Since the late nineteenth century, Americans have hotly debated the virtues of granting tax-exempt status to charitable, nonprofit, and religious organizations. Even a quick glance of some of this month’s major news stories suggest this debate’s undying relevance --- discussions regarding Arizona’s SB1062 have started to challenge tax-exempt status for churches, Representative Dave Camp’s recent tax reform proposals revoke tax-exempt status for professional sports, and last year’s unresolved contretemps between the Internal Revenue Service and nonprofit political groups has once again resurfaced this century-old discussion.
Across the pond, our allies in the Anglo-American tradition have had a parallel conversation regarding their own tax policies. Most recently, a court case involving the United Grand Lodge of England, representing nearly a quarter-million Freemasons, shed light on the question at the nexus of self-interest, philanthropy, and tax-exempt status. The Lodge, attempting to retrieve a value-added tax rebate on their membership dues (which cost £14 per member per year), argued that their philanthropic donations, totaling more than £82 million in 2010, provided the justification for receiving a tax break.
However, the court found that the breakdown of their “philanthropic donations” disproportionally favored non-charitable causes -- £20 million “paid for the benefit of masons,” £46 million “paid to the dependents of masons," and “£17 million for the benefit of people with no mason connection” (the last category making up only 20% of their donations for the year). Ultimately, Judge Charles Hellier decided that since only a small part of the United Grand Lodge of England’s aims were “civic in nature,” the court dismissed the appeal. Summarizing the opinion, the Daily Telegraph reported:
Judge Hellier said that, despite the craft’s charitable giving, the promotion of Freemasonry remained one of its primary objectives. He said its emphasis on mutual benevolence could not be regarded as “wholly philanthropic”.
This case seems to acknowledge a number of key questions that arise in this conflation of philanthropy and public policy. First and most notably, it brings up the question regarding the role of government in guiding philanthropy. The very premise of the case mentioned above places government in the position of quite literally judging whether a cause is charitable or not – is this an appropriate role for government?
Second, the judge acknowledged that the organization did not “display sufficient public interest.” Implicit within the judge’s framework then is the idea that public and private interests inherently operate in separate, mutually exclusive spheres. Is this actually the case, or is there a middling alternative, perhaps of self-interest properly understood? Additionally, should the actual organization or a third party (i.e., the government) determine in which sphere an organization actually belongs?
Third, although the VAT rebate would certainly be advantageous to the United Grand Lodge of England in the short-term, other questions arise as to whether or not this is advantageous in the long run: does government ‘promotion’ of charitable organizations actually promote charitable giving and inculcate public virtue or does it merely allow special interests the opportunity to take advantage of “the system”? Essentially, what are the long-term ramifications of such giving?
As our national conversation further challenges traditional tax-exempt status for charitable organizations, let us remember some of these broader questions and challenge the ordinary paradigm that suggests such organizations require such governmental beneficence.