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End Nonprofits

We read in the news recently that the Crimson Tide Foundation has paid off the rest of head football coach Nick Saban’s $3.1 million home. If there is ever “evidence” that the entire notion of an entity deserving “non-profit” status has gone off the rails, this is it. Presumably organizations are granted non-profit status because they serve some greater public purpose. College football at the Division I level needs no stimulus to promote any public purpose it may serve. Without writing a thesis here, this episode highlights two problems with such non-profit designations:

(1) By granting donors the right to donate to this organization without taxation, and by permitting some expenditures of the foundation itself to go without taxation, we are essentially saying that those organizations and individuals that ARE taxable are going to be asked to pay more than their “fair” share. President Hillary Clinton nothwithstanding, most people understand that businesses and corporations do tend to promote economic growth and productive job creation. And for those of you familiar with the non-profit world, we’d humbly suggest that from within these does not prosperity grow. So the local deli pays higher taxes in Alabama than otherwise. The employees of large firms in Alabama pay larger taxes than otherwise.

(2) Since at the margin, the activities in many nonprofits are not taxed while the taxation upon profits is higher than usual, we devote more effort to the nonprofit sector than otherwise. If the sector actually promoted a general public purpose that might be desirable (I’m not so sure), but at current margins, since my extra labor income would be taxed at pretty high rates, and since our local hockey org is bigger than it would be because of its preferential tax status, I end up devoting more time to working on hockey related matters and less on professional ones. I am not so sure this is what we really want to be encouraging despite how much I enjoy it.

If I were running for office and didn’t are about collecting ANY votes, I’d run on a campaign to end nonprofits, not just on the above grounds but mostly because I find them completely immoral. More on that in a future post.

5 Responses to “End Nonprofits”

  1. Scott says:

    great post, thank you for the updates.

    I’ve personally come to accept that non-profits status is a sham, as far as serving some ‘greater purpose’. Not because I don’t believe that non-profits can serve a greater purpose, but rather because don’t all enterprises arguably serve some greater purpose? Just identify some positive externalities and throw them in the mission statement. Could McDonald’s be a nonprofit, dedicated to creating happy family memories and making dinner easier?

    Of course, it seems to me that if you never worked with anything that was a sham, you’d be spending all your time in the woods.

    Further, as long as non-profits are legal (even though I would prefer WC be elected to economic czar and criminalize non-profits), in the State of New York non-profits are about the only way to go for an entrepreneurial venture that is projects to achieve less than $1M in revenue annually. People seem to really hate anyone making a profit. It’s worth it to claim non-profit, regardless of taxation laws, for social stigma alone. Imagine if the local youth hockey organization was ‘for profit.’ Your taking advantage of working middle class families and their kids! If it is ‘non-profit?’ Now your doing a great thing for the community. Ironically enough, under non-profit status the hockey organization can afford to pay any administration a higher salary, without any corporate tax obligations, meaning those involved will likely be putting much more into their own pocket.

  2. chuck martel says:

    Tangential to the Nick Saban thing, I had a conversation with a high-level University of Minnesota finance officer in regard to the compensation for their football coach, leader of a perpetually under-achieving program. It was my position that the U should CHARGE the coach for the privilege of coaching the hapless Gophers. Candidates for the job would submit bids for it and the high bidder would get it. Since there’s literally millions of guys that think they’re capable of coaching football, the one with the most credibility among his friends and acquaintances could get them to invest in his talent and then share in the rewards when he led the Gophers to a national championship and then moved on to a big paying position at Texas or UCLA. His response was that he didn’t think the alumni would buy into it.

  3. Harry says:

    Isn’t running for office without caring about votes a paradox?

  4. Steve in Pennsylvania says:

    If we got rid of the corporate income tax, which inspires rent-seeking and produces lower and lower shares of total tax revenue, we would not need the distinction of for-profit and non-profit. That would save billions in legal, accounting and lobbying costs.

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