Not-for-profit corporations have long been used as a vehicle to evade taxes rather than to primarily serve as a charity or a public service. From TV evangelists and hospital directors building lavishly furnished buildings to the wealthy establishing non-profits to hire their children, and the IRS politicizing tax-exempt applications of the Tea Party, not-for-profit status has been frequently misused and under scrutiny.

Limit Non-Profit Salaries to the Median Income

Recent news reports say that Secretary of State John Kerry funneled over $9 million to a non-profit which pays his daughter $140,000 per year for 30 hours work per week. Family wealth has long been protected by establishing non-profit foundations and then hiring family members to run them. Originally, non-profits were largely voluntary organizations run by priests, nuns, and other voluntary social servants who lived a subsistence life, many taking personal vows of poverty. Using a non-profit as a funnel for self-enrichment does violence to the spirit for which non-profit status was created.

One way to limit some of the corruption is to limit the amount individuals can personally get paid from a not-for-profit corporation. I would recommend that no salaries be paid by a not-for-profit corporation that exceeds the median U.S. individual income for persons 18 years of age and older. That figure should be the median income for all persons, not just those considered part of the labor force. Using this figure would mean that wages of a non-profit employee making the median income could not increase unless the national median income increased–the only way to serve yourself would be to lift others up first.

Non-Profits exist because for-profits are taxed

Of course, the reason there are non-profits in the first place is because for-profit corporations are taxed. I have argued elsewhere that the whole concept of an income tax on corporations makes no sense since it works against productivity and job growth. A far better way for a state to raise money is to have a tax system that encourages productivity and job growth, and then tax the individuals who get paid when corporate money is paid out to them. This discourages much of the of the obscene year-end bonuses paid out today because corporations would pay tax otherwise and, more importantly, it would encourage corporations to locate in the United States rather than offshore. If the corporate tax were ended, as it should be, there would be no reason to classify anything as a non-profit, totally eliminating the corruption associated with the tax loopholes they create.