Reining in America's $3.3T tax-exempt economy

https://taxfoundation.org/research/all/federal/501c3-nonprofit-organization-tax-exempt/

by telotortium • 2 years ago

239 283 2 years ago

jdonaldson• 2 years ago

Most of the money there is in hospitals. I don't think it does the economy any good to tax those. Love to hear arguments the other way.

dmckinno• 2 years ago

Healthcare is a slippery slope. Don’t tax hospitals, but tax pharmaceutical companies? Don’t tax pharmaceutical companies, but tax the income of doctors?

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.

willcipriano3• 2 years ago

"Best I can do is tax you like you have socialized medicine[0], then force you to pay 2 - 4 fold what those other counties private systems cost to actually get care for most of your life." - Every politician in my entire life time

[0]https://data.oecd.org/healthres/health-spending.htm

csdreamer73• 2 years ago

Don’t tax hospitals, but tax pharmaceutical companies?

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.

bagels• 2 years ago

I think it's hard for people to reconcile $1000 10 minute doctor visits, and $10,000 IVs with tax free status.

steego• 2 years ago

Or you could look at Kaiser Permanente, which is the exact opposite of this and the biggest nonprofit cited in this paper.

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.

supertrope• 2 years ago

While the exact line items are made up the money to pay nurses ultimately has to come from somewhere.

softfalcon• 2 years ago

It's called universal government provided healthcare. We have it in Canada. Gets rid of that nasty, unnecessary, "for profit" medical sector.

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.

EasyMark5• 2 years ago

I think mostly what we need is transparency for nonprofits, list of all salaries, expenses, capital expenditures, bonuses, etc before one can really say what makes sense. Including for “customers” (patients). If you know how much it takes to run a nonprofit then people will begin to understand if they are price gouging or if there’s some huge expense that the general public is unaware of. We need the light of day put on these ventures so they can’t hide info AND keep their nonprofit status. For example, I wish we were much harsher on religious non profits that get mixed up in politics and support candidates and parties, they should lose their tax free status immediately.

imgabe• 2 years ago

They are already required to report this aren’t they?

guntars2• 2 years ago

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.

Missing a big one there. I know that taxing religious organizations would NEVER fly in the US, but.. can you imagine?

babypuncher3• 2 years ago

I'm OK letting religious institutions keep their tax exemption, but we should make them adhere to the same standards as 501(c)(3) organizations (non-profits). A whole lot of churches would either start paying taxes, or expose themselves as frauds with those financial transparency requirements.

r00fus• 2 years ago

This exactly - the existing hypocrisy leads to religious organizations essentially being tax-exempt political organizations.

nickpeterson• 2 years ago

I think you’re right, but it’s probably better to try and remove their exemption and then settle on this. They’ll scream either way because unethical hucksters will do anything to keep fleecing people.

PopAlongKid• 2 years ago

There is a loophole where a religious organization doesn't even have to file any paperwork with the IRS to establish its tax exempt status. While $5,000 doesn't sound like a lot, that limit was probably set many years or decades ago and never adjusted for inflation (so the original intention could well have been a much higher level of revenue).

"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...

Alupis3• 2 years ago

This doesn't work in practice, because of freedom of religion, freedom of assembly, and separation of church and state, ie. constitutionally guaranteed rights.

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".

sneak2• 2 years ago

Religious organizations are not tax exempt.

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.

segasaturn• 2 years ago

The phenomenon of "megachurches" and "televangelists" in America fascinate me, you have guys like Pat Robertson driving Rolls Royces and flying in private jets, all paid for tax-free, in the name of a religion that commands its followers to give everything they have to the poor. It's all so perverse.

hobotime• 2 years ago

Pat's income from his mega church and gifts in kind are taxable.

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

pram• 2 years ago

A lot of the original evangelical megachurches were directly influenced and guided by Peter Drucker who was a big "scientific management" figure, if that tells you anything. He was a direct mentor to Rick Warren who started the Saddleback Church, which is like the modern megachurch template. Pretty interesting rabbit hole to go down.

Sohcahtoa822• 2 years ago

in the name of a religion that commands its followers to give everything they have to the poor

Yeah, too bad that's a command they don't even follow.

bigstrat20033• 2 years ago

First, many Christians (literally every Christian I've ever known) would agree that megachurches have lost their way and that the people in charge are in no way fit to be leaders among God's people. You're preaching to the choir. Second...

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.

downrightmike3• 2 years ago

Religious orgs do nothing but prey on the weak and break them so that they can never be free and have to rely on the church. And then there's all the land that they use once a week, and that is a complete waste. All that needs to be taxed, they shouldn't exist. You want to pray, cool, don't waste resources and pay your share.

throw7• 2 years ago

Nah. I can imagine the country without the first amendment and it wouldn't be pretty.

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.

rho138• 2 years ago

How is this covered by the first amendment? No one is stopping anyone from practicing their own belief system.

sircastor3• 2 years ago

I used to belong to a very large Christian faith, with members all over the economic spectrum. One of the major tenants of the faith is paying tithing. I think most people adhere to it, but I seriously wondered many times if the wealthier among the faith would pay their tithing if it didn’t result in a substantial tax break.

happyopossum3• 2 years ago

would pay their tithing if it didn’t result in a substantial tax break

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.

larsiusprime• 2 years ago

Good question! Let's 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.

galleywest200• 2 years ago

Who says it has to be property taxes? Make them pay taxes on advertising or other such activities.

happyopossum3• 2 years ago

Your entire scenario here is based around a local (state and county) tax, and has nothing to do with the federal tax code the parent article is concerned with.

brink• 2 years ago

I'm Christian, and I don't think religious orgs should be tax exempt.

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.

wang_li• 2 years ago

What would that even look like? Gift taxes are paid by the giver not the recipient. Currently you don't even have to report it if it's less than $18,000 per year per recipient. If you give less than $13 million in your lifetime you don't have to pay any gift taxes anyway.

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.

bombcar5• 2 years ago

Donations to correctly setup churches (and some but not all non-profits) can be tax deductible from income.

Sohcahtoa822• 2 years ago

The way I see it...

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.

mythrwy2• 2 years ago

Money has a tendency to corrupt.

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.

Aurornis2• 2 years ago

More than half (55 percent) of all the income generated by 501(c)(3) organizations comes from tax-exempt hospitals and health-care plans.

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?

pstrateman2• 2 years ago

They don't distribute profits to their members.

The only thing making them pay tax will do is create an accounting nuisance where they drive profits and thus taxes to zero.

chrislloyd• 2 years ago

If they drove profits to zero by distributing it to their members, wouldn't that incur income tax?

addicted3• 2 years ago

And how will they do that? You can’t just “drive profits to zero by accounting nuisances”. Otherwise every for profit organization would do that.

(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.

AlbertCory2• 2 years ago

Wrong. If they're not 501(c)(3) then donations to them are not tax-deductible.

Y_Y• 2 years ago

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.

Maybe it's for the best.

stefan_• 2 years ago

I see this sentiment a lot with US internet providers - "but they aren't making any money as is, it must be a real tough business environment". I think there are limitless ways for bad actors to make lots of money in a broken market that doesn't mean there must be a unidimensional monopolist giga corp at the center of it raking in all the margin.

sandworm101• 2 years ago

> The median operating margins for hospitals is around 0% or some times negative.

Then they should not have to worry about paying income taxes regardless of their classification.

hondo77• 2 years ago

So, if their margins are zero (or negative) then there's no profit so nothing to tax so no additional costs, right? Or am I missing something?

stiglitz• 2 years ago

The median operating margins for hospitals is around 0% or some times negative

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?

ndriscoll2• 2 years ago

The answer is right in the OP:

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?

mfer• 2 years ago

Healthcare systems costs and operations are a mess. Here are a few examples, hospital systems setup places that can do anything which adds complexity and increases costs. So, they are not cost optimized. The more a facility can do the more it costs to do any one thing.

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.

asdfsdfas• 2 years ago

You're still seeing heavy consolidation in the industry which is a clue something fishy is going on-- why would a hospital system choose to grow for instance? where would the $$ come from to buy other ones?

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.

jandrese2• 2 years ago

I think it means that administrators appear out of the woodwork to consume any potential profit a hospital may make.

yencabulator2• 2 years ago

https://en.wikipedia.org/wiki/Hollywood_accounting

downrightmike3• 2 years ago

We know they are screwing us: "What they show are price hikes ranging from 575% to 675% being automatically generated by the hospital’s software." https://www.latimes.com/business/story/2021-12-10/column-hea...

SoftTalker2• 2 years ago

What is even going on that allowed these to be nonprofits

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.

lmm2• 2 years ago

What is the baby here though? What's the benefit to having all these entities be tax-exempt? Would it really be so bad for the likes of youth sport clubs to pay normal taxes on their (presumably tiny) profits?

cmiles742• 2 years ago

I work in the healthcare space and hospitals, in my opinion, are motivated by profit. The rise in private equity purchases of hospitals indicates that the money is going somewhere and it's certainly not any kind of "charity".

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.

alephnerd2• 2 years ago

The rise in private equity purchases of hospitals indicates that the money is going somewhere and it's certainly not any kind of "charity

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.

systemvoltage3• 2 years ago

Wait… what’s wrong with motivated by profit? If the service sucks, they’ll lose customers.

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.

gruez• 2 years ago

The rise in private equity purchases of hospitals indicates that the money is going somewhere and it's certainly not any kind of "charity".

Ironically when they get bought out by PE they lose their tax exempt status, so that's kinda solving the problem.

Aurornis2• 2 years ago

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.

jadbox• 2 years ago

Credit Unions are far more than just banks. That's like saying Apple iOS and Linux are pretty much the same. They both do have similar features, but the relationship towards the user/member is arguably different in practice. I.e. cooperative owner vs customer-to-extract.

garciasn• 2 years ago

That’s like comparing for-profit higher ed and not-for-profit higher ed.

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.

jltsiren7• 2 years ago

From my non-American perspective, any organization that exists to provide material benefits to its owners / members / employees / other affiliates is a for-profit organization. A non-profit should pursue public interests, and only its core activities should be tax exempt. If a non-profit operates a business, that business should pay taxes normally.

demondemidi• 2 years ago

Not sure I follow.

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.

justin66• 2 years ago

Credit Unions are nice, but they're still just banks.

That's just lazy and ignorant. This falls into the please read the relevant material on wikipedia category.

eli_gottlieb• 2 years ago

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.

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.

bobthepanda• 2 years ago

Credit unions and regional banks have historically been advantaged in the US because these types of lending institutions make up a disproportionate amount of rural and small business lending.

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.

Workaccount22• 2 years ago

Amazon didn't make money for years.

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.

Atotalnoob• 2 years ago

I mean there are a bunch of reasons for a hospital to have a gym.

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.

tiffanyh• 2 years ago

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.

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.

dgtfxxtfhh• 2 years ago

Nope. Property taxes.

moomin• 2 years ago

I mean, if they’re not turning a profit, taxation isn’t going to be a problem, but what I really want to know is: the USA has the most expensive health care system in the world, with the worst outcomes of any first world system. How is it not making money?!

glompers• 2 years ago

A healthy proportion of local American hospitals were set up and later expanded through many, many rounds of charitable proto-crowdfunding in the first place. Fraternal (Shriners), ones with Saint in the name, and so on.[0] Credit unions were of course formed to provide local lending pools in good times and bad and to smooth out the peaks and troughs of credit availability.

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.

[0] https://en.m.wikipedia.org/wiki/Jewish_Hospital

clcaev• 2 years ago

Perhaps limit employee income differentials in these non-profits and have stricter rules regarding definition of employment.

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.

toss12• 2 years ago

What they really need to do is be absolutely strict about tax-exempt status for religions.

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.

shiroiushi2• 2 years ago

Most of the money they take in isn't for truly "good works", it's just for building churches or more buildings and trying to convert more people. There's nothing wonderful about that. Even their free meals programs come with strings attached: poor people have to listen to a sermon before they're allowed to eat.

mythrwy2• 2 years ago

I'd take it a step further (while allowing religious organizations to remain tax exempt still and even do politics if that's what they are into).

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.

bradleyjg• 2 years ago

The median operating margins for hospitals is around 0% or some times negative.

No it isn’t. You are treating as arms’ length salaries what are in economic substance partnership distributions to de facto owners.

taneq• 2 years ago

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.

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.)

nswest23• 2 years ago

The median operating margins for hospitals is around 0% or some times negative.

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...

xtiansimon• 2 years ago

“Insurance companies are obviously businesses”

I was a CSAA member before I moved to New York. Every year I received a dividend check. That was cool.

elevation• 2 years ago

Credit Unions are all managed differently, but in my region they stand out from banks in two ways:

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."

francisofascii2• 2 years ago

Setting more appropriate land taxes would be a good start, which is much easier then trying to figure out how to tax income. The harder part is reducing the tax liability based on the "public good" or "how benevolent" the organization is. Hard but not impossible. For example, a private golf club would pay higher taxes than a public golf course. Or a church that allows anyone in or has tons of community outreach to the neighborhood pays less or no taxes vs a church that has tons of requirements or hoops to jump through.

downrightmike3• 2 years ago

According to Glassdoor, the average salary for a Catholic priest in the United States in 2024 is $104,699 per year, with an estimated total pay of $206,187 per year. This includes an estimated additional pay of $101,488 per year, which could include cash bonuses, tips, commission, and profit sharing.

https://www.glassdoor.com/Salaries/catholic-priest-salary-SR...

francisofascii2• 2 years ago

I don't think that figure is accurate. Most priests make under 100K. And priests are taxed as individuals, not as non profits, so I am not sure of the relevancy.

svieira• 2 years ago

The fact that the second entry on that list was "Baptist Hospital" makes me slightly suspicious of the validity of the data.

laweijfmvo• 2 years ago

sorry, what "profit" sharing??

ecshafer• 2 years ago

Priests are taxed as individuals so this doesn't seem relevant. But besides the fact that glassdoor's salary estimates are at best ludicrously off. Several of the top companies for "Catholic priest" on that page are protestant organizations, so I will take this with a grain of salt.

fy20• 2 years ago

Churches in Europe are one of the biggest benefactors of tax free income, and also one of the biggest landowners in a lot of cities.

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.

gumby2• 2 years ago

Hear hear. But why not abolish the category completely?

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.

readthenotes13• 2 years ago

It's another complication in the tax code for the cognoscenti to exploit

spyckie2• 2 years ago

Policy is not always about how much tax one pays, it's about landscaping your society.

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.

toast02• 2 years ago

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 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.

[1] https://faq.usps.com/s/article/What-is-Nonprofit-Mail

bombcar5• 2 years ago

From a 10000 foot view, the non-profit designation is the way the government says "the tax we'd get from you, and your cost to file the paperwork, is not as valuable as what you provide, so we'll skip it."

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.

Laaas2• 2 years ago

Non-profit tax exemptness is good actually. It incentivizes charity over profit-seeking ventures. Changing this would increase taxes in the short term but be bad long term.

addicted3• 2 years ago

Unfortunately non profit != charitable.

That’s what this article is all about. Separating charitable non profits from non charitable non profits and taxing the latter.

Laaas2• 2 years ago

No, a non-profit is by definition a charity _for something_. It’s a public benefit, and thus not taxed.

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

readthenotes13• 2 years ago

I know someone in real estate who is advised by his wealth advisor to set up an apartment building that gives lower rents to wounded veterans in his small town.

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

bombcar5• 2 years ago

As a note these kinds of things the IRS figures out ... eventually, and then they have you.

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.

SketchySeaBeast• 2 years ago

The trick there would be to actually incentivize charity instead of bloat and wallet fattening.

rqtwteye6• 2 years ago

That's the theory. In practice it incentivizes a lot of corruption.

egh• 2 years ago

Incoherent argument. Non-profits pay sales taxes, income taxes for employee salaries, and, in many cases, property taxes. The only thing they aren't ever paying taxes on is profits, because... they are non-profits. They don't pay out profits to owners.

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.

bombcar5• 2 years ago

You can pretty closely simulate a non-profit with a for-profit enterprise with a bit of "clever accounting" as long as you're not taking profits out.

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).

gamblor9563• 2 years ago

You've just suggested tax fraud, and the mechanism you referred to is no longer a viable method for accomplishing it...

oceanplexian2• 2 years ago

It’s ridiculous we are trying to find more ways the government can rent-seek. Corporations are taxed on profits, they are taxed when they pay employees, the employee is taxed on their income, and the employee’s post tax dollars go to pay sales tax, the remaining money goes to businesses that pay tax, and then the whole thing repeats again. The government is a literal parasite on the economy.

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.

EasyMark5• 2 years ago

I think 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. There has to be an optimal level, and surely it isn’t always “less”.

Dalewyn3• 2 years ago

They don't pay out profits to owners.

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...

bhelkey• 2 years ago

This is a sixty page document. Is there something specific you want to call attention to?

jacobgkau• 2 years ago

Non-profits pay sales taxes,

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).

kemotep• 2 years ago

It’s hard to take the Tax Foundation seriously when they say we need to aggressively go after non-profits when one of their current top articles is handwringing about the Trump tax cuts expiring.

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?

jeffbee• 2 years ago

There's something weird about the article, as if "1 billion" has been used as a placeholder for a real figure that was never filled in. For example in at least two places it says that the gross and net tax gaps are $1 billion, but the IRS estimates are close to $500 billion.

csdreamer73• 2 years ago

A lot of complaining about the tax exempt economy, but almost nothing about large corps that get away with deferring taxable income; and would lead to much fewer grants and dues from these companies that pay the Tax Foundation's bills.

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.

jedberg2• 2 years ago

I'm ok with hospitals not paying taxes. In fact it would be great if they got tax credits. Any taxes imposed on hospitals will just make health care cost more and not provide any benefit to society.

rqtwteye6• 2 years ago

Yes, let's pump even more money into an already obscenely overpriced system.

jedberg2• 2 years ago

The assumption is that any credits would be tied to lowering costs for patients.

tmpz22• 2 years ago

An "Outside the Lines" investigation of 115 charities founded by high-profile, top-earning male and female athletes has found that most of their charities don't measure up to what charity experts would say is an efficient, effective use of money.

https://www.espn.com/espn/otl/story/_/id/9109024/top-athlete...

ein0p• 2 years ago

With the Congress as rotten and corrupt as it is today, good luck trying to “rein in” anything of this magnitude. I’m sure the bribes will be quite a bit fatter though if they pretend to be interested in solving this problem.

wernercd5• 2 years ago

Yes... lets make life more expensive by getting rid of taxes.

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!

apsec112• 2 years ago

US taxes as a percent of GDP are close to post-WWII lows

https://www.crfb.org/blogs/2023-revenue-plunge-confirms-2022...

nycticorax2• 2 years ago

Don't most economists think that corporate profits should not be taxed? (When all else is held equal.) By that argument, the real problem is taxation of the profits of for-profit corporations...

mcmcmc• 2 years ago

No, that’s a wild generalization. Some economists think that. Some are paid to say it. And many more think the opposite.

nycticorax2• 2 years ago

So I guess I got that idea from this podcast:

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".

ls612• 2 years ago

Corporate profits being taxed at a different rate than capital gains tax introduces some weird incentives to corporate investment decisions. But that isn’t saying it should be zero.

adverbly• 2 years ago

Hate to say it but land value tax would fix this.

Can't hide land in an offshore account!

elintknower• 2 years ago

America has a spending problem not a taxation problem.

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.

Reining in America's $3.3T tax-exempt economy

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