Scoppe | South Carolina Senate’s new nonprofit subsidies

May 29, 2013 

Late last Thursday afternoon, Sen. Lee Bright proposed a budget amendment to bar state appropriations to charities and other nonprofit organizations.

The idea is an outgrowth of one I applauded when then-Gov. Mark Sanford pushed it unsuccessfully with his veto pen — back when money was flowing freely and the Legislature was profligate in its donations of our tax dollars to its favorite causes — and there’s a certain amount of logic to it.

At the very least, we need to ask a lot more questions about these tax dollar donations, and be a lot more sparing in their use. As good as the work of nonprofits often is, it’s not work that the state usually has any control over once it gives them our tax dollars. And as often as not, it’s not work that clearly benefits the state in a way that justifies spending tax money on it.

What’s so striking about Sen. Bright’s amendment was not that it failed — after all, our legislators get to claim credit when they give our tax money to beloved charities in their communities — but the double-standard that underlies it. Bright and the six senators who voted with him to bar the state from giving money to nonprofits had spent much of the first two weeks of budget debate trying to force the Senate to divert tens of millions of tax dollars to … nonprofits.

Of course, what they wanted weren’t direct legislative appropriations. Which actually makes them worse. Which nonprofits received the tax donations they were pushing would have been determined by individuals rather than by our elected officials.

To further highlight the hypocrisy, their quixotic quest to ban legislative appropriations to nonprofits came immediately after six of them voted for a successful amendment to allow employees of certain nonprofits to spend $275 in supplies for their jobs and send the state a bill. (Sen. Shane Martin didn’t vote on that amendment.)

And a little later, as if to demonstrate that that they weren’t being inadvertently inconsistent in their approach to taxpayer support of nonprofits, the gang of seven finally managed to convince the majority to support a scaled-back version of their big tax-diversion scheme, which would let individuals appropriate $10 million in tax funds to new nonprofits that will spring up for the purpose of doling out that money.

If you haven’t figured this out yet, what makes the nonprofits favored by Bright et al different from all the other nonprofits is that they are the underpinnings of a long-sought plan to pull parents away from the public schools.

Senators soundly rejected the gang of seven’s big scheme to divert $39 million from public schools in order to pay parents to abandon those schools and to pay others to support private schools. But they supported both of the smaller plans, which cost far less and don’t actually pay parents to send their kids to private schools.

But when you understand what a tax credit does, it’s easy to see these proposals as even worse.

A tax credit reduces the recipient’s tax bill, and in so doing it shifts the cost of paying for government to all of us who don’t receive the credit. Although a $10,000 tax deduction would lower your state income tax by, at most $700, a $10,000 tax credit would lower your state income tax bill by the full $10,000.

A tax credit allows you to tell the state, “Instead of paying my taxes, I’m going to spend that money on something that I prefer to spend it on.” A refundable tax credit allows you to say, “I don’t make enough to owe any state income taxes, so please send me a check” to pay for my spending on something I want to spend my money on.

The $275 refundable tax credit would go to private school teachers — and, as I read it, day-care “teachers” — to reimburse them from buying school supplies. Sen. Chip Campsen argued that this was simply treating private school teachers the same way we treat public school teachers, whom we reimburse for up to $275 in school supplies.

That’s true. It would treat the employees of private organizations the same way we treat our public employees. Of course, we reimburse our state employees for school supplies because we think the state has an obligation to pay for supplies for the schools we own and operate, and we’ve decided to let the teachers pick them out instead of appropriating money for the schools to purchase them.

If you buy Mr. Campsen’s argument that it’s our responsibility to treat private employees the same way we treat our public employees, you could just as easily argue that we need to treat them the same when it comes to providing them with state health insurance, and holiday pay, and better pay overall.

The more expensive tax-diversion scheme that the Senate approved would give tax credits to people who donate money to a “scholarship-granting organization,” a new type of 501(c)(3) organization that would be created to give scholarships to disabled children to help them attend a private school. The credits would be capped at $10,000 per donor, and the total credits awarded would be capped at $5 million per year.

These new organizations would have to spend 95 percent of the donations on scholarships. That means the taxpayers would essentially be providing $250,000 per year in overhead for these new middle-man organizations.

One of the biggest problems I’ve always seen with paying people to send their children to private schools or to underwrite those schools is that the legislative schemes always prohibit the state from placing any of the requirements on the private schools that we place on public schools, such as accepting any children who apply or administering state tests.

But while the tax deductions for parents could be seen as helping parents to pay for something they were going to buy anyway, Sen. Vincent Sheheen argues convincingly that the tax credits for donations to scholarship-granting organizations could have a more insidious effect.

Since the law would allow people to convert their tax payments into “donations” to these new charities, he says, “You’re incentivized not to give to your church.”

Or any other charitable cause that it actually costs you money to give to.

Cindy Ross Scoppe is associate editorial page editor at The (Columbia) State. Contact her at cscoppe@thestate.com.

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