Friday, December 18, 2009

Will New Regulations Hurt Non-Profits?

From Reason:
Charged with regulating "financial advice" of all kinds, the massive mandate of the CFPA includes "educational courses," such as the financial literacy program offered by the Girl Scouts, where girls earn badges for learning how money works.

Assuming you think 1,279 pages [PDF] of new regulations on financial institutions are a good idea, Rep. Barney Frank (D-Mass), chairman of the House Financial Services Committee, and his coauthors had no choice but to include nonprofits in the mix. A loophole for all nonprofits begs today's for-profit financial advisers to become tomorrow's nonprofit financial advisers—who just happen to have close ties to a bank. Money has a way of flowing around rules (remember campaign finance reform?) so the bill's authors couldn't let nonprofits off the hook.

But there's another dynamic at work as well. In addition to going soft on drugs, crime, and their wives, congressmen now have to worry about appearing to go soft on nonprofits, thanks to the political and financial mess created by the nonprofit ACORN earlier this year.

I would like to add that my belief has increased since this post that the tax treatment of non-profit status is excessively burdensome for non-profits. For a non-profit group to maintain their tax exempt status, there are a variety of fund raising activities they cannot engage in. For example, a museum must be very careful in their management of any gift shops or cafeterias that they might use for a source of funding. It is quite easy for such an operation to wind up violating their tax exempt status, and many avoid doing so for that reason.

Exempting non-profits from taxation is just another part of the charade that corporations and businesses pay taxes they are levied. They suffer the burden of taxation, yes, but that is quite independent of the manner in which they deal with the IRS. Drop the charade and with it the taxation of business income. Then we can get a better look at what non-profits can accomplish.

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