Taxes
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Editor’s Note: As we march toward the fiscal cliff, everyone knows that tax reform is on the table in negotiations between President Obama, the Democratic Senate, and the Republican House of Representatives. For a perspective on the importance of the content of taxes for nonprofits, we are pleased to again present this important perspective by Kim Klein of Klein & Roth Consulting that should make nonprofits consider their stake in the tax reform debate. What are they willing to push for and to give up—if anything—in the context of responding to sequestration and dealing with the nation’s budget deficit?


I have been in fundraising for 35 years and have spent most of the past 20 years teaching, writing, and consulting with small nonprofits to help them build a broad donor base, or “grassroots fundraising.” When people ask whether I have proof that the fundraising methods I recommend work, particularly for social-justice organizations, I offer what I refer to as “poster children” in grassroots fundraising. Some of these groups are rural, some are in low-income urban neighborhoods, and others serve entire states.

Starting about 10 years ago and with the almost-exponential increases in more recent years, these same poster children began to call me saying, “We can’t raise as much money as we used to” or “Our fundraising isn’t working, and we can’t figure out why.” In turn, I try to figure out the problem: Do you have a new board that isn’t doing its job? Has the executive director burned out? Are you taking shortcuts with your donor relations? Sometimes I have identified the problems and worked with organizations to solve them.
But mostly I, along with many other grassroots fundraising experts, realized the real problem: starved of sufficient tax revenue, public agencies had moved into raising money from individuals, foundations, and corporations (i.e., the private sector), but the private sector simply doesn’t have enough money to do everything that it is called on to do while also paying for services that were previously funded publicly. Every day, donors face these mini-Hobson’s choices: “I’d like to give to my local theater, but I have to help my kid’s public school” or “I agree that we need to organize tenants, but right now I give my money to programs serving the homeless.”

So I started to be direct during my training sessions. “If you use these methods, you will raise more money. Still, it may not be enough, because without public funding for public services, without appropriate revenue created by fair and just tax policies, there simply isn’t enough money to do all that is demanded of the nonprofit sector.”
When I say this during my training, attendees look stunned. When the recession hit more than two years ago, cuts to nonprofits came fast and furious—not just from government but also from foundations. In response to cuts in funding, nonprofits reduced their budgets, essentially putting their own hands around their necks and slowly squeezing the life out of themselves.

The Nonprofit Tax Crisis
Nonprofits that rely on government funding to provide needed services have watched their funding shrink more and more while the cost of doing business and the need for their work increase. This situation has reached crisis proportions, with thousands of nonprofits laying off staff, cutting programs, and even going out of business altogether. The bottom line is that without significant restoration of government revenue, there is not enough money to do the work that communities count on nonprofits to do.
Compounding the problem is the fact that nonprofits (with few exceptions) have not taken a leadership role in advocating fair and just tax policies that can create a tax stream capable of maintaining a social safety net and an adequate quality of life. In the vast majority of states, and certainly nationally, there is no “nonprofit lobby.” Members of Congress do not look out their windows and think, “Oh, no, the nonprofit lobby is here.”

Social-service agencies have turned themselves into pretzels to meet increasing need with less funding. And the problem is that every time we try to do more work, help more people, and provide more services with the same amount—or often less—money, we say to the right wing, to the Grover Norquists of the world: “You were right. We didn’t need that much money to do our work.”

Still, most nonprofits don’t advocate revenue solutions to public-funding shortages. In my conversations with dozens of people about how we got into the mess, and why we have been very slow to figure a way out, I came up with four tactics for the nonprofit sector to stand up for itself and tackle the prevalent revenue shortages to work for the common good.

1. The nonprofit sector needs a unified identity and voice. The nonprofit sector does not have an identity of its own. While subsets of the sector—such as education, health care, seniors, and human rights—are clearly identified with their causes, these subsectors do little as a united front of “nonprofitness.” In contrast, the corporate sector has an identity and will advocate for itself. To be sure, subsets of the corporate sector—such as the oil, pharmaceutical, banking, and weapons industries—also lobby for themselves. But they also band together to make their needs known.

Members of the nonprofit sector need to come out of their silos and work together. Nonprofits that are not government funded need to recognize that they have just as big a stake in tax policy as those who are entirely government funded.

2. The nonprofit sector needs to learn about taxes. There is an appalling ignorance about issues concerning tax and budget structure among nonprofit staff. In my—admittedly not scientific but still fairly large—survey of nonprofit staff, few knew how their state budget structure worked, and few had opinions on issues such as what the estate tax should be or whether an increasing sales tax on alcohol and soda is a good thing or pushes an even greater tax burden onto poor people. (This may be true among the public at large as well.) In keeping with the overworked and beleaguered culture that prevails in nonprofits today, nonprofit staff members believe that there is little they can do to influence tax policy and therefore believe that it’s worthless to learn about taxes. There is a related unwillingness to stand up for our organizations and those we serve for fear of losing our tax status or further funding or out of an inability to budget the time.

3. The nonprofit sector needs to educate others on taxes. The organizations that work on and advocat