Wednesday, December 21, 2022

When Tax-Exempt Nonprofits Detract Value From Society

I ran across an interesting paper regarding the measurement of and consequences from negative externalities generated by nonprofits.  Of course, most laws regulating nonprofits (tax or otherwise) are for the purpose of limiting or eliminating negative externalities.  The private foundation excise taxes, for example, are all designed to diminish whatever negative externalities are generated by embargoing large chunks of wealth from taxation.  The tax on unrelated income is an attempt to defeat a negative externality (unfair competition).  To the extent we can better measure negative externalities we can either increase or decrease bothersome and costly regulations.  Anyway, here is the abstract:

Nonprofits receive tax exemptions in return for social value creation and delivery. While the outcomes of these tax exemptions are often positive, there are value detracting situations in which the cost of granting the tax exemption is likely to exceed its benefits. To date, explanations for these value detracting situations remain scattered and discipline centric. Therefore, the purpose of this paper is to clarify the conditions under which tax-exempt nonprofits detract value from society. We survey fifteen years of tax-exempt nonprofit scholarship, across nine disciplines, and identify three value detracting conditions: policymaking and regulation intemperance, nonprofit management and governance distraction, and detection and prosecution inconsistencies. These three conditions interact and reinforce each other, compounding the value destruction to society. Overall, our findings offer important policy insights regarding the unintended consequences of tax exemptions and our framework can be used to identify negative return situations.

dkj

https://lawprofessors.typepad.com/nonprofit/2022/12/when-tax-exempt-nonprofits-detract-value-from-society.html

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