Nonprofits' Fat Profits

Congress and the Clinton Administration are scrutinizing the nation's nonprofit organizations, and none too soon. Nonprofits, thanks to their exploding business activities, now make up 10% of the U.S. gross domestic product--yes, 10%!

Two issues are at stake, both stemming from the burgeoning businesses of the nonprofits. First, there is fairness. Are loophole-ridden, laxly enforced tax laws giving nonprofits an unfair edge over for-profit businesses? Some nonprofits may be abusing tax exemptions and low postal rates to beat the heck out of competitors instead of bolstering the commonweal. One YMCA in Washington, D.C., has a virtual-reality golf course, shines its members' shoes while they work out, and charges monthly dues of up to $98. Other nonprofits are selling tax-exempt bonds that may also help their commercial activities. Unfair? Rivals sure think so.

Then there is the use of all that income to lobby Washington pols. Last year, more than half of the American Association of Retired Persons' annual revenues of $382 million came from the sale of insurance, pharmaceuticals, and other goods and services on which it paid little or no taxes. Senator Alan K. Simpson (R-Wyo.) doesn't like the fact that AARP spent $36 million lobbying for more government spending while opposing the balanced budget amendment. President Clinton, meanwhile, is bugged by the fact that the National Rifle Assn., which made $14 million from the sale of its magazine and insurance, lobbies against gun restrictions.

Businesses are entitled to a level playing field, and Congress and the IRS should see to it that the profits of nonprofits are taxed just like the profits of regular businesses. It gets trickier when it comes to all the lobbying. No one can question the right of special-interest groups to try to influence legislation. Legislators and the President are wrong if they attack lobbies solely because they disagree with them politically. Yet the financing of any lobbying effort cannot be permitted to come from untaxed commercial profits. By throwing around their weight in Washington, nonprofits have moved out of the shadows into the glare of the political process. They deserve the scrutiny they are now attracting.

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