From early in our nation’s history, synergy among the private, public, and nonprofit sectors has been critical to the success of the American experiment. To an extent unmatched in other countries, American colonists and citizens formed voluntary associations to achieve public benefits such as firefighting, education, poor relief, hospitals and houses of worship. This empowerment of citizen initiative invigorated our democracy from day one, and continues to do so today.
For as long as our nation and state have existed, laws have acknowledged and advanced the civic contributions of the nonprofit sector by exempting voluntary associations from taxation and, eventually, by providing a legal mechanism for their organization, which is today’s nonprofit corporation.
Nonprofits are so deeply enmeshed in our social fabric that we often take them for granted. Yet imagine subtracting the nonprofit sector from Maine. Remove the hospitals, colleges, churches, senior care facilities, homeless shelters, museums, YMCAs and all of the other voluntary charitable organizations. How isolated and barren our lives would be!
It seems that we live in a society that increasingly measures quality of life in starkly economic terms. One consequence has been a general loss of awareness of the vital distinction between nonprofit corporations and for-profit businesses. So here it is. State governments charter nonprofit corporations to provide their citizens with effective legal structures for delivering public benefits on a voluntary basis. Generally, these benefits are services that commercial businesses cannot offer at sufficient profit to owners and shareholders, and that government cannot fund with limited resources.
In regard to taxation, property owned by nonprofits is qualitatively different from property owned by individuals and for-profit businesses. Individuals and businesses can liquidate their assets and move to Florida (or any other state) with the proceeds any time they like. But nonprofits, by the terms of their state charters, hold their properties in the public trust. If a nonprofit sells its property, the proceeds are restricted to its charitable mission. If a nonprofit goes out of business, its property must either be transferred to another Maine nonprofit or returned directly to state ownership.
The wonderful fact is that nonprofits go to all the work and expense of maintaining their properties for public benefit without any direct cost to the taxpayer. Nonprofit properties are, fundamentally, public assets purchased and maintained with private charitable contributions. For the Legislature to tax them, as Gov. Paul LePage has requested, would contradict 400 years of public policy that has been foundational to the success of America’s democracy and the resilience of her social fabric.
In regard to the tax deduction for charitable gifts, which LePage seeks to limit, there are two compelling arguments that are not always heard. One is that the charitable deduction hugely leverages the investment of private taxpayer dollars for public benefit. For every dollar that the state of Maine forgoes, a citizen has given at least $12 to nonprofit organizations. The second point is that those $12 deliver public benefits chosen by the citizenry, from the bottom up, rather than mandated by the government from the top down. The charitable tax deduction empowers citizens to vote for spending priorities with their wallets.
Regardless of political stripe, there is every reason for Maine’s legislators to vote against the proposed changes to nonprofit taxation. Where one legislator might want to prevent government from encroaching upon a heretofore independent sector of American life, another might not want to see charitable gifts confiscated by the state. A third might leave the charitable deduction in place in order to maximize effective private investment in the public sphere. A fourth might want to preserve the nonprofit sector’s unique ability to enrich, empower, and improve the lives of all citizens, regardless of privilege, rank, or wealth.
Public policy on nonprofit taxation isn’t broken. Please, let’s not try to fix it.
Peter Korn is executive director of the nonprofit Center for Furniture Craftsmanship in Rockport.