Tax reform shouldn’t be a backdoor attack on nonprofits

Opinion editor’s note: Strib Voices publishes a mix of guest commentaries online and in print each day. To contribute, click here.

•••

With political chaos dominating headlines, it’s easy to miss the quieter moves coming out of Washington — moves that could do serious, long-term harm to civil society in the United States. As the expiration of the 2017 Tax Cuts and Jobs Act (TCJA) approaches at the end of 2025, Congress is considering how to fund its extension. One of the targets? The nonprofit sector.

Behind closed doors and buried in committee reports, lawmakers — especially those on the House Ways and Means Committee — are intensifying scrutiny of tax-exempt organizations. Committee Chair Jason Smith, R-Mo., has voiced concerns about the “proliferation” of nonprofits and whether their activities align with the “spirit or letter of the law.” Some members, such as Rep. Randy Feenstra, R-Iowa, are questioning whether nonprofits that offer similar services to for-profit entities should retain tax-free status. Meanwhile, influential voices like Scott Hodge — formerly of the Tax Foundation and now with Arnold Ventures — are advocating for sweeping changes, arguing that the nonprofit sector represents a hidden tax gap that should be closed.

Proposals under consideration include applying the full corporate tax rate — 21% — to any revenue that isn’t strictly charitable donation-based. That would include membership dues for trade and professional associations, registration and tuition fees for educational programs and industry certifications, sponsorship income from conferences and conventions, and even returns on investment portfolios. These aren’t fringe funding sources — they are core operating revenues for the vast majority of nonprofit organizations. Targeting them is not about curbing abuse. It’s about reshaping the entire structure of how nonprofit institutions are allowed to function.

Let’s be clear: This isn’t a tax technicality. It’s a fundamental shift in how the U.S. views — and supports — its nonprofit institutions. And it threatens to dismantle one of the few sectors left that still commands broad public trust.

I work closely with organizations across the nonprofit spectrum: faith-based institutions, charitable organizations, industry associations and professional societies. I’ve seen the impact they have firsthand — from workforce development to emergency response to civic education. Thanks to the persistent efforts of the American Society of Association Executives (ASAE) and the Association Societies Alliance (ASA), we know this threat is not hypothetical — it’s in motion.

If enacted, these proposals won’t just hurt a few outliers. They’ll hit everything from local food banks and scientific research foundations to professional medical societies and national trade associations. The impact will be felt by Americans who rely on nonprofits for housing support, elder care, addiction recovery, disaster relief, community safety programs and more.

Some lawmakers justify these changes by pointing to nonprofits that may have blurred the lines on political activity or financial transparency. Fine. Pursue bad actors. Enforce existing laws. The IRS already has tools to investigate and, when warranted, revoke tax-exempt status. But using isolated cases to justify a sector-wide tax grab is like grounding every flight in the country because of a single air traffic violation.

Tax-exempt organizations are already subject to unrelated business income tax (UBIT). When they earn revenue outside their mission — say, a university renting out its stadium for a commercial event — they pay taxes on it. That’s appropriate, and it’s happening. What’s being proposed now is something else entirely: treating mission-driven organizations like corporations, simply because they generate operating revenue.

This is not just poor policy. It’s bad economics.

Nonprofits employ roughly 10% of the U.S. private workforce. They generate hundreds of billions in economic activity annually, contribute to GDP growth and support a volunteer network unmatched by any other sector. They exist precisely because the private market doesn’t always fill the gaps — and because government can’t always reach the people who fall through them.

Taxing nonprofits won’t raise substantial new revenue. But it will force program cuts, staff layoffs, reduced services and closures. It will strain public systems and shift more burdens to government agencies already operating at capacity. And it will discourage charitable giving at a time when civil society is more necessary than ever.

Let’s also remember: Tax exemption isn’t a loophole. It’s a policy choice — one made over a century ago to incentivize public service and charitable work. In 1913, Congress codified tax-exempt status. In 1917, it introduced the charitable deduction. These provisions weren’t meant to shield privilege. They were meant to protect purpose.

And purpose is what defines the nonprofit sector. These organizations don’t have shareholders. They don’t distribute profits. Every dollar brought in is reinvested in mission. That mission may be civic, religious, educational, humanitarian or professional — but it’s not personal profit. That distinction matters.

This isn’t a partisan issue. It’s not about left or right, red states or blue. If tax exemption erodes, ideologically diverse organizations across the country will be equally threatened. That means community health clinics offering addiction recovery services and private religious schools serving rural families. It means environmental nonprofits advocating for conservation and land trusts, as well as energy-focused foundations promoting American energy independence. It includes national business alliances that support manufacturing standards and workforce pipelines, and civic education organizations working to boost voter participation and trust in institutions. Think tanks on both ends of the spectrum — from the Brookings Institution to the Heritage Foundation — could see major operational constraints. So could faith-based service groups like Catholic Charities and Lutheran Services in America, along with professional associations that set safety standards in engineering, medicine and construction. No matter your political affiliation or policy priorities, there is likely a nonprofit advancing the issues you care about — and they are all at risk under these proposals.

Now is not the time to gut the nonprofit sector. Now is the time to shore it up.

Congress should focus on rooting out fraud and enforcing transparency. But it must reject blanket policies that undermine the value of charitable and civic institutions. These organizations are the connective tissue of American society. They aren’t the problem. They’re part of the solution.

If lawmakers don’t hear from constituents, this sector will be redefined without them. We need business leaders, faith leaders, volunteers and everyday citizens to reach out to their representatives. We must remind Congress: Nonprofit status is not a loophole to close — it’s a legacy to protect.

If we dismantle the tax code’s support for nonprofits, we won’t just balance the budget on the backs of charitable organizations. We’ll erode the very structure that helps hold our society together.

Avi S. Olitzky, formerly senior rabbi of Beth El Synagogue in St. Louis Park, is president and principal consultant of Olitzky Consulting Group. He can be reached at avi@olitzkyconsulting.com.