Nonprofits and Taxes

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What are taxes for? What is fair taxation? Why should nonprofits make it their business to understand and affect tax policy? A fundraising guru gives us her perspective on why ignoring tax policy is foolish.

Nonprofits have responded to their recent and sometimes very severe financial woes by cutting their budgets or by trying to diversify their income streams. Most of you who know me might think that I would approve of this last strategy–and I do–but not without an accompanying aggressive effort on the part of nonprofits to move the debate about tax policy and its effect on communities into the public arena.

Many of you are familiar with the AAFRC’s (American Association of Fundraising Counsel) annual report called Giving USA, which documents how much money is given by foundations, corporations and individuals, and where it goes each year. It is a very mainstream and nonpartisan publication. In this year’s introduction, it says, “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.”

This replacement of the public requirement of taxes with the private choice of individual giving in paying into the basic “commonwealth” is not a distinction to be proud of, and in fact it is a benchmark to measure against. I propose we set some goals for the next ten years that will allow us to say truthfully: “We have now joined the ranks of other developed countries with a fair and equitable tax system that supports, among other things, health care, education and the arts.” This is what we should strive for.

Think about pursuing a strong tax debate and agenda as a part of your fundraising strategy–not just for your organization but for the world. At a narrow level, 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.

Without a public awareness of tax policy, during economic downturns, federal, state and local governments cut funding with little public outcry, even though the consequences in service to the public can be severe because the public does not demand that public schools, public libraries, public pools, public hospitals or public parks and the like be funded with money taxed from the public.

We need a nationwide debate on these issues. People do not have enough well-formed 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. Taxpayers often see the issue very practically, if narrowly–they would usually rather pay lower taxes. They will support federal tax cuts; 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. Since the people who pay the most taxes relative to income are the middle class, and our tax structure is regressive, it is hard to make the case that people should pay more taxes without also calling for an overhaul of the tax system to make it more equitable.

At the same time, it is clear that private funding cannot replace government funding. What is required is a much more 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 (incorrectly renamed the “death tax” by conservatives) is the most obvious of the problems in the tax debate. 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 will vote to abolish it altogether. There are nonprofits whose mission is to educate people about the economy, and in the places where they have worked, they have often been effective. For example, United for a Fair Economy organized a speaking tour with Bill Gates, Sr. and Chuck Collins about the estate tax. Hearing very wealthy people talk about the importance of the estate tax is very inspiring and convincing, and may yet keep the estate tax repeal from becoming permanent.

The issue about taxes is not just about how the groups you work with can get their fair share of tax funding, but it is about how all groups 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 who (including corporations) 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?” Those working on tax policy at the state and national level would be joined by a buzz of conversation at the grassroots level.


Kim Klein is the founder and publisher of the Grassroots Fundraising Journal (www.grassrootsfundraising.org) and a member of the Project Team of the Building Movement Project (www.buildingmovement.org).


1. United for a Fair Economy: www.faireconomy.org

2. For national analysis: www.cbpp.org

3. To see what’s going on in your state: www.cbpp.org/state/index.html