which uses the lion’s share of tax dollars. When issues of public policy such as gun control, reproductive rights, charter schools, prisons, or environmental protection are discussed, the lines will cross and recross a number of times.
The nonprofit sector is as divided as the nation is on these issues, and nonprofits working on public policy and tax issues debate each other, as well as provide the research and information for the debates carried on by politicians and commentators. Most taxpayers, including the employees of nonprofit organizations, see the issue very practically–they would rather pay lower taxes. However, they will also vote for school bonds to improve the schools, or for parks and wilderness areas, or for bike paths, showing that they understand the role of taxes in their local communities but may not see the benefit of a large federal government.
Simple math shows that foundations, corporations and individuals (the “private sector’) representing about 15% of the income of all nonprofits, cannot replace government funding, which even now, at a relatively low amount, represents 30%.
What is required is a clear and constant education about the role of taxes, the way taxes are levied and the type of taxes we pay. For example, in states with no state income tax, but a high sales tax, efforts to institute an income tax usually fail, voted down by the people it would most benefit, even though it can be shown that poor and working class people will have more money by paying income tax and decreasing sales tax. Or, for example, in the debate about the capital gains tax, Americans will generally favor lowering it (depending on your tax bracket, it is for the most part, lower than income tax) even though many of those same people will never pay a capital gains tax, and would be better off if capital gains were taxed at the same rate as the income tax. The estate tax, our nation’s oldest tax, is a redistributive tax, which keeps us from becoming an aristocracy. Only 2% of estates will pay an estate tax, yet most Americans would vote to abolish it altogether.
Because of the tax benefits that accrue to donors who give from income, capital or estate, the tax debate should be of concern for fundraisers and for the sector as a whole; yet historically, except for organizations specifically working on tax reform, the nonprofit sector has tended to stay out of the debate.
The issue about taxes is not just about how the organizations each of us works for can get tax funding. It is about how all organizations can work for fair taxation—those that get funded and those that don’t, those that should and those that never will. Talking about taxes requires talking about money. It requires talking about whom (or what) should pay taxes, and what should be taxed.
One simple way to begin solving this problem is to include in our board meetings, committee meetings, speeches we give about our work, coalition gatherings, conferences and the like, a discussion about the role of government in funding certain kinds of nonprofits. Let’s start raising the question, “What are taxes for? What is fair taxation?” Then those working on tax policy at the state and national level would be joined by a buzz of conversation at the grassroots level. Then we truly could build a movement that would lead to real civic engagement, which in turn, would lead to progressive change.
About the Author
Kim Klein is an internationally known speaker and author, known for her ability to deliver information in a practical and humorous way. In addition to deep fundraising expertise, her current work is focused on the role nonprofits must play in creating fair and just tax policies and in the redistribution of wealth. She has provided training and consultation in all 50 United States, five Canadian provinces and 21 other countries. She is a lecturer in the School of Social Welfare at the University of California Berkeley and serves on the board of the California Association of Nonprofits.
Klein will be the featured speaker at two upcoming MANP events: Our Fall Executive Leadership Forum: Nonprofits Talking Taxes and Focus on Fundraising: How to Survive + Thrive in the “New Normal.”