Can Voluntarism Survive the Taxman?; J. Payne

THEFREEMAN IDEASON UBERTY CAN VOLUNTARISM SURVIVE THE TAXMAN? by James L. Payne T he envelope from the Idaho State De partment of Employment came on a Friday. I remember because it was the day after our Thursday night budget meeting on the impending insolvency of our voluntary organization. Our group runs the animal shelter in the north Idaho community of Sandpoint, pro viding a humane solution to the problem of unwanted dogs and cats. We return lost pets to owners, and provide for pet adoption, quarantine, and euthanasia. We also organ ize pet responsibility education for the schools, and a pet therapy program for residents of nursing homes. This highly successful service is sup ported on a voluntary and philanthropic basis. Our only connection with government is that we charge the town for the strays its animal control officer delivers to us. These charges make up less than fivepercent of our revenue. The backbone of our finances are memberships, donations, private founda tions, and fundraising activities. The efforts of our three paid staff members are supple mented by scores of volunteers (who logged a total of 9,317 hours in 1991). The nine board members are all active volunteers at the shelter, so they can make fully informed, sensitive decisions about shelter policies James Payne is President of Friends of the Shelter in Sandpoint, Idaho, and author of a recent book on the burdens of the U.S. tax system, Costly Returns, published by ICS Press.

and personnel. All in all, the shelter repre sents a model of community action: an organization based on the principles of gen erosity and neighborliness, efficiently pro viding a needed public service. Unfortunately, this civic idyll is threat ened. The enemy is not greed, or indiffer ence, but society's own do-good agency, government. To a degree seldom appreci ated by legislators, government taxation is undermining the public service activities of voluntary groups like ours. This will sur prise those who assume that voluntary groups are exempt from taxes. Their mis take is forgetting that there are many, many taxes these days, and that nonprofits are exempt from only a few. As I noted, we are in financial difficulties. After allowing for one-time expenditures, our underlying deficit for the first quarter of 1992 was $423 monthly. This shortfall is more than accounted for by the funds that governmental units are taking away from us.

The figures show that we paid out $250 a month in federal payroll taxes, and $217 a month in state worker compensation taxes. Even our fundraising is burdened with taxes. We have a thrift shop, entirely staffed by volunteers, which resells cast-off cloth ing. This operation supplies a triple social benefit: it aids recycling; it supplies low-cost clothing for the needy; and it provides us with one-third of our income. Because our volunteers can't keep track of the sales tax 137 138 THE FREEMAN • APRIL 1993 on each purchase, we have to deduct it from our overall earnings. This outgo came to $251 monthly. The Idaho sales tax hits us as purchasers, too. Some politically well connected non profits-including the American Cancer So ciety and forest protective associations have wangled exemptions from the legislators, but not animal shelters. Whether we buy a refrigerator to store vaccines or envelopes for a fundraising drive, we pay an additional five percent "for the gover nor. " So there's another $50 per month lost.

In addition to the $768monthly drain of all these taxes, government's tax reporting and depositing requirements create extra work and expense. For example, we paid $275for tax return preparation. Yet Another Burden In this bleak picture there seemed to be one encouraging aspect. There was no un employment insurance tax figuringin our list of expenditures. I took this to mean that in its heart of hearts the state was aware of our worthy public service activities and had thoughtfully lifted this burden from us. That was before I opened the envelope from the Idaho Department of Employment. Inside, written in the menacingly incoher ent language that government computers speak these days, was a document indicat ing a state financial demand. A morning of hectic telephoning disclosed a disaster. We were not exempt from the unemployment tax burden after all. In our case, that burden was being carried as a requirement to pay the specific unemployment claims of ex employees. A former worker had filed such a claim and we were liable for the entire amount, $4,680.

Of course we contested the claim. We gathered data, interviewed volunteers, took statements, prepared testimony, consulted lawyers, and participated in a grueling five hour hearing. While we were struggling against this, state-imposed snare, our other activities suffered. Fundraising was put on the back burner, and shelter supervision was shortchanged. After four months (and several bureaucratic bungles that required an appeal to our state legislator to unravel), the employment department issued its de cision: we still owed the $4,680.The burden doesn't even end there. In order to avoid such catastrophic bills in the future, we shall have to sign up to be taxed on a regular basis for the unemployment system; this will add another $700 a year to our costs. To put these sums in perspective, when volunteers like myself sit at a donation table in the Safeway, we do well to raise $20 in a two-hour shift. Our July ice cream social, which drew on the generosity and sacrifice of 34 volunteers, 27 cake donors, and four business donors, raised $1,041.49. This amount, the reader willnotice, was less than one-quarter the amount the state of Idaho took from us in the unemployment claim.

How long can the idealism and morale of our volunteers withstand this sinister arithmetic? Should lawmakers try to help voluntary groups by giving them more tax exemp tions? The solution is not this simple. For one thing, exemptions usually increase the tax compliance burden, since they require recordkeeping and justification. (Those who itemize deductions will appreciate the point.) For another, more exemptions for nonprofits would exacerbate the problem of unfair competition with the for-profit sector. After all,' ordinary businesses also provide needed community services. Government shouldn't be making life difficult for the animal shelter, but the solution is not an intensified war against shoemakers, den tists, and plumbers. What our lawmakers have to realize is that taxation, for whatever well intentioned purpose, always does social harm. It under mines, often unwittingly, cherished institu tions and functions. Volunteer groups illus trate this truth. Politicians pay lip service to generosity, self-help, and community prob lem-solving. Yet with their tax programs they are driving nails into the coffin of American voluntarism. D THEFREEMAN IDEASON UBERTY JUDGING POLITICIANS by Rick H. White P erhaps the greatest single problem fac ing the American voter over the next few years is the fact that too many of our elected representatives do not really under stand the system that they have been elected to uphold and defend.