RPF0148-NonProfit_Corporations_Interview
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00:00:30.000 | Have you ever been sitting there at tax time, staring glumly at your business tax return,
00:00:36.000 | looking at the number on that little line called "total tax due" and wondered if there
00:00:41.400 | were another way? After all, wouldn't it be cool if you could start a corporation that
00:00:48.640 | didn't owe any taxes? Ever? Well, there is such a corporation, and it's called a not-for-profit
00:00:55.200 | corporation. Interesting idea, huh?
00:01:14.920 | Welcome to the Radical Personal Finance Podcast. My name is Joshua Sheets. Today is Thursday,
00:01:19.600 | February 5, 2015. Today we talk about not-for-profit corporations as compared to for-profit corporations.
00:01:29.680 | Not a deep attorney-type conversation. We're going to stay big picture and general, but
00:01:34.360 | we're going to talk with a businessman who has operated within both environments and
00:01:38.820 | get his perspective. My guest today is a man named James O'Neill. James is a former police
00:01:51.920 | officer, former 911 dispatcher, and call to--what do they call him in that? Not the dispatcher,
00:01:57.680 | the person that takes the call. The dispatcher is the one who sends the people, but now is
00:02:01.280 | involved with a company called Training for Safety. As you'll hear in the interview, they
00:02:08.280 | had a choice some years ago, and their choice was whether or not to organize as a not-for-profit
00:02:14.600 | corporation as compared to a for-profit corporation. This is a very interesting planning idea.
00:02:21.280 | I'm glad that James actually emailed me with the idea, and I'm glad that he approached
00:02:25.200 | me. It's something that was on my radar screen as a topic of further research, but I haven't
00:02:29.520 | made the time to research it yet. I was glad when James emailed and I said, "Hey, would
00:02:33.720 | you just want to come on and talk about it?" I love that he came on as a businessperson
00:02:37.720 | from a business perspective to talk about the various benefits and disadvantages of
00:02:46.040 | a not-for-profit corporation. I hope you find this interesting. I hope you find it enlightening.
00:02:51.000 | I hope you learn something, and I hope you can get some ideas that you can apply to your
00:02:56.120 | situation. Here's the interview. Enjoy. James, welcome to the Radical Personal Finance
00:03:02.160 | Podcast. I appreciate you making time for me today.
00:03:04.800 | Joshua, thank you for inviting me.
00:03:07.600 | As a listener, when you reached out to me and how we've come to do this interview today,
00:03:12.120 | you reached out to me, and among some other dialogue that we were having, you mentioned
00:03:16.200 | that you have experience and thought I should do a show on the topic of the not-for-profit
00:03:21.840 | entity as a potential planning idea. In our dialogue, I'm not an expert in this area,
00:03:28.360 | and you've had some personal experience. I thought the best way to handle this would
00:03:32.000 | be to invite you on and we have a discussion about it together.
00:03:36.560 | I'll just let you kick it off. What's been your experience and your path in the business
00:03:41.080 | world as pertains to for-profit entities and not-for-profit entities and your own personal
00:03:46.760 | experience with that?
00:03:49.560 | A little bit about me. I was always the kid that had the side hustle going on. I didn't
00:03:56.200 | know what to call it back then, but always doing something to earn a buck, to sell something
00:04:01.360 | to my neighbors, to wash their cars or mow their lawns or what have you. That continued
00:04:08.480 | on into my adulthood where I started a business, and it was always something that was on the
00:04:14.040 | side. It was always something that I could fall back on if my primary career, something
00:04:19.760 | to happen with that.
00:04:23.600 | I found myself back in 2001 teaching for a living. I was teaching at a regional public
00:04:30.780 | safety training academy. That's where rookie police officers and firefighters and 911 dispatchers
00:04:37.700 | and medics come for their basic academy training. Then they come back periodically for in-service
00:04:43.580 | or advanced type of training.
00:04:47.360 | I noticed that the standards of the education that we were providing were slipping. There
00:04:54.160 | were some issues and the executive director had this alleged open-door policy to come
00:05:00.080 | and talk to him any time there was something that you felt needed addressing. I went to
00:05:05.040 | him and he was not receptive to hearing anything about what I had to say and went so far as
00:05:09.560 | to invite me to go and apply somewhere else if I was unhappy, which was not really the
00:05:15.960 | point I was trying to get across.
00:05:18.200 | I was thinking about that and muttering to myself a bit about it and was talking with
00:05:24.160 | a couple of the other instructors. Lo and behold, independent of what I was doing, they
00:05:29.120 | had done exactly the same thing and had gotten exactly the same reaction.
00:05:34.360 | It turned out there were five of us who were a little bit disgruntled with what was going
00:05:40.560 | on. We all went out to lunch one day. The conversation turned to, "Well, we do this
00:05:46.760 | now for those people. We could do a better job and do it for ourselves." One of the members
00:05:53.880 | of this lunch group said, "If we are going to do it, we should definitely do a non-profit."
00:06:00.400 | I knew nothing about non-profits, but I went to the only resource at the time that I knew
00:06:07.400 | of, which was Nolo Press. I called them and I said, "Do you have any books on non-profits?"
00:06:13.320 | They said, "We sure do." I gave them my credit card number and they sent me a very nice book
00:06:18.680 | that had a CD that went with it that walked me through the process of how to set up a
00:06:23.840 | non-profit. The five of us did just that. In 2002, we formed it. We've been running
00:06:30.440 | it. Some people have retired, but those of us that remain have been running it ever since.
00:06:36.680 | We do mostly training for public safety officials on how to do their jobs better, how to do
00:06:43.720 | it smarter, and how to help people who are calling 911 on the worst day of their life.
00:06:51.200 | What were the factors in that conversation that led to the person saying, "Oh, you should
00:06:56.760 | definitely do a non-profit"?
00:06:59.360 | He had been doing some research on an entirely different idea. He also was somebody that
00:07:06.800 | always had multiple irons in the fire. He was researching this for another perspective
00:07:13.320 | idea. But there were parts of it that appealed to him. Once I got into the book and started
00:07:21.400 | to learn and read, and then get out in the world and actually start providing a product
00:07:27.000 | as a non-profit, I realized that there are some substantial advantages to being a non-profit,
00:07:34.360 | especially in the educational role and especially in the non-traditional educational role. We're
00:07:45.040 | familiar with colleges being not-for-profit entities, but private training providers are
00:07:51.040 | usually for-profit. As a non-profit, it gives us perhaps a little bit more legitimacy up
00:07:59.200 | front when people are first introduced to us. It gets us in the door of places that
00:08:05.160 | we would not normally get into. For example, since 2002, we've never paid for a training
00:08:12.440 | site. All those sites have either been given to us as a donation or given to us because
00:08:20.120 | it's in a public building, and they have meeting space for public entities and for non-profits.
00:08:27.920 | There's probably the best example is the Kindler and Gentler Internal Revenue Service that
00:08:35.080 | you deal with. If you're a non-profit, the IRS assumes that you are doing good, and if
00:08:43.960 | you make a mistake, they assume it's an honest mistake, and they allow you the opportunity
00:08:48.520 | to correct it. There isn't the punitive aspects of the IRS in the non-profit world unless
00:08:56.040 | you're clearly running a criminal enterprise as a non-profit, but most aren't. I was very
00:09:05.120 | surprised when I turned in the original IRS form to apply for the non-profit that I got
00:09:10.360 | a letter back from an individual with his actual name and his email address and his
00:09:15.400 | direct phone number to call him if I had any questions or if I needed any help. That's
00:09:20.440 | not what I normally would expect from the Internal Revenue Service.
00:09:24.160 | The entity itself is registered as a not-for-profit corporation, but what about your personal
00:09:30.160 | income? Do you feel that you're making the same as simply an employee of the not-for-profit
00:09:35.680 | corporation as you would be as an owner of a for-profit corporation?
00:09:40.200 | Probably. Non-profits have employees just like for-profits do. Because we're not paying corporate
00:09:47.120 | income tax, there sometimes can be a little bit more money floating around a non-profit
00:09:52.840 | than a for-profit. And there's other income-generating opportunities in the non-profit world that
00:10:00.440 | you don't see in the for-profit world, grants and donations and volunteers that want to
00:10:07.560 | help. So if the non-profit is run as a business and the focus is on running a successful business,
00:10:19.000 | the non-profit can be just as financially successful as a for-profit can. Look at the
00:10:25.440 | United Way. They have adequate financing, or so it would appear. But one of the challenges
00:10:37.040 | within the non-profit world is that sometimes the non-profit gets so focused on what its
00:10:43.480 | non-profit goal is, whether that is feeding the hungry or housing the homeless or finding
00:10:50.520 | lost puppies, that they forget that somebody needs to be in the back room doing the accounting
00:10:55.840 | and making payroll and paying the rent and keeping the lights on. And both of those have
00:11:02.960 | to be going on at the same time. If you're running an animal shelter, for example, you're
00:11:07.880 | going to have a lot of people that want to interact with the animals, but you're going
00:11:13.200 | to have many fewer people that want to sit in the back and keep the books balanced.
00:11:19.840 | This is one of those areas where it almost feels like the ethics are quite tricky. And
00:11:28.240 | that's why it's an appropriately radical idea to bring on a radical personal finance podcast
00:11:34.280 | and talk through. Because this meme circulates in social media, it goes off and on, but you
00:11:41.240 | see this meme often that talk about how much the leaders of some large not-for-profit organizations
00:11:50.000 | make. And usually it's things like Goodwill Industries, the American Cancer Society, the
00:11:56.880 | American Red Cross. I looked up the Goodwill here in preparation for this. It says, "There's
00:12:07.440 | a lot of money." Where is it? Okay, so just pulling from a Huffington Post article here,
00:12:13.360 | the CEO of Goodwill Industries, Suncoast, makes $440,000 per year. The CEO of Goodwill
00:12:20.280 | Industries of South Florida makes $316,000, and there's a bunch of others of the local
00:12:24.680 | Goodwill organizations. The American Red Cross has a statement on its page that indicates
00:12:31.440 | that--and they were combating emails going around saying erroneous numbers, but the president
00:12:37.360 | and CEO of the American Red Cross is Gail McGovern, and her base salary has remained
00:12:41.840 | $500,000. And what's interesting is I actually--maybe later, I don't want to interrupt our interview
00:12:47.960 | with going down this rabbit trail, but I actually don't necessarily think that large compensation
00:12:54.320 | packages are out of line for not-for-profit organizations. I used to think that until
00:13:00.120 | I was exposed to some deeper thinking in it with the Chartered Advisor Philanthropy coursework
00:13:05.480 | that I completed, and it really challenged my thinking on it. So I don't particularly
00:13:09.120 | have a problem with it in the same way that many people seem to when it's shared on Facebook.
00:13:15.440 | But the point of those numbers is as an executive at a not-for-profit organization, you can
00:13:22.320 | certainly earn a substantial salary, and you are, I assume, just simply responsible to
00:13:30.440 | your board of directors. So how do you work that out of setting up the board of directors
00:13:36.780 | for governance of the organization to figure out the executive pay and all of those issues?
00:13:43.760 | What has been your path through that?
00:13:46.880 | So when we originally were applying to be a non-profit and we were looking at who we
00:13:53.960 | were going to have on our board, we ran it through a very simple filter. If I'm sitting
00:14:01.280 | at a table with this board member, how can they help me versus how can they not help
00:14:09.560 | me? And amongst the original five of us that originally formed this company, we had people
00:14:21.220 | in our sphere of influence that, "Wow, if this person was sitting across the table from
00:14:26.400 | me, they would teach me a lot about advertising, marketing, technology, budgeting, whatever
00:14:31.960 | it is." And I was amazed when I approached these people and asked them if they would
00:14:39.520 | volunteer their time to be on our board, they all said yes, and they were all very complimented.
00:14:48.080 | Part of it too is, when you talk about compensation, and let me be clear, I am not one of these
00:14:55.420 | highly compensated executives that you just rattled off.
00:14:58.300 | Bummer. We'll get you there.
00:15:01.540 | But yeah, I would like to have that problem. And I'm certainly not here to defend the Red
00:15:06.580 | Cross as an example, but if you look at the Red Cross not as a charity, but you look at
00:15:14.180 | it as an organization which is nationwide and maintains a fleet of vehicles in every
00:15:18.980 | community designed for disaster response and emergency preparedness and first aid and water
00:15:25.740 | safety and all the other things they do, what would you pay a CEO who was in charge of that
00:15:32.460 | organization if it was for profit, being that they have such a wide charter? And why is
00:15:39.660 | it not acceptable to pay someone in the non-profit world the same basic salary for the same set
00:15:47.040 | of problems?
00:15:48.040 | Right. You make a valid point, and that was exactly what I was alluding to. I've heard
00:15:54.300 | many people when you're trying to say, "Well, how do I identify which not-for-profit to
00:15:58.940 | donate to?" And one of the metrics that, usually the first metric that most people go to is,
00:16:05.660 | "Well, look to see how much of the organization's income is going to program costs versus administrative
00:16:13.580 | costs." And administrative costs would generally include the salaries of the employees of the
00:16:20.820 | company. And so when you see these emails go around with allegations against the CEO
00:16:26.620 | of the American Red Cross, that's what they're focusing on. And most people say, "Well, they
00:16:31.260 | should be making $100,000 a year." But the point, and I originally saw it, it was a TED
00:16:35.980 | Talk by a man named Dan Pallotta. I'll link to it in the show notes and an accompanying
00:16:41.020 | article where he talked about the work and the size of an organization that a CEO of
00:16:47.620 | that capacity is running. And the point was, if you had those skills to run a massive,
00:16:55.060 | multinational corporation, does it make more sense for you to go, and if the equivalent
00:16:59.780 | salary that you could earn working in the for-profit world is $3 million, or $1 million,
00:17:05.220 | $2 million, somewhere in that millions of dollars, let's say $2 million for a nice round
00:17:08.780 | number, or for you to go and work for the American Red Cross and be paid a salary of
00:17:14.740 | $200,000, what makes more sense for you? Well, I gotta say, if I were making that decision,
00:17:22.100 | I would probably go with the $2 million and I would just give $300,000 to the American
00:17:28.340 | Red Cross if I cared about their cause, because that amount of money is gonna do more for
00:17:34.700 | the organization than the $200,000 that they're paying me, and I still am gonna have more
00:17:38.580 | spendable income in my pocket. And that argument really made me think. Now, many people in
00:17:44.860 | the not-for-profit, I wanna represent the other side, many people in the not-for-profit
00:17:48.060 | sector would strongly argue against Pallotta's argument. GuideStar and Charity Navigator,
00:17:55.380 | those organizations, that's why they publish the information, and I think there probably
00:17:59.100 | is a balance. But when I heard his argument, it was something I had never considered, and
00:18:03.860 | I had to sit back and say, "Wow, I don't think I'm ever gonna first go to somebody and say,
00:18:09.340 | 'You need to look at CEO compensation,' or, 'And I'm not gonna share that meme on Facebook
00:18:14.020 | about how much the American Cancer Society CEO makes.'"
00:18:21.020 | So what you find in the non-profit world, I think more so than the for-profit corporate
00:18:28.180 | America, is people that truly believe that doing what they're doing makes a difference
00:18:34.580 | in their section of the non-profit world, or in their community, or what have you. Going
00:18:44.660 | back to the Red Cross example, your $300,000 donation, although I'm sure they would accept
00:18:53.300 | it, is not nearly as good as that team of a half-dozen people who are going to respond
00:19:01.900 | into a disaster area. So, although that team of people may be employees, they may be compensated,
00:19:10.060 | they may be compensated very well because they may be very educated and experienced
00:19:14.740 | individuals in dealing with whatever situation they're dealing with. They know, at some level,
00:19:21.620 | that they are making a difference. I can bring this back to the non-profit that I work for.
00:19:27.740 | Our employees are people who have either retired from public safety, so they're getting a retirement
00:19:35.860 | income, therefore they don't need a whole lot of money from us, which, once again, they're
00:19:40.940 | giving back to the career that they were in, or they are people who are outside of public
00:19:46.900 | safety but who have dedicated a large chunk of their professional life to helping public
00:19:52.820 | safety respond better to emergencies and sometimes traumatic calls. I'm thinking about a couple
00:20:01.980 | of our instructors that teach classes in how to deal with the stress that come with certain
00:20:09.300 | incidents that public safety respond to, or the dealing with people who are just not quite
00:20:17.740 | right. You have somebody who has some sort of mental illness or somebody that has had
00:20:25.620 | post-traumatic stress or traumatic brain injury, and how to teach public safety to respond
00:20:32.100 | to that person and understand that they're probably not the threat to you that you originally
00:20:38.780 | think they are, and that here are some other ways that you can deal with this person that
00:20:44.860 | are going to have better outcomes. Normally, these people are doing this because they've
00:20:51.180 | seen their work has made a difference and has made a positive change in whatever community
00:20:58.540 | they're in. If you look at your local animal shelter, the people that are there volunteering
00:21:03.820 | and working for pay are doing it because they truly love animals and they want a better
00:21:10.020 | world for animals to be in. So, in the non-profit world, it's not all about the finances, and
00:21:20.660 | in my personal case, I'm one of these people that you've done a number of shows on that
00:21:25.340 | has sort of semi-retired and I'm financially independent at this point in my life, or at
00:21:30.620 | least mostly so. I do draw a small salary, but it's very, very small, and it's because
00:21:38.420 | I want to give back to the community.
00:21:44.580 | What about the restrictions that come with a not-for-profit entity? Meaning, there are,
00:21:52.500 | and I'm not an expert to know exactly what they are, but I have an impression that if
00:21:56.180 | I were to, so I could set up my business as a for-profit enterprise, or I could set it
00:22:01.180 | up as an educational mission, but I prefer to have full control over everything, and
00:22:09.020 | so I prefer to function as a for-profit. What about giving up the restrictions that you
00:22:15.820 | might have in a not-for-profit over certain things that you can do, certain things that
00:22:20.060 | you can't do?
00:22:21.660 | And there are some sizable restrictions on non-profits. Generally speaking, the non-profit
00:22:26.820 | has to have a recognized non-profit goal, and that goal has to be charitable or educational
00:22:32.620 | or religious or literary or scientific. Those are the big five. There's a few other outliers
00:22:38.060 | out there, but that's a little bit too much in the weeds. When you look at the Radical
00:22:45.260 | Personal Finance podcast, for example, clearly that's educational in nature. Now, where you're
00:22:53.100 | going to get a potential benefit being a non-profit is going to Comcast and saying, "This internet
00:23:03.360 | service that comes into Radical Personal Finance headquarters, that needs to be a donation
00:23:10.400 | because we're a non-profit." And when you are looking for a meeting room, then you go
00:23:17.580 | to the local library and say, "Here's our non-profit status. We'd very much like to
00:23:21.580 | use one of your meeting rooms." Those kinds of advantages and other advantages that exist
00:23:30.560 | within the non-profit world, there are non-profits that exist solely to provide liability insurance
00:23:36.380 | for other non-profits. It was never on my radar that there was a non-profit insurance
00:23:42.400 | company until I started a non-profit and tried to find insurance. And I was running a for-profit
00:23:49.700 | company and starting a non-profit at the same time, and I looked at the two insurance bills
00:23:54.440 | because they came in about the same time, and I thought, "My non-profit is actually
00:23:59.360 | doing things that are probably a little bit more risky in the liability area, yet I pay
00:24:06.700 | half as much for insurance." So there's that. There's also this idea that if you're a non-profit,
00:24:16.200 | you're just sort of by default trying to make the world a better place. And there's a little
00:24:22.300 | bit more acceptance sometimes, and that attitude of people is a little bit different. But there
00:24:30.400 | are some hurdles to get in. There's some paperwork that has to go to the IRS. I think it's a
00:24:35.920 | $400 filing fee, and you have to have one of these non-profit goals. But even then,
00:24:46.080 | there's some wiggle room there. If you think about it, for example, there's a non-profit
00:24:50.040 | that's close geographically to where I am that runs an ice cream store. And you wouldn't
00:24:58.560 | think that running an ice cream store is a non-profit because it's not charitable and
00:25:03.280 | it's not educational and it's not religious and it's not literary and it's not scientific,
00:25:08.240 | except that the non-profit's mission is to teach inner-city youth how to run a business.
00:25:15.880 | And they use the ice cream store as a training ground for these teenagers so that they get
00:25:21.560 | the experience so that as they get a little bit older, they can go out on their own, start
00:25:25.800 | their own businesses, and be successful people in the world.
00:25:32.080 | I kind of have a love-hate relationship with the idea. And it's not that I don't see the
00:25:37.760 | place for it, but I guess I just don't like... I was talking about this with a friend of
00:25:42.720 | mine here in town. And he's a friend who's very interested in urban farming, basically
00:25:50.400 | of the Curtis Stone variety. And so he's working to set things up. And he was corresponding
00:25:55.480 | with Curtis Stone after hearing him on my podcast to try to bring him to town, to West
00:25:59.840 | Palm Beach where we lived, to build a, to do some seminars locally so we can try to
00:26:06.960 | get our local food movement going here in West Palm Beach. And I'm not ready to allocate
00:26:14.440 | the limited time I have towards major help, but I was trying to help out a little bit
00:26:18.360 | where I could. And he was saying how difficult of a time he was having finding a meeting
00:26:24.460 | room, exactly what you said. And because he doesn't have a non-profit entity and he was
00:26:31.040 | thinking about, "I might just have to start a not-for-profit educational entity just simply
00:26:35.480 | to be able to negotiate the local environment to find a meeting room at a reasonable price."
00:26:40.800 | And my issue with not-for-profits, I guess, is I have this idea that capitalism has done
00:26:46.960 | a major amount of good in the world and I don't like asking people for money for donations.
00:26:51.360 | And I don't, I think that things should stand on their own. But it's kind of a real problem
00:26:57.760 | for me because I have this idealistic perspective of not wanting to ask people for money, for
00:27:03.440 | donations. I think that's not so good. But yet I like to donate money and I like to give
00:27:07.680 | money. And I see the work that some things do, but then I think, "Why doesn't somebody
00:27:13.080 | just do this and solve it in a better way?" And so I have this real conflict of emotion
00:27:17.480 | surrounding the ethics of it and what I want to be involved in and what I don't want to
00:27:21.200 | be involved in. I talk myself in circles over it.
00:27:26.280 | So that's a common misconception of the non-profit world is that we are donation driven. There
00:27:33.000 | are many, many non-profits, including the one I'm with, that we get less than 1% of
00:27:39.720 | our funding from donation sources. So we're in the business of doing training classes
00:27:46.440 | and we do 50 to 60 training classes a year. We've been doing this since 2002. We have
00:27:53.440 | never paid for a meeting space. They've always been a type of donation or a public building.
00:28:02.520 | But the idea that a non-profit can't charge for its services is not correct.
00:28:09.520 | When a student wants to come to our class, their agency pays for it. And we make a sufficient
00:28:18.400 | amount of money from the agencies that are fiscally sound that we then turn around and
00:28:28.000 | donate about one-fifth of the student seats to agencies that perhaps need to come to the
00:28:35.000 | training but can't afford it or have some sort of budgetary restriction in the year.
00:28:42.540 | So we're kind of taking the non-profit donation model, kind of turning it on its head, in
00:28:47.680 | that we're donating back based on what people that can kind of afford to pay do. And that's
00:28:55.960 | hundreds of thousands of dollars of savings every year to local government entities that
00:29:02.960 | just don't have the budget that some of the other agencies do.
00:29:07.800 | So a question on that, and I'm glad you corrected that because I didn't mean to give that impression.
00:29:13.200 | I'll tell you, one of the best classes I took was recently, a couple years ago when I went
00:29:19.280 | through those philanthropy courses. And at the table was a number of leaders and executive
00:29:24.280 | directors of not-for-profit corporations. And man, I learned so much about a world that
00:29:29.840 | I had little experience in. And one of the things was how each organization is very unique.
00:29:35.160 | Some are almost entirely donation-driven and some like yours are not. So I thank you for
00:29:38.600 | correcting me.
00:29:39.960 | My follow-up question though, if that, I guess if the impression of the things like meeting
00:29:46.960 | space, that's valuable. But if it weren't for that, if it weren't for the positive impression,
00:29:53.000 | is there anything that you couldn't do just as well in a for-profit corporation? Or is
00:30:00.000 | the fact that the advantage of the not-for-profit due to the business and social climate that
00:30:05.840 | we live in?
00:30:07.800 | So we have a competitor in my area that does pretty much exactly the same thing we do,
00:30:14.720 | and they're a for-profit business. And they are more expensive. And I assume that they
00:30:22.080 | are, I've never had access to their books, but I assume they're more expensive because
00:30:26.120 | they're paying tax on income. And I assume that they're also paying for other things,
00:30:33.120 | other expenses that we don't have to pay for. Clearly we could do exactly the same thing
00:30:42.920 | as a for-profit company, and I think it would be okay. I think we could still have that
00:30:50.920 | same attitude that we're giving back and that we're trying to make the world a better place,
00:30:57.920 | at least our little tiny sliver of it. But being a non-profit just seems to open doors
00:31:05.600 | a little bit easier. And sometimes, too, a non-profit, if you're open to thinking outside
00:31:16.480 | the box, being a non-profit allows you to do some things that perhaps for-profit entities
00:31:23.480 | couldn't do.
00:31:25.680 | Let me give you an example. I was in a police station the day before a training class, and
00:31:32.680 | I was checking out the classroom, and I was getting the tour from one of the people that
00:31:37.520 | worked there. And they had just built this new police station. They were very proud of
00:31:41.080 | it. It was a beautiful building, and we were walking around. And in this one corner, there
00:31:48.080 | was a very large bank of batteries that provide backup power to the police station if the
00:31:53.240 | utility power should fail. And there was a gentleman there, and he was taking batteries
00:31:58.780 | and switching them around and replacing some old batteries. So I got to talking with him,
00:32:04.880 | and I said, "Why are you doing this in a brand new building?" And he said, "Well, we actually,
00:32:08.960 | to save a little money, we took some of these batteries from the old building, and we're
00:32:12.080 | trying to make them work, but they really need to be replaced. And I'm going to have
00:32:16.800 | to pay X number of dollars to get these disposed of properly and put the new batteries in place."
00:32:22.880 | And I said, "Well, why? What's exactly wrong with the old batteries?" And he said, "Well,
00:32:29.080 | they're technically nothing, but we tend to cycle them after three years just to make
00:32:33.080 | sure that there's no possibility that they could go bad because they power the backup
00:32:37.680 | power for the 911 center, and you don't want that to stop working." So I got him to donate
00:32:44.680 | the batteries to us, and then took them to a local ham radio flea market and sold them
00:32:52.840 | to ham radio operators who wanted backup batteries for their ham radio systems. He got a donation.
00:32:59.840 | He didn't need to pay to have them disposed of. There were a whole bunch of happy ham
00:33:04.880 | radio operators that got a very good battery that's going to be given extra tender loving
00:33:10.920 | care by them, and they got it at 10 cents on the dollar because it was used, and it
00:33:17.040 | was all profit for our non-profit. I don't know if I could have done that within a for-profit
00:33:23.720 | business and made it as attractive as it was for everybody concerned.
00:33:29.680 | So what about the idea, for example, let's use radical personal finance as an example.
00:33:34.680 | One of the things I've thought about is I would love if I could free up time or perhaps
00:33:40.480 | develop a curriculum or something. I'd love to teach more in my local community, and I'd
00:33:47.480 | love to just help people with financial education. I haven't figured out how to do it. I've got
00:33:56.040 | the same 168 hours in a week that we all do, and I'm pretty stretched right now, but I
00:34:01.280 | just look around and I figure out and I try to think, "How could I cross the electronic
00:34:07.400 | divide?" And so I could very well set up a teaching not-for-profit entity focused on
00:34:14.400 | financial education, and I could develop a curriculum. I could bring in volunteers. There
00:34:20.560 | are some organizations that do something like that around here, but whether we went into
00:34:26.160 | schools and taught to students, I would love to do that, or whether we just worked in the
00:34:31.120 | local community and teaching people who don't often have access to education until we get
00:34:36.200 | their podcast link set up so they can download my show for free. So something like that.
00:34:42.280 | I could set up a not-for-profit entity, and then I could run it alongside my for-profit
00:34:47.240 | corporation where I'm selling educational materials, I'm selling show content, things
00:34:52.920 | like that. As a more experienced business person, could you see that being a good way
00:34:59.440 | to navigate the advantages and disadvantages of each entity?
00:35:04.280 | Possibly. Within the nonprofit community, there are nonprofits who are dedicated to
00:35:09.720 | helping other nonprofits become better businesses. I was on a webinar just earlier this week
00:35:17.720 | actually for a nonprofit foundation that wants to create online training content for
00:35:24.720 | as many, essentially as many nonprofits as they possibly can. And they are offering the
00:35:34.840 | entire online platform for free to nonprofits as a grant. And then also, I think, there
00:35:42.280 | is a technical expertise and their employees on the for-profit side of their business
00:35:49.280 | to help with the nonprofits. In terms of radical personal finance, that kind of thing would
00:36:00.720 | be a fit, perhaps, because all of the infrastructure is already figured out by someone else, and
00:36:07.840 | you get the benefit of a staff without having to pay for a staff, because when you're finished
00:36:12.600 | with them, they go back to their normal day job of doing this at the for-profit company.
00:36:18.600 | And in reality, if you had these training products that you were going to try to sell
00:36:25.200 | on the for-profit side of the business, I don't know why you would do that. I don't
00:36:28.920 | know why you would simply just not sell them on the nonprofit side of the business. I don't
00:36:33.880 | see a reason why you would need to decouple those two things. Because selling educational
00:36:40.880 | material is one of the things that an educational nonprofit does, because they still have to
00:36:46.720 | keep lights on and they still have bills to pay and salaries.
00:36:51.720 | I guess, I'm glad I got you on here. I have some friends that are attorneys and they're
00:36:57.560 | specialists in the not-for-profit space. But the problem is, they immediately go so deep.
00:37:03.680 | It's hard to get an attorney to describe something from just a simple business perspective. But,
00:37:10.680 | I'm glad that you look at it from your perspective. I guess my issue is simply the negative opinion
00:37:18.160 | that I have of, in general, most people I think have a positive opinion of not-for-profit
00:37:22.200 | entities. I hold, and this will probably mellow out with more time and more experience, but
00:37:27.560 | I hold the opposite. I guess I see so many of the large foundations, the family foundations.
00:37:34.560 | When you go and you study the tax structure of something like the Rockefeller Foundation
00:37:40.440 | or the Carnegie Foundation, things like that, and I look at it and say, "How would I dispose
00:37:45.260 | of $10 billion?" Well, I certainly don't want to keep it out here in the taxable world.
00:37:53.920 | So if I'm going to keep it out here in the taxable world, then it's going to be subject
00:37:57.400 | to tax year by year. All I'll do is I'll go ahead and charter my foundation. That allows
00:38:02.420 | me to keep my money exercising control over other people and over society with influence
00:38:09.420 | without it being taxed. I always struggle. I know that's a little bit weird for people
00:38:14.140 | who haven't thought about it, but I struggle with it because it doesn't seem like a level
00:38:16.860 | playing field. Personally, I don't like the state having the ability to dictate what it
00:38:24.220 | does, who's agenda is promoted and who's not. I don't like the tax deduction for charitable
00:38:31.220 | donations. I prefer to do it myself. Again, this is weird for someone who's obsessed with
00:38:35.980 | tax deductions, but I don't want anyone to know about my charity, including it being
00:38:42.620 | listed on my return. I don't want the tax deduction for it. It's one of those things
00:38:47.860 | where you've got to measure the cost of that and see if you're willing, but I just assume
00:38:53.640 | that those things are private. That really trips me up, personally, because of that weird
00:38:57.780 | philosophy. That trips me up to be able to look at the question objectively.
00:39:04.300 | Within the foundation world, clearly the large foundations are trying to influence areas
00:39:11.300 | of interest that they have. The very wealthy that give lots of money create their own foundations
00:39:20.900 | and they typically center it around an idea that they want to see the world
00:39:26.900 | better in providing technology or healthcare or whatever their interest lies in. There
00:39:33.900 | are other foundations, however, that are extremely broad. They're looking for a good idea and
00:39:44.900 | if you have the good idea, they're willing to fund it if they also think it's a good
00:39:51.900 | idea. But a lot of non-profits out there get zero dollars from foundations and get very
00:39:58.900 | little from donations. They are simply running a business that has a separate entry in the
00:40:05.900 | tax code. To a certain extent, I think it's foolish not to take a tax deduction and to
00:40:13.900 | not take a tax deduction if you're entitled to it. Therefore, is it not equally foolish
00:40:18.900 | not to form a non-profit if you're eligible to do so? As opposed to a for-profit corporation.
00:40:25.900 | Right. By the way, the reason why I struggle with that is actually, for me, a biblical
00:40:35.900 | perspective. The Bible says, "When you give, don't let your left hand know what your right
00:40:40.900 | hand is doing." I'd prefer that nobody ever know anything about what I'm doing with charity.
00:40:47.900 | That would be my personal preference. I would prefer that nobody know. That's a very different
00:40:54.900 | thing. By the way, this is one of those areas where I, as a financial planner, it would
00:40:59.900 | be professional malpractice, I think, for me to give that kind of advice to somebody
00:41:03.900 | because charitable planning is a major piece of tax planning. That's the reason why I have
00:41:10.900 | that weird thing about, "I don't like being on record." I don't like how in a presidential
00:41:20.900 | campaign, then immediately, "Okay, we've got to publicize the tax returns. Let's see how
00:41:24.900 | much money this person gave." It's my personal liberty-minded orientation that causes me
00:41:31.900 | that issue. As with many things in my life, my politics often cause me trouble.
00:41:35.900 | Well, and there's a little bit more in the non-profit world regarding privacy because
00:41:41.900 | every non-profit- we don't file an income tax return because we don't pay income tax,
00:41:48.900 | but we file an informational tax return with the Internal Revenue Service every year, and
00:41:53.900 | sometimes to state returns, depending on what state you're in. The IRS turns around, takes
00:41:59.900 | that informational tax return, and puts it up or allows it to be put up on the Internet
00:42:07.900 | for anybody to read. So if you are mentioned in that return, if your name is on the board
00:42:16.900 | of directors or you're drawing a salary over a certain amount, your name is on that
00:42:22.900 | informational return and exactly how much you got. So the other side of it, not only
00:42:28.900 | the donation side of it, but also what the non-profit- how the non-profit pays its bills
00:42:32.900 | are very, very, very open to anybody that wants to look. All you have to do is go to
00:42:38.900 | GuideStar and put in the name of the non-profit and it will pop up. So if privacy is a concern
00:42:47.900 | from the standpoint of running the business, then that would be a negative to starting
00:42:53.900 | a non-profit because you can shield some of that information in the for-profit corporate
00:42:59.900 | world. There is no shielding that information in the non-profit corporate world.
00:43:04.900 | The other development that I see, and I think this is especially important as my generation,
00:43:09.900 | kind of the millennials come, come into the workforce and advance in their careers. I
00:43:17.900 | don't know anybody from my generation that only thinks in terms of dollar profit. Most
00:43:22.900 | people in my generation, and I don't know why there's various people that talk about
00:43:28.900 | the influences, but I'm concerned partly with dollars but also with impact. And that's
00:43:35.900 | changing the business world and that has led, I think, to the development of the B Corporation
00:43:43.900 | or Benefits Corporation. And slowly there's this new- and it's on my research list. I'm
00:43:48.900 | totally ignorant as far as the details of it. It's some of the things I need to learn
00:43:52.900 | more about. But you see this kind of fusing coming together with the B Corporation. It's
00:43:57.900 | just the legislation in Florida where I live was just approved last year. And it's essentially
00:44:01.900 | this merging of and blurring of the lines between for-profit entities and not-for-profit
00:44:06.900 | entities. So you certainly see the, even just the legislation is showing the tension between
00:44:13.900 | these two approaches.
00:44:15.900 | Just go to the internet, type in the name of a Fortune 500 company, and instead of putting
00:44:21.900 | .com at the end, put .org, which is the suffix for non-profit world. And you'll find that
00:44:29.900 | many of these companies have a charitable arm or a grant arm or they're providing a
00:44:37.900 | similar service that they do on the for-profit world to the non-profit world. And there's
00:44:43.900 | a great deal of that mixing. I'll use Google as an example. Google is very generous in
00:44:52.900 | the non-profit world, giving non-profits for free what they sell to the for-profit companies.
00:45:01.900 | So in terms of emails, email addresses, in terms of Google Docs and Google Drive, in
00:45:13.900 | terms of AdSense and various analytical tracking that they do and that they charge a lot of
00:45:21.900 | money for in a lot of places, they will give that to the non-profit world for free. Mostly,
00:45:27.900 | I assume, because they make that assumption that the non-profits are out there doing some
00:45:32.900 | good and that they want to support them.
00:45:35.900 | So question, as we start to wrap up our conversation here. You have run and been involved in both
00:45:45.900 | for-profit corporations and not-for-profit corporations, correct?
00:45:48.900 | Correct.
00:45:49.900 | If I took away corporate income taxes and personal income taxes...
00:45:54.900 | Can you do that?
00:45:56.900 | I'm trying. Unfortunately, I'm in about 1% of people. It's like every economist from
00:46:03.900 | every major school would say, "Eliminate income taxes." But in the general population, I'm
00:46:09.900 | in the tiny, tiny minority. But let's assume that I... This is what I would vote for. Eliminate
00:46:16.900 | tax influence. Eliminate the income tax, both the corporate income tax and the personal
00:46:21.900 | income tax. Just completely eliminate it. Do you have a sense of would you still choose...
00:46:29.900 | I mean, it's such a hard world to imagine, but would you still look at one entity type
00:46:34.900 | versus another if I were to completely eliminate income taxes?
00:46:39.900 | I'm not sure I can really imagine that kind of a world because the tax structure in this
00:46:45.900 | country is so intertwined into everything we do every day. If you eliminated all income
00:46:54.900 | tax, both corporate and personal, I'm not sure the non-profit world would need to exist
00:46:59.900 | because every corporation essentially could be a non-profit, if that makes sense.
00:47:06.900 | Exactly.
00:47:07.900 | So apparently we need to get you a magic wand so that you can make this happen.
00:47:12.900 | Well, there is this tiny minority of libertarians who do it. And if anyone's interested, it's
00:47:19.900 | not... Even though it sounds a little bit nuts to most people, it's really not that
00:47:24.900 | far-fetched. And there are very few things that if you enjoy studying economics, there
00:47:30.900 | are very few things that a majority of economists from various schools and philosophies agree
00:47:35.900 | on. But there's very little disagreement over the idea of removing corporate income
00:47:42.900 | tax. That is one that many people would agree on. There's more controversy over the idea
00:47:47.900 | of eliminating personal income tax, although I'm on the weird fringe where that would be
00:47:53.900 | my proposition, is eliminate income tax. It just does not make sense to me because then
00:47:58.900 | it forces... If you eliminated income taxes, it would free up people like me to do more
00:48:03.900 | useful work than simply helping rich people avoid tax. And that's how I see it. It's fairly
00:48:11.900 | simple. It allows people to focus on enterprise and just simply their ability to focus on
00:48:18.900 | what they're actually trying to do. And again, that's a very complicated discussion to go
00:48:23.900 | to actual numbers and look through.
00:48:28.900 | And you have an incredibly large ingrained industry that would not like that idea.
00:48:33.900 | No, but that's the problem is it'll never happen. Because even, for example, I'm for
00:48:38.900 | the... Personally, it's my personal political opinion. I'm for the elimination of every
00:48:42.900 | single tax credit and deduction. So I'm for the elimination of mortgage interest deduction.
00:48:46.900 | And that's the one that gets everyone upset. Well, it'll never happen. I don't see any
00:48:50.900 | possible way where it will happen barring some dramatic change in the political environment
00:48:55.900 | we live in simply because you say, "Well, we're going to get rid of the mortgage interest
00:48:58.900 | tax credit." Well, all of a sudden now the National Association of Realtors flips out.
00:49:03.900 | Or if we're going to get rid of clean energy tax credits. Well, all of a sudden now these
00:49:09.900 | people flip out. And I just simply don't think it's a good practice for the state to dictate
00:49:15.900 | policy through the tax code. And that's what happens is certain organizations get funded
00:49:21.900 | and certain ones don't. And it's all a matter of manipulation. And so if you're going to
00:49:25.900 | go and... It's incentives. And the incentives work. That's the thing is we all align ourselves
00:49:31.900 | with the incentives. And I don't particularly like that way of running a society. I would
00:49:36.900 | prefer each individual person to simply be allowed to make the decisions for how they
00:49:41.900 | run their life and without having to deal with going counter to the incentives that
00:49:48.900 | are established.
00:49:52.900 | Feel free to comment if you... I'm sorry. We got into a political discussion there.
00:49:58.900 | I'm not sure what to say other than when you make that happen, please send me an email.
00:50:05.900 | I would like to come and visit and perhaps move.
00:50:08.900 | I live in this very strange world of idealism in my head. But that's all right. It doesn't
00:50:14.900 | bother me very much. We'll see. You never know.
00:50:18.900 | Maybe you would be happier with tax policy if some of our elected officials were just
00:50:22.900 | a tad bit smarter.
00:50:24.900 | I would probably be that way. But unfortunately, I don't see much barring... We'll see. Again,
00:50:31.900 | the only change happens is political change only happens when the pressure gets great
00:50:35.900 | enough. For example, as we record this, it's the 5th of February. And if you watch what's
00:50:39.900 | happening in Greece and in the Eurozone and the Greek government, if you look at the political
00:50:45.900 | pressure that's been exerted on the Greek government by people saying, "This is ridiculous.
00:50:49.900 | Why are we going to mortgage our futures to pay this debt?" It'll be interesting to see
00:50:53.900 | what Greece does.
00:50:55.900 | And my personal prediction, please don't do anything with this, but ultimately, I think
00:51:00.900 | they'll just say, "We're not paying the debt," and they'll default.
00:51:04.900 | And what's interesting is when the pain gets great enough, the government responds. But
00:51:08.900 | unfortunately, it usually happens when the pain is great enough. And so, I don't see
00:51:14.900 | any possible way for my ideal little slice of the world to exist. But you can at least
00:51:21.900 | sit and think about it and see how it would be more advantageous, which is generally what
00:51:27.900 | I do.
00:51:29.900 | As we go, I'd like you... We have an outline here in our notes of the pros and cons. Would
00:51:34.900 | you take a moment and just reiterate the notes from your outline as a good concluding summary
00:51:43.900 | and then give people some suggestions on where they can go for more information?
00:51:47.900 | Sure. If you're an individual that is thinking about starting a business, especially a corporation
00:51:56.900 | and not just a sole proprietorship business, but you want that legal structure, you want
00:52:03.900 | that perhaps personal protection that a corporation offers, a nonprofit is something to consider
00:52:11.900 | if it is within that charitable, educational, religious, literary, or scientific purpose.
00:52:18.900 | It has worked well for us. I know that we're only one data point. I would encourage people
00:52:24.900 | to look to the nonprofit community locally. Go to an event where they are doing a training
00:52:33.900 | class or a mixer or what have you. Look around. See if it's the kind of industry that you
00:52:40.900 | would be comfortable in. Don't get caught into the idea that you have to always be soliciting
00:52:48.900 | for donations. You can absolutely charge for services just like any company does. If you're
00:52:54.900 | the kind of person that writes well and perhaps has had some grant writing experience, the
00:53:01.900 | nonprofit world can be very lucrative. There are some cost savings in the nonprofit world
00:53:09.900 | in terms of... I gave the insurance example earlier. Many municipalities, the business
00:53:16.900 | license is free for a nonprofit because they assume we don't have any money. Rarely do
00:53:22.900 | we pay full price for anything. Almost every business, large business, has a nonprofit
00:53:29.900 | discount. That includes when I go down to my local office supply store to buy a ream
00:53:35.900 | of paper, there is a nonprofit discount because I took the time to register as a nonprofit.
00:53:42.900 | And you see that across the entire industry. When you're a nonprofit, you are a real business.
00:53:50.900 | People can go look you up, see what you do, find out about you, independent of what you
00:53:56.900 | might put on your website. That may be a big advantage to somebody depending on the type
00:54:01.900 | of business that they're running. It's also a good venue for volunteers. If you see that
00:54:08.900 | something that would be good for whatever you're thinking of doing, volunteers like
00:54:13.900 | to come to nonprofits to come to work. And some volunteers put in a remarkably large
00:54:22.900 | amount of hours. You'll find that sometimes people will come in, volunteer full time,
00:54:27.900 | and become full-time employees for you. But there are some clear disadvantages to nonprofits.
00:54:32.900 | You might not have a nonprofit goal that's compatible. You may not have the time or the
00:54:40.900 | you may not want to deal with the amount of paperwork and dealing with the IRS and filling
00:54:45.900 | out the forms and reading the book and following the sometimes detailed step-by-step instructions.
00:54:54.900 | There's definitely a delay. Paperwork takes time. It takes time for the IRS to process
00:54:59.900 | it and get back to you. That's going to be weeks, probably months. But if time is not
00:55:07.900 | a constraint, then that might be okay for you. There's definitely shared control. You
00:55:13.900 | have a board of directors. Now, that board of directors might be three people. And you
00:55:19.900 | might be one of those people on the board. That's not necessarily a bad thing, but it's
00:55:25.900 | definitely something you have to think about. Can these people contribute meaningfully?
00:55:30.900 | Can they give you ideas? Can they give you guidance? Can they introduce you to people
00:55:35.900 | that you normally would not be introduced to? I frequently do this with my board. I
00:55:41.900 | ask them if they know someone in a certain industry or job. Frequently they do. They're
00:55:47.900 | happy to make the introduction. And it's a different kind of introduction when they're
00:55:53.900 | saying, "I am on the board of directors. This person works at this company. Please
00:55:58.900 | talk to him." It's a very different experience than, "Hey, I've got a friend and he
00:56:02.900 | wants an hour of your time to talk." The book we used is from Nolo Press. The title
00:56:10.900 | of it is "How to Form a Nonprofit Corporation." It's written by a nonprofit attorney
00:56:14.900 | named Anthony Mancuso. I've never met the man, but he wrote a really good book with
00:56:21.900 | lots of step-by-step instructions. Clear, concise, fill out the forms, do what the
00:56:28.900 | man says in the book, and the rest is history, as they say. Or, of course, you can
00:56:33.900 | just put advantages of a nonprofit into your favorite search engine, and you will
00:56:38.900 | get a lot of hits from a lot of large nonprofit entities that exist to help
00:56:46.900 | nonprofits. But you do have to have the idea. You do have to have the desire to do
00:56:52.900 | something positive. Making money is probably a secondary thing in the nonprofit
00:56:59.900 | world, but it definitely needs to be a thing. But if you find you're passionate
00:57:07.900 | about something, maybe the nonprofit road is the road you might want to take.
00:57:13.900 | >> I'll reaffirm your recommendation of Nolo Press, both there with the specific
00:57:18.900 | book you recommended, and also in general. They're actually one of the few
00:57:22.900 | companies that I've thought about that I could wholeheartedly endorse and
00:57:26.900 | advertise for on this show. I haven't gone and approached them to see if they
00:57:30.900 | want to sponsor the show. But for the large contingent of DIYers that are in the
00:57:34.900 | audience, I have never been dissatisfied with a Nolo Press book that I've looked
00:57:38.900 | at. Obviously, some are limited in scope, some are broader in scope, and you need
00:57:42.900 | to choose the book that is going to serve your needs. But they do a very excellent
00:57:47.900 | job with all of their books. And as far as I've been able to find, they've been
00:57:51.900 | accurate, they've been well-written, and I just love what they do. So check out
00:57:56.900 | How to Form a Nonprofit Corporation, or check out any of their other titles if
00:58:01.900 | you are looking for information on various aspects of financial planning. And
00:58:07.900 | check at your library. My local library has a large number of their books in
00:58:12.900 | stock. Let me amplify that for just a minute. When we went through this book,
00:58:17.900 | and there was an accompanying CD that had all the forms on it to fill out, we
00:58:23.900 | went literally step-by-step through this. I had no knowledge of the nonprofit
00:58:27.900 | world prior to this. And then I sent this package off to the Internal Revenue
00:58:31.900 | Service, and it was obvious that someone at the IRS read through this line-by-line
00:58:38.900 | because we got a letter back asking a couple of very specific questions about
00:58:44.900 | something that we had put on this form. So it was very obvious that a human being
00:58:50.900 | sat down with this and studied it. And once we answered those questions, our
00:58:55.900 | nonprofit certification came in the mail. So if it's good enough for the IRS,
00:59:01.900 | it's probably good enough for the rest of us.
00:59:04.900 | Absolutely. James, thank you for A) coming on, B) listening to the show, and
00:59:09.900 | C) suggesting the topic. I really appreciate it. I've enjoyed our conversation.
00:59:13.900 | Josh, it was my pleasure.
00:59:14.900 | Now obviously your proper step from here is research. Because again, there are
00:59:22.900 | many factors that go into any entity selection decision. There's many factors
00:59:28.900 | that go into choosing between a C corporation and an S corporation. LLC
00:59:32.900 | versus partnership versus proprietorship, and for-profit versus not-for-profit.
00:59:37.900 | Even as I mentioned there at the end, what about that B corporation? It's legal
00:59:41.900 | in 28 states. Frankly, I don't have a clue about it other than just a brief
00:59:46.900 | nagging of my mind saying, "Joshua, you need to go and research that." So that
00:59:51.900 | is something that is on my list that I need to do and prepare some information
00:59:55.900 | because frankly, I don't know what I'm talking about when it comes to that. So
00:59:59.900 | do your research. But I do think that for some of you, this could be an
01:00:03.900 | interesting idea that you could apply in your situation. So consider that.
01:00:07.900 | As we go today, I am not going to play the normal ending music. Rather, I'm
01:00:14.900 | going to mention, I'm going to play for you a very brief story that I think
01:00:18.900 | you'll enjoy. This is in line with what James and I were talking about there
01:00:23.900 | at the end regarding tax policy. This is an NPR story. It is 4 minutes and 16
01:00:29.900 | seconds. It was broadcast on Morning Edition on October 19, 2012. I'm going
01:00:35.900 | to put the full 4 minutes and 16 seconds of audio here for you to listen to.
01:00:39.900 | This was back when Mitt Romney and Barack Obama were vigorously debating for
01:00:46.900 | that election. I thought it was a really well done story. This was part of a
01:00:50.900 | larger Marketplace Money story, podcast episode for them. It was episode 387 of
01:00:56.900 | that show. I will link to that in the show notes as well so that you can listen
01:01:03.900 | to that on the NPR blog, on the NPR site. If you're interested, that's a full
01:01:07.900 | 30-minute Marketplace Money episode on how different economists from different
01:01:13.900 | backgrounds tend to actually agree on a lot of things and how utterly unpalatable
01:01:18.900 | it is from an economic perspective. I'm done for the day, but I'll leave you
01:01:22.900 | with this 4 minute and 16 second excellent story on Morning Edition from almost
01:01:28.900 | three years ago. Enjoy.
01:01:30.900 | When you watch a presidential debate, it's easy to think that the nation is
01:01:33.900 | deeply divided over economic policy. But when you talk to the experts, to
01:01:37.900 | economists, it turns out they agree on an enormous number of issues. Our Planet
01:01:42.900 | Money team wondered what it would sound like if you could take some of those
01:01:46.900 | academic ideas about the economy and put them in a candidate's mouth. NPR's
01:01:51.900 | Robert Smith finds out.
01:01:52.900 | To create a dream candidate, you need a dream team. We took five leading
01:01:56.900 | economists of all different stripes, conservative, liberal.
01:01:59.900 | You could probably describe me as left of center, it'd be fair.
01:02:02.900 | Pro-market, but not necessarily pro-business.
01:02:04.900 | I'm a pretty hardcore free market guy.
01:02:07.900 | I'm a professor of health economics at the Harvard School of Public Health.
01:02:10.900 | I think of myself as a radical pragmatist.
01:02:13.900 | And we said to this team, put all your differences aside and tell us what can
01:02:17.900 | you actually agree on. In an ideal world, what should the presidential
01:02:21.900 | candidates be talking about?
01:02:23.900 | Luigi Zingales from the University of Chicago Booth School started off with
01:02:27.900 | something pretty uncontroversial. The United States tax code is a disaster.
01:02:32.900 | All the loopholes and differences and in particular, the deductions.
01:02:36.900 | Now, politicians say this all the time and they rarely give a solution, but our
01:02:40.900 | economists all agree on a pretty good way to fix it. The United States, they all
01:02:44.900 | said, needs to get rid of a giant tax deduction that unfortunately millions of
01:02:49.900 | Americans love and enjoy.
01:02:51.900 | The mortgage interest deduction.
01:02:52.900 | The mortgage interest deduction.
01:02:54.900 | Mortgage interest is extremely perverse.
01:02:56.900 | If you own a home, pay a mortgage, you can write off the interest on your taxes.
01:03:00.900 | And if you're one of the lucky ones, it's awesome. A little help from Uncle Sam
01:03:04.900 | to live the American dream. But to an economist, a tax break is a
01:03:08.900 | multi-billion dollar gift to a very particular group. In this case, a group
01:03:13.900 | that doesn't always need the money. Here's Dean Baker. He's a liberal with the
01:03:17.900 | Center for Economic and Policy Research and a conservative, Luigi Zingales.
01:03:21.900 | It just makes no sense that, you know, if we have Bill Gates or whoever, some
01:03:25.900 | very wealthy person, we're subsidizing them to get an expensive home.
01:03:30.900 | So because rich people receive a much larger subsidy, the price of houses
01:03:35.900 | increase so much that it actually makes less affordable for the poor people.
01:03:40.900 | If you totally eliminate this deduction, the U.S. government would have an extra
01:03:43.900 | $100 billion a year to pay down the deficit or maybe lower overall taxes.
01:03:49.900 | Why wouldn't a politician at least float the idea? Well, we wanted to see how it
01:03:53.900 | would sound. So we hired an actor, we wrote him a stump speech, and put him in
01:03:57.900 | front of a fake audience.
01:03:59.900 | That's why, when I'm elected president of the United States, I have a special
01:04:06.900 | plan for the middle class. All of you Americans who own your own homes, I
01:04:12.900 | promise to raise your tax bill by thousands of dollars a year.
01:04:18.900 | And that's why no one elects economists.
01:04:21.900 | Katherine Baker from Harvard says as painful and as unpopular as eliminating
01:04:25.900 | deductions would be, there is an upside. The system would be more fair, and it
01:04:29.900 | would bring in all this extra revenue to the government. So I asked the panel,
01:04:33.900 | "Any chance with all that extra money you could maybe lower some tax rates too?"
01:04:37.900 | Well, our economists did agree on one tax that has to go.
01:04:41.900 | Read my lips. No taxes for corporations. Zero, nada, nothing.
01:04:51.900 | This is not going to go over well with the middle class either. Right now
01:04:54.900 | President Obama and Mitt Romney are advocating lower corporate taxes, but no
01:04:58.900 | one said get rid of them altogether. But our conservative and liberal economists
01:05:02.900 | agree, in principle at least. Here's Dean Baker.
01:05:05.900 | We don't want to prevent Microsoft or General Motors or whoever it might be
01:05:08.900 | from investing more and improving their product line. That's a good thing in my
01:05:11.900 | view.
01:05:12.900 | Our economists said if you want to tax rich people as part of public policy,
01:05:16.900 | tax rich people. Tax the owners of the corporation, but don't tax the profits
01:05:21.900 | from the corporation that are reinvested in creating jobs. Now before you think
01:05:25.900 | that our economic dream team has nothing but unpopular ideas, there is more to the
01:05:29.900 | plan. Later today on All Things Considered, our economists say there might just be
01:05:34.900 | a way to get rid of income taxes altogether. And they unveil their big plan to
01:05:39.900 | combat illegal drugs.
01:05:40.900 | Make them legal.
01:05:41.900 | And other economic wisdom you won't hear in the debates. Robert Smith, NPR News,
01:05:45.900 | New York.
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