The Magazine

Non-Profits Without Honor

Senator Grassley tackles the trillion-dollar tax-exempt sector.

Dec 10, 2007, Vol. 13, No. 13 • By JOHN J. DILULIO JR.
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The power to tax, the federal courts have consistently and correctly reasoned, is the power to deter if not to destroy. Concerns about how tax exemptions might constitute "indirect establishment" have been dominated by concerns about how taxing religion might negate religious free-exercise rights. So the judges have kept both federal and state government regulations on "entry" into the "church market" to a bare minimum.

Some tax-exempt televangelists may be abusing their nonprofit privileges, but the faith-based nonprofit subsector as a whole is not. Indeed, a case can be made that urban churches provide an especially big civic bang for the tax-exempt buck.

To illustrate, let's go back to Philly where, as noted, nonprofit property lightens city coffers by about $90 million a year. As in every big city, giant secular nonprofits headquartered there loom large in that loss, but let's lay it all at the churches' doors. Similarly, deductible donations to nonprofit organizations cost the federal treasury billions of dollars that would otherwise be paid in income taxes. For Philly alone, a sure overestimate for the faith-based tax-deductibility drain on the federal treasury would be $100 million a year. This brings our purposely inflated faith-based financial loss tally for the City of Brotherly Love to $190 million a year. Call it an even $200 million.

Now, in Philadelphia as in other cities, faith-based organizations, almost all without government financial support or technical assistance, supply scores of social services to nonmembers. To name just a few: food pantries; summer day camps; recreational programs for children and teenagers; clothing closets; drug and alcohol prevention; neighborhood cleanup; blood drives; job counseling and placement; outreach to the homeless; computer training; health screening; crime watch; day care; prison ministry; after-school programs; anti-gang violence programs; and welfare-to-work programs.

The Other Philadelphia Story, a 2006 book by University of Pennsylvania researcher Ram Cnaan, counts only the social services supplied by local religious congregations. It confirms previous estimates that the congregations' annual "replacement value"--what it would cost, on average, to supply the services that the city's congregations supply each year--easily exceeds $140,000 per congregation, for a grand total of about $250 million a year. The primary beneficiaries are disadvantaged children and youth who are not members of the faith group that serves them.

That is already net $50 million a year over our intentionally inflated cost calculation. And this doesn't count social services supplied to nonmembers by faith-based organizations that are not religious congregations or associated with religious congregations. For instance, many independent Catholic schools in Philadelphia have student populations in which low-income non-Catholic students are the majority. The city's black churches have led in expanding the Big Brothers Big Sisters of America mentoring program for the children of prisoners. The city's Latino community-serving ministries are major civic seedbeds of volunteering and philanthropy. As Harvard's Robert D. Putnam and his colleagues concluded in a 2006 report released by the National Conference on Citizenship:

Affiliation with a religious organization is a strong predictor of secular civic habits (volunteering, giving to secular causes, voting, or giving blood) and an important incubator of social capital.

Amen. Yet it costs low-income, non-itemizing folks who put a dollar in the collection plate a whole dollar. One might insist that a high-income citizen giving to her well-endowed alma mater somehow yields greater benefits than a low-income citizen giving to her favorite community-serving church. But go ahead, try and prove it.

Or, one might simply retreat to the formal-legal position that tax-exempt status is not now by law contingent on producing actual, measurable benefits, but hinges only on asserting a broadly defined charitable purpose, and in seeing to it that no excess revenues benefit board members or other principals. True, but that does not make it right.

For instance, it doesn't sit right when a secular private university that does nothing much for its local community gets a government grant to document the efficacy of a local faith-based youth antiviolence program when the participating religious nonprofit groups themselves are discriminated against in the government grant-making process or have been summarily denied public funding to expand their civic good works.