A friend who works for a charitable foundation sent me an interesting article a couple of weeks ago, describing an upcoming, invitation-only conference to debate whether the rules that currently govern such enterprises are actually promoting the common good.
Some of the questions to be discussed were intriguing, to say the least. They ranged from “should donors get a bigger tax benefit if the charity to which they contribute helps vulnerable people?” to whether foundations should be required to spend more than 5% of their assets, as they are currently required to do, to a re-examination of the different legal treatment of private foundations and public charities.
These are all important issues in philanthropy, but if I had to choose the most significant item on the conference agenda, it would be “Does the law adequately delineate what makes an organization ‘charitable,’ given that some nonprofits (like hospitals) operate in a way that is indistinguishable from their for-profit counterparts?”
Actually, what sorts of activities are appropriately labeled “charity” is less obvious than we might think. Feeding the hungry? Sure. Building a wing on the church? Maybe. A Lexus for the nonprofit’s CEO? Probably not. And there are plenty of nonprofit, tax-exempt entities that are not “charitable” in the usual sense–arts organizations, professional associations and the like fall into a different category.
Any lawyer who helps new organizations incorporate can attest to the blurred boundaries between far too many for-profit and non-profit enterprises. Take the hospital example cited in the article: CEOs and upper managers at purportedly “nonprofit” hospitals take home salaries that are the envy of many for-profit businesspeople; meanwhile, the hospitals pay no taxes–including property taxes to local governments– and enjoy other benefits of a tax-exempt entity. The amount of “charity” they engage in is an open question.
Hospitals are hardly the only entities taking advantage of the opportunity to do well by purporting to do good. A corporation with a mission that is arguably philanthropic can forego “profit” by the simple expedient of paying money that would otherwise be considered profits as salaries.
Americans as a whole are a charitable lot. We give a lot of money to causes we care about, with the expectation that we are thereby making our communities and our world a bit better. If antiquated rules and dubious behaviors make us cynical, and less charitable, we’ll all suffer.
A good hard look at these issues is in order, and I’m pleased to see that it’s occurring.