This week as we learn about the IRS targeting of conservative non profit groups, we have been told by the liberal punditocracy that the “real scandal” is the very existence of supposedly shady 501(c)4 non profits. 501(c)4s are “social welfare” groups, this is a term of art, which generally means that the primary mission of the group is to benefit society as a whole in some way, rather than primarily benefiting the owners or investors in the company. The argument from the left is that some 501(c)4s are not social welfare groups at all, but rather shell companies whose actual purpose is to funnel dark money into political campaigns. The conversation is useful one, it is important to ask why we exempt some organization from the payment of tax on their revenues. I suggest that while we are trying to determine what it means to be a social welfare group, or 501(c)4, we should also be examining what it means to be a charity, or a 501(c)3.
501(c)3 status has some benefits that are not available to 501(c)4s, most important among these is the ability to accept tax deductible donations. The reason for this distinction is that the social benefits promoted by 501(c)4s, whether its the left leaning Organizing for Action, or the conservative Crossroads GPS, are not seen as universally good. Feeding the homeless or providing vacations for sick kids are not partisan issues, limiting government or helping to implement Obamacare certainly are. The reason that arts non profits, including theater companies, fall under the 501(c)3 statute is that the promotion of arts and culture is viewed by the government as a universal benefit, rather than a partisan benefit.
But who is really benefiting from the non profit status of theater companies? Are they really charities? As the Huffington Post reported last year, the overwhelming majority of these tax free revenues are going to arts organizations that cater to wealthy, white Americans. Indeed it is not rare for 501(c)3 theater companies to charge in excess of 50 or even 100 dollars to attend at show at their “charity”. So who is really benefiting? There are the executives of these “charity theaters” who often make more than six figures, there are board members, who like inviting their friends to galas, and arguably there are the artists, who have a place to do their work. Are any of these incontrovertible benefits for society? Perhaps if we assume that theater would cease to exist without charity, as food kitchens and clothing drives might, there would be a clear benefit. But there is no reason to believe that an art form older than government itself would not survive without the government sponsored largesse of donors.
The bottom line is that the primary beneficiaries of charity tax status for theater companies are the people who run, and work for those companies. This flies directly in the face of the true purpose of charitable tax deductions. The only way a theater company, or artist for that matter, can justify calling themselves a charity, is by arguing that their work is so good, so vital, so important, that without it society as a whole would suffer. That position is self important nonsense.
So as we all rally around the President by identifying the “real IRS scandal” as the inappropriate use of tax exempt dollars, lets look at the big picture and determine what is and is not really worthy of the descriptor “social welfare organization” and “charity.”