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‘Tis the season when many Americans donate to their favorite charity. While leaders in the nonprofit sector remain firm in their conviction that they are best suited to deal with Pennsylvania’s social and economic challenges they are concerned that public trust in charities is not as high as it should be. Those are among the findings of the 2016 Pennsylvania Charitable Organizations Survey conducted during the month of November by the Lincoln Institute of Public Opinion Research, Inc. in cooperation with the Pennsylvania Association of Nonprofit Organizations (PANO).
Among the participating nonprofits just ten percent said that public trust in charities is “high,” while 77% rated public trust as “medium.” Nine percent felt public trust in charities currently is “low.” Twenty-two percent of the nonprofit executives said the level of public trust in charities has gotten better over the past few years, but 31% said it has gotten worse.
Having said that, the nonprofit leaders feel their sector is best positioned to address Pennsylvania’s social and economic challenges. Forty-five percent identified their own sector as best suited to address those needs; 22% think state government is most effective; while 6% cite the for-profit sector. Just three percent said the federal or municipal governments can best handle those challenges.
“Public trust,” said Anne Gingerich, Executive Director of PANO, “is critical to the sustainability of any business – nonprofit, for-profit or government. When one nonprofit fails to live up to the highest standards it can damage the reputation of all.” She continued: “Unfortunately these stories overshadow the hundreds of nonprofits who give selflessly to ensure that lives are changed, not just during the holidays, but all year long.”
Like their counterparts in the for-profit world, leaders in Pennsylvania’s nonprofit sector say business conditions in the state have gotten worse over the past year rather than better. Concerns over potential new federal regulations and the growing likelihood of another extended state budget stalemate feed concerns that the commonwealth’s business climate will continue to deteriorate during the year ahead.
The survey found 15% of the nonprofit executives view business conditions in Penn’s Woods over the past year as having improved, 22% say business conditions have gotten worse. The majority – 63% – say the state’s economy has remained about the same. But “about the same” is not good as business confidence, whether for-profit or nonprofit, has been low for the past two years.
By comparison, a September 2016 survey of owners/chief executive officers of for-profit businesses found only five percent saying the state’s economy has improved in recent months while 50% said it had gotten worse.
Looking ahead, a third of the nonprofit leaders expect the state’s business climate to get worse while 22% predict it will get better. Forty-four percent say the Pennsylvania business climate will remain about the same during 2017.
Despite their overall pessimism about the direction of the commonwealth’s economy, employment was up at a quarter of the nonprofits, and down at 16%. That could be explained in part by some nonprofits stepping up hiring after having cut back staff during the budget stalemate of two years ago. However, looking ahead 22% say they expect to add employees while 14% predict staffing cuts.
Hanging over all sectors of the economy including nonprofits are U.S. Department of Labor (DOL) regulations that would increase the minimum salary requirements for “white collar” workers from $23,600 to $47,476 per year. The effect would be a significant increase in overtime costs. This is perhaps more significant for the nonprofit sector in that employees at many smaller nonprofits view their jobs as being community service as much as employment and often put in hours well in excess of those for which there are paid.
The 2016 Pennsylvania Charitable Organizations Survey found that the new regulations would increase payroll costs at 43% of the responding organizations as well as increase the amount of time spent tracking employee hours. The regulations are now on hold due to a federal court ruling, but should they go into effect 30% of the nonprofits surveyed said they would have to cut staff to pay for the increased costs of complying with the regulations; 11% would have to cut services and another 16% would respond by seeking additional volunteer help.
Pennsylvania’s nonprofit organizations were among those most significantly impacted by the lengthy state budget stalemate of two years ago. In light of that experience, 68% would support putting into place legislation that would incentivize lawmakers to adopt a state budget in a timely manner. Sixty-eight percent (some with board approval) said they would support legislation that would progressively penalize state lawmakers for missing the state budget deadline, with penalties increasing for each day past the June 30th deadline.
PANO’s Gingerich said nonprofit support of legislation penalizing lawmakers for budget stalemates is not surprising. “Not only clients suffer as a result of the impasse, but nonprofits themselves had to lay off staff and borrow money to continue operations. As partners with state government in providing mandated services, nonprofits should ask to be at the budget negotiation table.”
Unlike executives in the for-profit sector, nonprofit leaders are open to supporting a wide range of tax hikes. Thirty-seven percent said they would support an increase in the state’s Personal Income Tax (PIT), while 22% said they would not. Another 41% offer no opinion on the question. Likewise 43% would support imposing a new natural gas drilling tax of up to 6.5% specifically to support human services. Thirteen percent would oppose such a tax, and 43% offered no opinion. Similar support levels were voiced for the imposition of a new public health tax (ie: sugar tax, soda tax) of 1.5 cents per ounce dedicated to human services. The highest level of support – 50% – is for dedicating a portion of taxes generated by Pennsylvania’s gaming industry to support human services.
Despite their overall negative assessment of the direction of Pennsylvania’s business climate, more of the nonprofits participating in the 2016 Pennsylvania Charitable Organizations Survey said funding for this calendar year has increased than have seen decreases. A third of the nonprofits said funding is up, a quarter reporting funding has dropped and 43% said their funding levels have remained about the same. Looking ahead to 2017 about half of the nonprofits predict funding levels at their organization will remain static; 30% say they expect funding to increase; 20% are braced for funding to decrease.
By a two-to-one margin nonprofits have seen state funding levels decrease over the past five years. Twenty-one percent said funding from the state had dropped during that period of time while ten percent saw an increase in state funding. The other half of the organizations said funding from state government has remained about the same. Likewise there has been a slight drop in federal funding. Sixteen percent said their organization’s funding from the federal government has dropped over the past five years, 12% said federal funds have increased. Federal funding remained about the same at the remaining 45% of organizations surveyed.
Property tax exemption challenges remain a concern at some nonprofit organizations. Seven percent report having had their property tax exemption challenged over the past two years and 13% are concerned their municipal or county government may challenge their exemption next year.
Nonprofit organizations are not participating in lobbying activities in a major way. Just six percent say they have someone from their organization registered as a lobbyist under the Pennsylvania Lobbying Disclosure Act. Twenty-two percent have lobbied on a public policy issue at some level of government over the past year. Twenty-seven percent expect to lobby government at some level during the coming year. Gingerich urged nonprofits to engage in more lobbying activities. “Nonprofits must understand that not only can they lobby, but they are not doing their jobs if they do not. Together, the collective voice of the nonprofit sector has powerful, yet untapped power.”
The 2016 Pennsylvania Charitable Organizations Survey was electronically conducted during the month of November 2016. A total of 177 nonprofit organizations responded to the survey invitation. Complete numeric results are available at http://www.lincolninstitute.org.
Tax policy received scant attention in the presidential debates, but when it did both candidates displayed a serious lack of understanding regarding at least one critical component of the tax code: carried interest. Although arcane in nature and unheard of by most, carried interest is a tax rule that fosters capital formation, encourages investment and ultimately leads to job creation.
Simply put, carried interest is a type of capital gain. Homeowners are familiar with the term ‘capital gain’ which in that circumstance refers to the increase in value of your home over time as you make improvements or rising market prices increase its sale price. If you sell your principle residence and make more than $500,000 in profit as a married couple, you must pay a capital gains tax. You pay the capital gains tax rate, not the ordinary income tax rate, on the transaction because you have already paid taxes on the income used to purchase the house.
Likewise carried interest is a long-term capital gain that is earned by an investment partnership. In this case the asset is not a house, but an investment portfolio that the partnership established and grew over time. When sold, the portfolio manager pays a lower capital gains tax rate on the fund’s profit, not the higher ordinary income tax rate.
The presidential candidates have, unfortunately, decided to portray carried interest capital gains as a loophole granted to special interests. Both candidates want to raise this capital gains rate claiming it gives investment fund managers an unfair tax break. Fairness, however, is not what such an increase would achieve. Rather it would amount to double taxation.
The negative effects would be much worse than over-taxing a sub-set of taxpayers. The partnerships that are formed when an investor joins with a fund manager results in a structure that fosters informed investments that grow over time. This growth generates profits. When the profits are re-invested that is called capital. Such capital is invested in businesses so that they can grow, expand and create jobs.
Carried interest capital gain rules play a critical role in allowing capital to form. If you raise the carried interest capital gain tax rate, the government will take more in taxes–dramatically decreasing the amount of capital available for investment in the economy.
A significant portion of that capital available for investment is invested right here in Pennsylvania. According to the American Investment Council, private equity firms invested an estimated $24.49 billion in Pennsylvania-based companies in 2015. There are 143 private equity firms headquartered in Pennsylvania. These companies support more than 185,103 workers at facilities both in Pennsylvania and in other states.
In other words, carried interest capital gains is not a tax device aimed at making Wall Street fund managers richer. Rather, it is appropriate taxation that makes more capital available for investment in the companies that are creating much needed new jobs for Pennsylvanians and elsewhere.
It is common in an election year for candidates to propose new government spending programs in an effort to win votes. They then go looking for ways to pay for that higher spending. “Reforming” the nation’s complex tax structure is often an effective target.
But, changes can have unintended consequences. Raising the current 23.8% carried interest rate to 33% as proposed by Donald Trump or almost 50% as suggested by Hillary Clinton would result in only a modest increase in tax revenue flowing into the federal treasury. And we all know that any move to raise this rate would likely be coupled with other tax hikes on working families and small businesses.
Even if you set aside the unfairness of double taxing investors, raising the carried interest tax rate or eliminating that category of capital gain entirely would have the detrimental effect of reducing capital formation. That means dramatically fewer dollars available for companies to grow and create new jobs. Carried interest is not a tax break for the wealthy; rather it is a way for investors to put their earnings to work creating the new jobs needed as the nation struggles to recover from the Great Recession.
Lowman S. Henry is Chairman and CEO of the Lincoln Institute of Public Opinion Research, Inc. and host of the weekly Lincoln Radio Journal. His e-mail address is firstname.lastname@example.org
Permission to reprint is granted provided author and affiliation are cited.
2016 Republican Delegate/Alternate Delegate Survey: Supreme Court, Terrorist, Constitutional Rights Top Delegate Concerns
Pennsylvania’s delegation to the 2016 Republican National Convention rated U.S. Supreme Court nominations, terrorism and protecting constitutional rights as the most important issues facing the nation while viewing the GOP-controlled congress as having failed to effectively counter the policies of President Barack Obama.
The Lincoln Institute’s quadrennial survey of delegates and alternate delegates found economic issues outweighed social issues and foreign affairs in their selection of a presidential candidate, but 60% said a combination of all three issue sets factored into their decision.
That was reflected in the importance given to the various issues facing the nation. No social issues topped the delegation’s list of important issues. A clear concern over fundamental rights emerged from the survey data as the selection of nominees to the U.S. Supreme Court topped the importance scale with 90% saying the seating of justices was a very important issue. Concerns over ISIS/terrorism rated as second most important, but protecting constitutional rights followed closely as the delegation’s third most important area of concern. Jobs and the economy, the budget deficit/government spending and illegal immigration rounded out the top concerns.
Pennsylvania’s delegation hues to traditional Republican positions on President Obama’s job performance. Eighty-seven percent say his administration’s foreign policies have made the United States much less secure; only one delegate thought those policies have made the nation more secure. When asked if President Obama was on the right track or wrong track in responding to the threat of ISIS and international terrorism there was unanimity – 100% said wrong track. Until the threat of ISIS/terrorism has ended, 64% of the delegation thinks the U.S. should ban entry of citizens from countries that are hotbeds of terrorist activity; 26% want to ban all Muslims from entering the country; 13% say current laws are sufficient. Eighty-nine percent of the delegates/alternate delegates strongly disapprove of the Obama Administration’s nuclear deal with Iran, another 8% somewhat disapprove. Only 3% expressed approval.
When asked if the U.S. economy is on the right track or off in the wrong direction 97% said wrong direction. Ninety-two percent of the Pennsylvania delegation to the Republican National Convention places the blame for the nation’s economic ills on President Obama, but majorities also fault labor unions and congress. There is strong support, 72% with another 26% somewhat supporting lowering tax rates as a means of stimulating economic growth.
The delegation, reflecting the views of its presumptive presidential nominee, opposes free trade agreements such as the Trans Pacific Partnership (TPP). Sixty-nine percent oppose TPP with 31% expressing strong opposition. In terms of balancing the federal budget, 79% would do so only by cutting spending; 21% would employ a combination of tax hikes and spending cuts. Concern was voiced over the viability of the Social Security system: 57% think the system will be around for future generations – but only with substantial changes. Forty percent think Social Security is headed to bankruptcy; only 4% think it will survive without changes. To provide for the nation’s energy needs, 93% favor more domestic drilling as a solution; 50% support development of alternative fuels and 30% urge conservation.
Illegal immigration has been a dominate issue in Donald Trump’s presidential campaign. The Pennsylvania delegation to the Republican national convention reflects his stance on the issue. Fifty-six percent of the delegation wants immediate deportation of illegal aliens; 23% would accept granting permanent worker status. Not a single delegate favors granting illegal aliens full citizenship.
Also spurring Donald Trump’s march to the Republican Presidential nomination was grassroots frustration with the ineffectiveness of the party’s elected officials in Washington, D.C. Eighty percent of the Pennsylvania delegation said the Republican-controlled congress has been ineffective at checking President Obama’s executive power.
As a result, over two-thirds hold a negative view of the job being done by the U.S. Senate and the U.S. House of Representatives.
A strong anti-government thread is woven into the state’s delegation as 97% said they view the federal government as an adversarial force when it comes to helping solve problems. Only two delegates view the federal government as a positive force. Likewise, 97% say our basic rights as Americans are God-given; only two delegates view our rights as granted to us by government.
The Lincoln Institute’s survey of delegates/alternate delegates to the 2016 Republican National Convention found 92% want Republicans in the general assembly to continue holding the line on more spending and higher taxes. Ironically, those views were expressed as the GOP-controlled legislature approved a state budget which dramatically increased spending and included a wide array of tax hikes. Ninety-six percent agree with the strategy – now abandoned by Republican legislative leaders – that cost drivers like pension reform should be addressed before the general assembly considers any increase in taxes.
Sixty-five percent of the delegation feels the property tax-based system currently utilized by school districts, local and county governments to fund services is unfair to taxpayers. There is little agreement though on how to otherwise raise revenue. Twenty percent favor a higher state sales tax rate while 16% would support a more broad based state sales tax at the current rate. There was nominal support for local sales taxes, local earned income taxes or a higher state income tax. On a related note, 61% favor allowing vouchers or grants to students who wish to attend a public school in a district other than their own, 32% do not.
Generally speaking, 60% of the delegates/alternate delegates think the state income tax rate is too high, another 41% say it is about right. Eighty-seven percent feel state business taxes are too high, only 13% think taxes on business are about right. When it comes to economic development, 96% favor having the state cut business taxes and regulation. Just 4% favor having the state borrow money to help select business ventures.
There is strong support among Pennsylvania’s delegation for a Right to Work Law, which means that a worker cannot be fired or kept from having a job for either joining or not joining a labor union. Eighty-five percent favor the adoption of a right to work law. On a related issue, 76% support enacting a ban on public school teacher strikes.
Pennsylvania’s delegation to the Republican National Convention is a very conservative one. Forty percent say they are very conservative, another 47% say they are somewhat conservative. Thirteen percent proclaimed themselves to be moderates, and one delegate adopted the very liberal/progressive title.
The delegation is skewed to higher age demographics. About a third are over the age of 65, another third between the ages of 50-65. Twenty-eight percent fall in the 30-50 age group, while only one respondent was under 30. Of the delegates responding to the survey invitation 62% are male, 38% female.
The Lincoln Institute survey of delegates/alternate delegates to the 2016 Republican National Convention was conducted electronically between June 28 and July 14. 2016. A total of 73 delegates/alternate delegates participated in the survey. Complete numeric results are available on-line at www.lincolninstitute.org.