Reining in America's $3.3T tax-exempt economy
taxfoundation.org
taxfoundation.org
The median operating margins for hospitals is around 0% or some times negative. Injecting more costs into the system is only going to push prices further upward.
> The majority of tax-exempt organizations today are business-like in form and function, including credit unions, hospitals, utilities, insurance companies, universities, professional athletic associations, golf clubs, and consulting firms, to name a few.
I'm completely on board with clamping down on tax exempt status for a lot of these other businesses, though. Credit Unions are nice, but they're still just banks. Insurance companies are obviously businesses. Athletic associations, golf clubs, consulting firms -- What is even going on that allowed these to be nonprofits?
Perhaps many small, poorly run hospitals have consolidated into a handful of large, poorly run hospitals. Still, that's no excuse to let Kaiser Permanente generate billions tax free.
As a nonprofit, they cannot distribute those profits to shareholders. That's the whole point.
They're obligated to reinvest those profits back into the business, such as by developing new facilities, upgrading older facilities, and so on.
Ironically, if you forcefully revoked the nonprofit status you'd actually open the door for those profits to go to shareholders instead.
But can I buy a non-profit hospital and force them to start buying syringes from my for-profit syringe company at a 1000% markup?
The owners of the kindergarten hire the daily manager. They hire out the building itself to the kindergarten, as well as HR, accounting services etc. The prices are not 1000% market rate but certainly not competitive. By controlling the daily manager they make sure the kindergarten doesn't try to find better deals.
Thus the kindergartens make no profit, yet the owners can extract a decent profit regardless.
Pretty sure this idea was imported, and not something unique here.
You do not buy a syringe for a 1000x markup. You stand up a group purchasing organization (GPO) as a subsidiary and spin off your entire procurement department to it. You have your negotiating team accept nominal trade discounts off catalog prices, and instead prioritize lump-sum off invoice rebates at various spending thresholds. So while you previously got a $50 syringe discounted to $25 from a supplier, now your group purchasing subsidiary is paying nominally less than ~$50 per syringe but recieving a lump sum rebate against accounts payable from a supplier equivalent to $25 per syringe based on your primary client's expected spending volume (which is pretty predictable considering your former procurement department turned subsidiary has been working with this supplier for ages).
The group purchasing subsidiary then adds a nominal markup of their supply catalog, say 20% or so. So that $50 syringe is sold to the hospital for $60. A 20% markup is considered fair and reasonable so your auditors give it their blessing. Suddenly the hosital is paying $35 more per syringe but the supplier is still getting the same $25 they always have. You also sign up another local hospital to join the GPO and negotiate even higher rebate thresholds. Both hospitals auditors and lawyers point to the industry wide practice of GPOs and their perceived benefits, making plausible enough defenses against both criminal and civil complaints. The executive team of the GPO that came over from their parent orgs and orchestrated this whole thing get generous (but fair market rate) employment contracts and benefits that just happen to absorb the maojrity of that $35 per syringe profit so very little ends up bubbling back up to the non-profit parent entities.
Do the same thing with selling your real estate to a real estate holding company, which leases it back to you at market rates (that just keep going up and up). Do the same with your nurses – spin up a nursing staffing company and contract all your nurse staffing through it. Same with physicians – spin off any directly employed physicians into a physician staffing company and conmtract with them for services.
As long as you follow the appropriate corporate formalities, you suddenly have a ton of knobs you can turn to engineer any particular operating margin you want your healthcare system to be perceived as having. This isn't limited to hospital systems, but with the prevalent level of inefficient middlemen entities that already exist in the US healthcare system and contribute to runaway costs, it's pretty damn easy to throw a few of your own into the mix in a manner that passes legal scrutinty around self-dealing. There are also plenty of liability-related reasons to justify such setups as well, so it's not purely a shift around profits from your tax-exempt non-profit entity.
And insurers don't actually care much at all about any of this. As they're required to pay out 80% of premiums as claims and only allowed 20% for administrative expenses and profits, the easiest way to increase profits is for claims to increase (and subsequently allowing the absolute value of that 20% piece to grow). If hospital charges go up across the board because of these sorts of shenanigans, that's as much a boon to the insurers paying out as it is to whatever lucky winners are siphoning off the profits from those related entity subsidiaries.
[1] https://www.aeaweb.org/research/regulating-health-insurers-a...
i mean look at sam altman, using openai funds for what was originally a NONPROFIT, to fund areas with conflicts of interests.
At least when it's for profit it's out in the open.
Ironically when they get bought out by PE they lose their tax exempt status, so that's kinda solving the problem.
MSOs are organized as LLCs, not 501c3 organizations.
The kinds of hospital networks that are run as 501c3s would be something like a CommonSpirit Health, Advent Health, UPMC, Mass Gen Brigham, etc.
> Perhaps many small, poorly run hospitals have consolidated into a handful of large, poorly run hospitals
Kinda. That's how CommonSpirit Health came to be, except backend management is basically centralized.
Focusing on profit is fundamentally sound unless you’re a monopoly, which tend to be when Gov sticks its beak into things it shouldn’t.
We’re talking about hospitals. Many areas are served by one local hospital. And where there are several, it’s typically the ambulance who decides where you go. It’s also pretty difficult to compare one hospital with another.
IMO hospitals resemble utilities where market forces aren’t enough to guarantee good service.
Don't necessarily disagree with most of your sentiment, however the vast majority of hospital patients do not arrive in an ambulance, or even through the ER.
A lot of hospital services are elective or planned (surgeries, pregnancies, etc) and for those I've found it very helpful to 'shop' for the best options.
Also, the one time I was in an ambulance, they asked which hospital I wanted my daughter transported to.
All that said, it isn't always possible or feasible to choose - but it's not because of an ambulance.
Paramedic here. It's typically, effectively, your insurance that dictates how we decide where you go.
If you're an acute, time-sensitive patient, then from a multitude of angles, "closest appropriate facility" makes sense.
Perhaps you dislike a hospital, or it's inconvenient, and you're not as acute or timely a patient, and your view is "I want to go to X hospital, and since I'm paying, why shouldn't I get to choose?"
As a paramedic, personally, I don't care.
However.
Your insurance does. And their perspective (sometimes rightly, and quite regularly wrongly) is that if you are well enough to bypass a hospital or multiple hospitals en route to a "chosen" facility, then did you need the ambulance? And if you didn't need it, why are "they" paying for it? And they can, and absolutely will, kick bills back to the ambulance company with a "please justify why an EMS transport was required versus advising POV (privately owned vehicle) transport or physician followup".
What they want to see happen, and what generally is actually the better option, as a provider is "we will go to the closest facility where they will assess and stabilize you as needed. if you then wish to be -transferred- to your facility of choice, they will organize that" (and, since the insurance criteria and questions are met, and a physician ordered the EMS transport, you should be covered). Though it is certainly less "convenient" for you.
Even beyond that, the area I'm in we have two hospitals. One is a Level 2 Trauma Center, one is a Level 3, but they're mostly comparable except for, well, acute trauma. We as providers will have a solid perspective of patient load in the ED of those hospitals, so I might ASK, not TELL you, hey, we might want to go to Hospital B, not A. And occasionally, though diversion is a convenience, not a concept under EMTALA (we can still absolutely show up at the ED with a patient even if they're "on divert"), some of the facilities here will round-robin to balance patient loads.
(Also, don't start me on Certificates of Need, where new hospitals essentially have to get the permission of existing hospitals in the area before they can open - essentially, "will you be okay if we take patients away from you"...)
Increasing taxes and removing alternatives is never a good deal.
"market forces aren't enough" government forces aren't enough either.
The VA is the penultimate example and I wouldn't wish that upon my worst enemy. That's where our veterans go to commit suicide in the parking lots waiting on help.
22 Veterans.
The people I know who use the VA are quite OK with it. It's not perfect but none of them would want to put up with the insanity the rest of us has to.
"it's not perfect" It's garbage and a prime example of government programs. Works for a few and fucks over the rest.
The ACA helps a few... and is built on lies - keep your plan? keep your doctor? save $2500 a year? Lies, lies, lies... a few million get help. The other 100m pay more, higher deductibles, lose their plans, lose their doctors.
But who cares about the 100m if the 1m get helped, eh?
the biggest problem is the wasted money, the lies and the people dying in the parking lots.
But who gives a f' about them eh?
The problem is the suggestion that government solutions will solve government created problems.
I have no problem admitting things can be fixed... but stuff like the unAffordable Care Act which is built on lies (Like your plan? Like your doctor? save $2500/year) is not going to solve the issues - nor is single payer, government ran solutions.
You'll never solve government created problems with government ran beauracracy.
The problem is that the conversation only focuses on the good parts of those systems and ignores the issues.
You can't have a real conversation and claim "have it better" when that may be true in parts but not in whole.
I don't claim the US system is better... or the best. But claiming that government ran or government overregulation leads to better is a lie. The VA is proof of that. the lies around the unACA is proof of that. The ever increasing prices and decreasing results due to government influence is proof of that.
Destroying what we have with something like the ACA isn't proof that government ran will be better... it's simply proof that people are willing to destroy what was working and claim that the destroyers will do a better job if only they have more money and more power.
That's like CA solving homelessness. "more money, more power and we'll solve homelessness" and there's never been more homelessness or less affordability in CA.
Ok, if "many areas have one hospital"... I don't think that's true at all. Most areas have multiple hospitals. Most people live in metropolitan or suburban areas.
The "non-profit" organizations are given tax-exempt status because they are centered around providing a public or social benefit, they explicitly should not be focused on providing a profit to their owners.
In my opinion the majority of people can't afford to choose their hospital. Often it's the one that is within their means to travel and provides the service they require, regardless of the quality of their services. And, of course, after a serious accident you end up wherever the ambulance brings you.
This isn't a discretionary purchase, let's stop pretending one can go shopping for care.
The language you've chosen is baldly ideological and leaaves no room for good faith discussion.
If a sandwich shop produces bad sandwiches then eventually people stop buying them and shop around. This doesn't work with hospitals. In the worst case, dead people can't shop around.
It's the idea that a comment that supports the basic foundation of the organization who run this board gets so severely downvoted.
I'm justing calling out how ironic it is.
Credit unions (and other US 501c3 organizations) do not exist to make a profit, and any income they have in excess of expenses is reinvested. There are no dividends.
These are two utterly different sorts of things.
You gave a specific legal definition in a single jurisdiction. It does not match the definition in many other jurisdictions or the intuitive understanding many people have.
From my perspective, there is no fundamental difference between an ordinary company distributing its profits as dividends, an employee-owned company distributing profits as higher wages or bonuses, and a coop distributing its profits by providing better/cheaper services to its members. They are all for-profit businesses. Only the mechanisms of profit distribution are different.
A company that exists to make money for its owners, who do not materially participate in the operations of the company, is (for me) substantively and qualitatively different from worked-owned coops, consumer-owned coops, credit unions etc.
I'd be interested in a jurisdiction that does not make this distinction.
But this reminds me ... I think that this conversation has not paid enough attention to the difference between the legal sense of a non-profit (in the USA, a 501c3 is the main classification, though there are others) and the colloquial sense (such as a credit union).
In the USA, you cannot be a 501c3 and also a credit union, for example. or a consumer owned cooperative. Nevertheless, people will sometimes refer to such organizations as "not for profit".
I think there's less difference between the USA and Finland than we've been suggesting.
Problem with this (in all kinds of contexts) is that it is trivially easy for any company to have zero profit.
Just give out all the profit as bonuses to execs and done, zero profit.
Or in cases where there is some oversight that makes it look bad, just hire a handful of consulting companies (just by random chance owned by friends and family of the execs) to do some highly overpriced work and get rid of the "profit" that way while still funneling the money back to them.
It gets taxed as personal income so where is the problem? Even if the execs are located in Georgia where dividends and stock appreciation count as foreign source income and remain untaxed, the bonus is considered to have been earned in Georgia and is taxed (at a low rate).
The thread was about non-profits. So it's a way to run a non-profit that meets the letter of the law but keeps raking in enourmous profits by shifting them elsewhere.
There are other scenarios as well where this is abused. For instance regulated corporations that are supposed to have a cap on profits in an attempt to control prices. But that fails, because they can raise prices infinitely and just shift the profits elsewhere.
A lot of non-profits funnel the "income they have in excess of expenses" to their execs or friends of the execs who provide business services. They don't reinvest or give to charity.
But it is not the same problem profits being distributed to owners who do not materially participate in the operations of the company.
> This is a policy aim of the government, both due to the economic impacts and because most residents being banked is core to orderly provision of benefits, taxation, and other government functions. A bank branch is a retail point-of-presence for the SSA getting funds to a pensioner, for the IRS collecting payroll taxes, and for the DEA interdicting fentanyl, staffed and funded by the private sector.
From the excellent blog [1] that everyone interested in how the financial system operates should read.
[1] https://www.bitsaboutmoney.com/archive/community-banking-and...
In practice, there is a shared understanding what acting in the public interest means in that particular society. Laws can also provide a non-exhaustive list of examples to clarify the meaning.
What you say about the average income of theater audience sounds very foreign to me. I guess that elitist theater is the only form that remains viable when it has to rely on the market and charitable donations.
When I was a kid, theater was something you went to on a school excursion every year or so. It wasn't my thing, but some of my friends got interested in it. Later in the university, our student union had a semi-professional theater group that had become a national institution. Many student organizations had hobbyist theater groups. Even students of science started one shortly after I graduated. And before my time, socialist theater used to be a big thing. But that was when socialism meant actual socialism and primarily appealed to the working class.
No there isn't lol. Half of society thinks promoting one political party is in the public interest, the other half thinks promoting the other one is. Same for religions, same for handling unwanted pregnancies, same for education...
I bought a 600$ fanless pc. It runs Linux. I run apps on it.
I bought a 600$ iPhone. It runs iOS. I run apps on it.
I haven’t paid a cent more than the original cost for each product. From an economical viewpoint they are the same.
Both are entirely motivated by money; one just is overt about it.
Everyone is all about making the most money in the fastest way possible and few truly give a hoot about the people they use to achieve the goals.
Meanwhile, not-for-profit entities like credit unions don't need to justify not making an extra few billion dollars this year compared to last year, meaning they're less likely to make customer-hostile moves for their own sakes.
Strange example to use.
WETA (the public TV station) paid Sharon Percy Rockefeller $855,000 in 2022. The 12 highest paid employees all made more than $300,000. Maybe they are all "worth it" but how could you prove that WETA wouldn't function just as well at median salaries for everyone?
https://apps.irs.gov/pub/epostcard/cor/530242992_202206_990_... (page 71)
I found this page that seems to agree- https://www.definitivehc.com/resources/healthcare-insights/h...
That shows a negative median operating margin for the last 5 years. How can an industry carry on losing money like this? This must be only part of the story, right?
The answer is hospitals target negative operating margins to meet various rules-- even though their "surplus" (ie profit) isn't taxed, it has to be near-0 to maintain non profit status. And, besides the normal games of revenue timing and amortization, they expense profitable activities to related parties.
Economies of scale. When an industry faces headwinds, characterised by broad-based low or negative operating margins, the standard move is consolidation.
Not all networks are for-profit.
By merging into larger networks, you allow hospital networks to consolidate the very expensive back-office processes like billing, insurance, IT, procurement, staffing, etc.
All the intermediate "glue" needed for medical care has grown expensive due to either compliance or general profiteering, which forced consolidation in order to leverage economies of scale.
This is why both for-profit and non-profit networks have been increasingly merging.
If these functions in society receive public funding, are of public interest, there should not be any way it’s main objective is to create finacial profit.
> More than half (55 percent) of all the income generated by 501(c)(3) organizations comes from tax-exempt hospitals and health-care plans.
They can carry on losing money because they are often charities. Isn't a 0% or less margin what most people would naively expect for a charity?
Am a paramedic. All of the ED physicians in the Level 2 Trauma Center I take most patients to are not employed by the hospital, but by a collective called "XYZ Emergency Medical Providers". The hospital then (I don't know these details) contracts with the collective. I also believe, very similar to a union, that if the hospital wishes to hire a new provider, they may handle all the interviewing, but ask for the collective to hire them.
Hospitals loose money on many procedures while making some money back on others.
There is also costs around staffing. For example, nursing schools aren't producing the growing number of nurses needed. Supply and demand kicks in.
You only pay taxes on Profits (not Losses).
So what's the argument you're trying to make?
It's not like paying taxes would cause you to become unprofitable.
It would also incentivize local governments to encourage the growth of non-profits. Currently Cambridge's tax revenue is negatively affected by Harvard's growth...
The only thing making them pay tax will do is create an accounting nuisance where they drive profits and thus taxes to zero.
(Although, separately, this is what IKEA does but they setup an extremely intricate multinational structure to achieve this, and this is what Amazon does, but that required heavy re-investment which only worked because the markets trusted the reinvestment would eventually be profitable and therefore invested in AMZN despite it not showing profits).
They’d have to do it by paying salaries or buying products, etc all of which are also taxed, and usually at rates higher than taxes on profits.
"In each year from 2014 to 2018, about half of all large corporations had no federal income tax liability."
There are some technical for-profit companies that effectively drive profit to zero and the shareholders don't care, because that was the purpose.
https://www.stock-analysis-on.net/NASDAQ/Company/Amazoncom-I...
See Amazon v Walmart net profit margin 1999 to 2018 graph.
https://mgmresearch.com/amazon-vs-walmart-revenues-and-profi...
How does non profits spending money inefficiently to burn revenue help society?
No it isn’t. You are treating as arms’ length salaries what are in economic substance partnership distributions to de facto owners.
Then they should not have to worry about paying income taxes regardless of their classification.
That's just lazy and ignorant. This falls into the please read the relevant material on wikipedia category.
If they want to be a religion and do good works, fine.
If they want to even mention politics from the pulpit, whether working for a candidate, advocating for or endorsing a candidate, or even organizing voting like "Souls To The Polls" (i.e., this will be politically neutral and affect both sides), then your organization is fully taxable.
Insane amounts of money is in circulation in the religious sector. If it is for good works, that is wonderful. If it is being diverted to political activities, that is not something the entire set of taxpayers should be effectively subsidizing.
The rule I'd like to see is this: A religious organization's total assets may not exceed some reasonable amount for operating costs (private jets and mansions and multi billion dollar real estate and security holdings are out). Books are audited annually and publicly posted. Work out formula that say (for example) ministers pay may not exceed some multiple of average US salary, improvements to church facilities my not exceed some amount per congregant per decade etc. It could actually be very generous and allow nice churches and plenty of charitable work and well compensated ministry without the free for all grifting we have going on right now.
You can be a business, or you can be a religion and you have to chose.
I think this may actually improve churches many of which now are simply big scammy untaxed businesses selling not much of any use.
That so patently false it's almost comical.
Here's one source feel free to google. It's not hard to find evidence to the contrary.
> Nonprofit executives have embarked on an acquisition spree, assembling huge systems of hospitals and physician practices to raise prices and increase profits.
https://www.nytimes.com/2023/11/30/opinion/hospitals-nonprof...
Well if they can't run themselves within a budget constraint and require outside subsidy/transfers to function, they should be public services rather than private firms, for-profit or nonprofit.
The tax savings allow the Credit Unions to offer better interest rates on savings accounts than any of the local or national banks.
Credit unions in my area also keep mortgages in-house, so my interest payments end up paying salaries of local staff who shop at the same local grocers and restaurants I do. The CUs all have a half dozen brick and mortar facilities which each require local IT contractors, janitorial, groundskeeping services, and utilities. A dollar spent with them stimulates the local economy a few more times than if you sent it directly to a wall street conglomerate.
I'm not sure if tax law is the enabler for both of these distinctions but I'd hate to lose a unique local financing option to the thought that 'it's just another bank."
They are operating as non-profits, as defined by the IRS code and the law?
"Athletic associations" for example includes your all your local youth sports clubs. There's a lot of activities that can be done for a charitable purpose that may be organized under 501(c)(3) and similar regulations.
Yeah a Credit Union is like a bank, but it's not a bank. It's not operated for profit.
All but the smallest non-profits all have to file an annual Form 990 which is mostly public. You can go look them up, if you're wondering what they do and how they spend their money.
If they have income that is not directly related to their charitable purpose, they are supposed to pay tax on that. According to TFA that is weakly enforced, and while that may need fixing we need to be careful that we don't throw out the baby wth the bathwater.
Removing costs from the system will only increase profits, so why pretend that increasing costs will necessarily increase prices rather than decreasing profits?
(And before anyone plays the 'nonprofit' card, a nonprofit is only nonprofit in the sense that its net income must be zero. The owners and administrators of a nonprofit can most certainly profit by it.)
One notable feature of the banking system in the US is that it's relatively unconcentrated. Only three major banks hold more than 10% of deposits in the US, at which point the feds actively block bank mergers barring something exceptional, like JPMorgan Chase absorbing SVB to save it.
Require democratic voting among a broad membership, including customers and/or employees, not a tiny board passed down among a small group of insiders.
Of all of these, I support credit unions having this status. Their members have a democratic vote.
These hospitals are spending immensely on expansion. Just think about how every (or the one) hospital around you seemingly has all manner of offices and facilities everywhere. Many even have gyms/"wellness centers".
You don't build a gym when you are borderline bankrupt. You build a gym when you need to spend money.
Physical or occupational therapists need most of the same equipment.
A benefit to the employees.
An ounce of prevention is worth a pound of cure. If people exercise, they are typically healthier.
The phenomenon that a lot of American credit unions now advertise and compete with the capital markets (for where to get money from, or where to invest it) and with interstate banks, or that farm-credit nonprofits compete with nationwide programs, is an unanticipated and relatively recent legal development (and most interstate banking holding companies themselves are only 40-50 years old - before that, they couldn't coordinate across state lines).
The wider phenomenon that it sometimes seems like "everybody with the choice to do so" is merging into the fast lane due to red tape and other incentives is partially sampling bias, but even if it's true I don't consider it to provide proof that we should get rid of any remaining slow lanes. Probably we need more specific types of slow lanes, some of which will let you switch lanes later but cost you the back taxes.
There are many different nonprofit tax code section 501 types already, but I don't think that nonprofit status itself is a very well tailored conceptual solution to answer "what kind of slow lanes are useful nowadays?"
There are many commons and cooperative options that are hard to shoehorn into 501(c)(3). It would be nice to have some social benefit activities protected from taxation even in otherwise-taxable cooperatives. While some American state legislatures have enacted a "Low Profit Limited Liability Corporation" or L3C status available, the first thing you learn about it is that it is no different in tax status from any other LLC. HM Government in the UK offers a CIC or Community Interest Company business model, and this requires all profits to be reinvested for the benefit of a geographical area designated by the enterprise, and has an asset lock so that its possessions cannot be distributed to shareholders, although there can be shares traded -- all of which might be steps in a promising direction. But again there is no tax exemption (partial or total) for which these social enterprises are specifically eligible.
I was a CSAA member before I moved to New York. Every year I received a dividend check. That was cool.
Maybe it's for the best.
Some non-profits are exempt from property taxes and other taxes (e.g. universities) and abuse this by becoming huge landowners. This should probably be reined in.
It may vary by state, but I used to work at a private, non-profit educational institution in Missouri, and I know we didn't have to pay sales tax for our purchases. I now work for an online retail business in Colorado, and our sales team routinely waives sales tax for non-profits (from various states) with the correct documentation (usually also educational institutions, fwiw).
Once they come out, they get taxed, as salary or distributions.
What the for-profit ALSO gets taxed on is "income" but if you manufacture expenses you can keep your income low or non-existent (this is what companies do when they transfer their IP to a tax haven and then charge themselves for it).
I am repeatedly surprised when people argue that lower taxes don’t improve the economy, it’s as obvious as water being wet or the sky being blue.
Why can those countries have what they have but America some how can't?
What are they doing that America isn't?
High trust societies are ones were those in power are not (very) corrupt.
High trust society is one where people do the morally right thing even if they wouldn’t get caught. To do have that you need a set of common societal values.
"Mechanisms and institutions that are corrupted, dysfunctional, or absent in low-trust societies include respect for private property rights, a trusted civil court system, democratic voting and acceptance of electoral outcomes, and voluntary tax payment."
They also rely on America to provide the bulk of their national defense...
Can you tell me more about the military aid that Finland has received from the US?
Federal: https://fred.stlouisfed.org/series/FYFRGDA188S
State & Local: https://fred.stlouisfed.org/graph/?g=1pltN
In fiscal year (FY) 2023, the government spent $6.13 trillion.
The federal government spent $44.8 billion on infrastructure in 2023 and transferred an additional $81.5 billion to states.
That's a hair over 2%. Certainly you can imagine people wanting to cut the budget in other places.
Tax money is spent in all kinds of ways that touch so many lives that it's literally too much for any one person to comprehend. You can make arguments, but it will affect people in material ways that they'll have counterarguments for.
I agree, but this is false.
>>it’s because most people who declare “less taxes are good for the economy” don’t want to pay taxes at all and would be willing to let infrastructure and society rot in order to make a few more dollars.
Just because someone wants the government to spend less, doesn't mean they don't want to pay their taxes or want to see the infrastructure go to hell. That's a disingenuous argument. Also, “less taxes are good for the economy,” is unarguably true, so he's making two incorrect assumptions in once sentence.
no, but there have to be a lot of variables involved to find new balance points.. it is certainly a political situation
This isn’t unarguably true. Right now we’re running a very large public debt because we spend more than we collect, so if you collected it in taxes you’d slow down inflation. That would be good for the economy. You also see a lot of strategic reallocation of funds through taxes, moving things from possibly inefficient places to places that generate far more growth. China has been doing this very well over the last decade (and sometimes not so well, but net positive) - lots of state back efforts which have tipped industries in China’s favor. This has been great for their economy and soft power. The US did that with Covid vaccines by assuming the risk— something the private market literally could not and would not do.
Taxes and government spending are complex subjects and do not follow universal rules.
We would also slow down the economy. Higher taxes = less spending = less GDP. The inverse is also true.
https://www.investopedia.com/articles/07/tax_cuts.asp#:~:tex....
Can you give me an example of where raising taxes increased economic growth and lowering taxes didn't increase economic growth?
And then there are damning examples like Mozilla Corporation/Foundation.[1]
There are organizations that should be registered and handled as non-profits, but I also think a lot of the non-profits today are scams warranting a clean up.
[1]: https://assets.mozilla.net/annualreport/2022/mozilla-fdn-990...
2. The chairman received just over $6.9 million dollars in compensation, see page 8.
3. Consider the above against what I replied to earlier.
MoCo/Fo is one, particularly outlandish, example where a "non-profit" makes a substantial profit and pays it out to its owner(s).
After the collapse of the Soviet Union, my country chose not to give back land taken from religious organisations - as they would end up giving more than half the city center to the Catholic church.
Plus to be considered legally a "religious organisation" often has many hoops and strict criteria to go through (at least here in Europe). Due to migration there are many small religious groups, but they aren't officially classed as a "religion" so cannot use the same tax breaks. Existing churches have a strong moat.
https://www.glassdoor.com/Salaries/catholic-priest-salary-SR...
https://www.espn.com/espn/otl/story/_/id/9109024/top-athlete...
It may have worked well until now, but I worry that in the future it will allow future administrations to threaten tax-exempt status for churches that don't conform their teaching to society's preferences in the moment. Churches shouldn't be in it for the money anyway. We should just rip that entire band-aid off and undo something we never should have done in the first place.
I have a feeling that most people probably don't give $18,000 to their churches annually. At a 10% tithe rate, that's $180,000. Wel above the median household income.
If we subject churches to taxes, then if you church is paying a significant chunk of money to taxes, then your church is not spending the money on charity like it should be.
If your church is spending the money it receives, that spending is deductible. Spend it and you won't pay a tax.
Maybe a "church" should only be allowed to have the amount needed to fund reasonable operating expenses (plus some emergency funds and charitable work).
If you have more you aren't a church, you are now a business and standard business rules and taxation should apply.
I think the point of the article is that it’s really hard to make these judgments and doing way with the whole system entirely makes the most sense, which seems reasonable to me.
They also never make the point that we are already paying for it. They want to tax me more, when if they were as efficient as the NHS I'd have two healthcare systems with money left over.
Medicare for all will never see the floor until everyone currently over 60 is gone, at a minimum. They are all in on it.
We've picked the least efficient worst-of-both-worlds scenario out of a fear of anything that sounds like socialism ("public option", "Medicare for All", etc.).
The chart doesn't demonstrate anything of the sort. By definition, sovereign governments can afford literally anything, since they can print the currency within the country. It will just cause inflation.
That statement is complete and utter reductionist nonsense.
The reason we don't have one is because Democratic politicians, funded by healthcare and drugs, are so willing to lie about the math for money, and the media, funded by ads for healthcare and drugs, are so willing to help them.
The fact that our current setup costs 2-3x any other OECD nation indicates reform to be more like their systems is likely to reduce costs, not increase them.
Hospitals, to maintain their nonprofit status, have to provide charitable contributions. One way is when patients apply for payment reduction or discharge because they can not afford to pay. Patients need to apply for this so they have documentation to give the IRS.
> Don’t tax pharmaceutical companies, but tax the income of doctors?
How often do you ask a doctor to work for free? They still get paid by the hospital.
Yes, pharmaceutical companies, which as far as I know are private, also have something like this. This is preventing media coverage and Congress imposing max cap on prices on public assistance programs (prices private insurance will use for leverage) so they can keep charging what they want.
> I think the point of the article is that it’s really hard to make these judgments and doing way with the whole system entirely makes the most sense, which seems reasonable to me.
The point of this article is to attack the nonprofit competitors to their due paying members. They gloss over many details and as I posted elsewhere; they even defensive of the tax loopholes of their due paying members.
Oftentimes, physicians are not paid by the hospital at all. They will form consulting groups and work for the consulting group which will have a contract with the hospital, or they'll do something C2C.
This is a red herring. The hospital still pays for a service (doctors or a group representing them) while being required to make charitable contributions to keep it's nonprofit status. These charitable contributions are very important for people in poorer and rural areas of the United States that for profit entities do not want to operate in (or would demand subsidies from the government to operate in).
Unless you go to 3rd party provider for a non-emergency, you will never get hit with this type of nonsense. Everything is reasonably priced.
It’s a nonprofit organization that handles the financing and providing healthcare services which gives them an incentive to manage costs.
The ACA marketplace gives them an incentive to provide good service because you can always sign up for different insurance at the end of the year if you don’t like the care they provide.
Personally, I suspect this study was sponsored by the big health insurance companies who want to get in the same game.
Though, I think that may actually be as-large or a larger problem for America than non-profit taxation/exemption policies.
You have to admit, you could clamp down on the other crap easier if healthcare being a "non-profit" wasn't such a big deal due it just being managed by the government.
> The U.S. needs a principled, rules-based approach to 1) distinguish between benevolent organizations and tax-exempt businesses,
There’s no reason why a food kitchen, museum, university, church or whatever can’t simply run at a loss in perpetuity (or until it can’t get any more donations). No decision on its tax status is needed.
Charities pay the same price for phone service, postage, salaries, rent etc. Yet we’d have a complex infrastructure for deciding if they should get a break on one line item, taxes. Sawing off that whole infrastructure would simplify things greatly.
I don’t mean to sound like some Libertarian here. It’s just that I’ve long considered the distinction between “non profit” and “for profit” crazy.
The difference between a town with unique, local shops and a town with sprawling landscape of walmarts is the policies of those towns, one of the big ones being tax code. Policy is just a way to execute on decisions for what kind of social outcomes your society wants.
In this instance, abolishing the category completely is essentially saying we don't want any non-profit organizations to exist as a legal structure, which is probably not the intention.
Policy design favors strongly directed outcomes over reducing complexity of legal code (because we have a robust legal institution). So, yes, it is increased complexity. But most complexity is not out of reach. Most small organizations have the budget to handle policy complexity, even if many individuals do not.
Ideally, good policy is tested as well and actually creates the effect it was intended for. A great example of bad policy design, IMO, is the plastic bag ban in California. Its intention is to reduce plastic waste, but the actual implementation probably didn't.
All in all, it's a deep issue because you can then argue if the non-profit status really creates benevolent organizations AT ALL, or if it just creates tax-exempt businesses. But if you go down that route, you're essentially "joining" in the conversation - it's exactly what this article (or the research behind the article) is trying to figure out.
I mean, they often don't pay the same prices. Recognized organizations often have a lower price option for many services. Landlords often charge below market rent to charities. Utilities often have a lower tariff for charities. Charities may not have to pay sales tax, so the goods they need are less expensive (yeah, that's another tax, but). Nonprofit Mail is printed material eligible to be mailed as USPS Marketing Mail® at significantly reduced nonprofit postage rates. [1]
Salaries sure, except there's a good amount of people who will work for less or free, if it's for a charity they find compelling.
Qualifying for the break on income taxes drives the discounts on all the other things.
It's one of the available "force multipliers" that the government has to try to "cost X but do Y" - just like backstopping loans, etc.
It does distort the "market" - that's the whole point.
And if they aren’t making a profit they aren’t paying taxes, regardless of filing status.
Missing a big one there. I know that taxing religious organizations would NEVER fly in the US, but.. can you imagine?
Most of the value of churches is in real estate. I imagine a lot of the Mainline protestant denominations (typically the most liberal), who have low and declining attendance, would be hit the hardest as they own a lot of historic downtown properties worth in the tens of millions.
Conservative Protestant, and Catholic churches own a lot of real estate too, but they have bigger congregations.
If you have a $10,000,000 property that owes 1.5% property taxes a year, that's about $150,000 in taxes every year.
If you have 15 families earning $100,000 a year who each tithe (or 30 families earning $50,000 a year), then you break even on those taxes (you still have the rest of your church expenses to pay, of course).
I'm not aware of the rate of tithing and attendance in Conservative Protestant, and Catholic churches, but I'm guessing it's higher than in mainline Protestant Churches. I imagine non-mainline churches also have a wider portfolio of real estate; they probably own their own share of prime real estate in downtown city centers, but most of their churches are likely dispersed in suburban and rural areas with much lower value land.
My hypothesis (confidence: 75% sure, but haven't done all the necessary math) is that if you were to push for a full repeal of church property tax exemptions, Megachurches, Conservative Protestants, and Catholics would be very upset about it, but would probably be able to weather the storm, and Mainline protestant churches and other minority religious organizations with high value urban property and low relative attendance would essentially be wiped out overnight.
In short -- if you're a liberal, be careful what you wish for.
The big one they missed were think tanks. That's where the real corruption is. Oh and will you look at that... the Tax Foundation is a 501(c)(3) think tank based in D.C. Things that make you go hmmm.
I'm not saying he's a good person, but he has personal income just like the rest of us. The odd clergy exemptions to the personal income tax are not that large: https://www.irs.gov/taxtopics/tc417
And like the rest of his fellow mega-wealthy, he'll be able to fiddle it away in a number of ways.
The flights (and dinners, and cushy hotels, and big parties) will be for "church business". The "fair rental value" of his home will be immense, and "reasonable compensation for the minister's services" will be something the IRS is reluctant to fight over.
> in the name of a religion that commands its followers to give everything they have to the poor.
This isn't actually true. The point of this story (as with a lot of things Jesus did) is that the standards for us to be righteous on our own merit is impossibly high, but that God in his mercy will forgive us anyway. That's why the next bit says that Jesus' disciples asked "who then can be saved?", and Jesus replies that with God, all things are possible. To be righteous in our own merits we would have to take extreme steps like selling all our material possessions (and more), but we don't have to because of God's grace.
That said, we are explicitly commanded to care for the poor and other downtrodden members of society. Not being required to sell all our possessions is not a pass to just ignore the poor, or to half-ass our efforts towards them. It's just that we aren't actually commanded to sell all our possessions.
Yeah, too bad that's a command they don't even follow.
Do you understand how tax breaks work? If you make 100k, and tithe 10% of that you don't get a 10k tax break, you just don't pay taxes on that 10k. You're still out the money, and best case you could rationalize it as only costing you 8-8.5k (depending on your marginal tax rate), but it's not some magic sauce that gets 'the wealthier' free money.
Taxing churches would then be a way for government to suppress and eliminate religion/religious organizations they do not like. Start taxing today with a "reasonable" tax, and tomorrow you can raise tax obligations until operation is unsustainable. A la "subsidize things you want more of, tax things you want less of".
Despite what non-religious and/or anti-religious people may want, this is untenable and almost certainly unconstitutional.
As an aside - the federal government has plenty of money. We don't need to go looking in the seat cushions for pocket change. Instead of "Reining in America's $3.3T Tax-Exempt Economy", we should be "Reining in America's Overindulgent Lifestyle and Runaway Spending Spree".
I don't know what the IRS standards are for recognizing religions, but taxing unrecognized religions and not taxing recognized religions seems like a bigger potential for suppression of undesired religions than taxing all of them. That said, I don't think I've heard of a case where IRS/government refused to acknowledge a claimed religious organization?
Of course, you can't have free exercise of religion if it's taxed. I do think it'd be nice to have public tax returns or similar, but I guess that's really for the membership to demand more than the government.
Perhaps illustrating your point, but worth noting anyhow: the dangerous for-profit cult of Scientology actually had to infiltrate the IRS with their own people to get their tax exempt status.
If they don't want their congregations to know how much they spent building a giant mall or buying private jets, then they can choose to pay taxes instead. If you don't think your congregation will care about the private jets, then by all means, keep your tax exempt status.
For example Texas once had a sales tax exemption for periodicals sold by churches that consisted solely of material to promulgate their faith, and the Supreme Court in Texas Monthly v. Bullock, 489 US 1 (1989) [1] said that such an exemption violated the establishment clause.
In Swaggart Ministries v. Cal. Bd. of Equalization, 493 US 378 (1990) [2] Swaggart contended that California's subjecting them to sales/use tax was unconstitutional. The Court said it wasn't.
[1] https://caselaw.findlaw.com/court/us-supreme-court/489/1.htm...
[2] https://caselaw.findlaw.com/court/us-supreme-court/493/378.h...
This discussion is about taxing churches/religious organizations in general on all revenue/income (ie. tithe, donations, membership fees, etc). That would very likely be unconstitutional, as that would limit the organization's ability to assemble and practice religion.
If you’re interested in knowing where your federal tax dollars are going, put your numbers in and take a look. It’s possible this is the most productive thing Intuit has ever done.
Because churhces are exempt from all the transparency required of normal nonprofits, they can easily mislead their congregations about how that donated money is spent.
If someone decides to switch churches because they found out that most of the money they donated was not actually going towards charitable causes, that would be an absolute win in my book.
You're describing maybe a dozen or less mega-churches - not the thousands and thousands of typical churches.
Being “tax exempt” doesn’t really change much… you can offer a tax deduction to wealthy donors. Most people aren’t that wealthy and don’t care about tax deductions.
You can’t conduct business and not pay income tax on it (that’s Unrelated Business Income, which the article talked about). All you can do is collect donations, grants, etc. and then use that to further your organisation’s purpose.
I would love to see lots of nonprofits organised which have philosophical/political conversations at a local coffee shop once a week!
"Tax Exempt Organization Search (Pub. 78 data) is based on information received in applications seeking recognition of exemption under Internal Revenue Code section 501(c)(3). Churches, their integrated auxiliaries, conventions or associations of churches, and public charities whose annual gross receipts are normally not more than $5,000 may be treated as tax-exempt without filing an application. Also, many churches are included in group exemptions (see below). Thus, they may not be listed in Tax Exempt Organization Search (Pub. 78 data)."
https://www.irs.gov/charities-non-profits/contributors/other...
Congress is authority-exempt from making laws that can apply taxes to them in the first place.
It's not like we tax everyone, then exempt religious organizations; the "everyone" that is able to be taxed does not include establishments of religion in the first place, thanks to the wording of 1A.
Can't hide land in an offshore account!
https://www.npr.org/sections/money/2012/07/19/157047211/six-...
which is entitled "Six Policies Economists Love (And Politicians Hate)".
In their list of the six policies, number 3 is: "Eliminate the corporate income tax. Completely. If companies reinvest the money into their businesses, that's good. Don't tax companies in an effort to tax rich people."
They surveyed a panel of five economists that (allegedly) span the political spectrum. And they all agreed, and said that most economists agree with, this policy.
So I'd be curious to hear what evidence you have for the claim that "many more think the opposite".
That said, it's insane how many 501(c)(3)'s somehow manage to operate as legal or ethical organizations.
OpenAI is the best example haha.
That’s what this article is all about. Separating charitable non profits from non charitable non profits and taxing the latter.
If it’s not a charity, but uses 501(c)(3), that’s just tax fraud! Tax fraud is already illegal!
You read the law at https://www.law.cornell.edu/uscode/text/26/501
I used the unwieldy terms “charitable non profit” and “non charitable non profit”, and your link proves me right by explicitly pointing out that charitable organizations are only 1 form of non profit that is tax exempt.
> exclusively to religious, charitable, scientific, literary, educational, and fraternal purposes
That way it would be non-profit and he wouldn't have to pay property taxes and the one or two wounded veterans might get a good place to stay but he would be making bank with the other tenants
The realities of real estate investment involves a ton of things, but there is probably some advantage to renting to veterans, it's not to the point of writing off the entire income from an entire building.
The Tax Foundation glosses over, and sounds defensive, over the swiss cheese rules for corporations right now. A lot of us have been discussing a tax credit that Congress recently changed that only large tech companies would see a tax benefit to take over the paperwork.
https://taxfoundation.org/blog/corporations-zero-corporate-t...
Then there are flat out tax breaks such as oil revenue being exempted from AMT with generous deductions that normally take other firms years to get.
https://www.investopedia.com/articles/07/oil-tax-break.asp
A few of the organizations they complain about are either owned by the US government, works very, very closely with US govt, or are state institutions. Why should the US tax itself? It just adds more paper work because it would need subsidies. A US Government institution has so many more responsibilities than a private corporation. The real reason is that many large corps want to get rid of the spoiler in their market and already collect even more revenue (make credit unions and the deals they offer go by-by).
Congress enacted these institutions decades ago to stabilize the market and provide access to people the corps did not want to serve. Banks are still retreating from rural areas-think of how much worse it will be if credit unions have to more profit focused.
Taxing state institutions such as universities; this US Supreme Court will not be receptive to that even if Congress does pass a bill; and politically, it is not going to happen.
The tax code absolutely needs to be simplified. Corporate taxes are not as efficient as Land Value taxes but if lowered or eliminated it and replaced it with the LVT, what would that even mean for “non-profits” at that point?
The reason life is so expensive OBVIOUSLY isn't because of the massive and ever increasing tax burden. NOOOO of course not. Its because people aren't taxed enough.
So lets increase taxes more so we can have goverment solutions to the government problem. Obviously we simply aren't governmenting enough.
Yo dawg... I heard you like government. So I got some government to put in your government!
https://www.crfb.org/blogs/2023-revenue-plunge-confirms-2022...