> 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?
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.
You could, but as described that would be a crime (almost certainly multiple crimes). Fraud, breach of fiduciary duty, self-dealing, just to name a few avenues that a prosecution could pursue.
It's the MO to extract profits from private, non-profit kindergartens here in Norway. Non-profit kindergartens get subsidies from the state, so it's lucrative to have that status.
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.
In the U.S. this has come up in the healthcare space because the Affordable Care Act limits insurer profit margins to a specified value. People have been prosecuted and imprisoned for violating this requirement.
It would be fairly easy to hide with the byzentine beurocracy and lack of pricing transparency involved in health care. And even if you did get caught, I'd be surprised if the punishment was anything worse than a fine that pales in comparison to the money you made.
how about a 20% markup that could very well be reasonably defended as a fair premium for a better product over the market, and while doing that we could be buying a lesser-than-average product for this, which we later sell, netting us a higher markup in practice.
That's what lawyers and accountants are for. A transaction between a sufficiently complex web of inter-related legal entities is indistinguishable from arms-length transactions.
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.
Sure, a nonprofit hospital can have administrators who make an obscene amount of money. But a for-profit hospital is equally likely to have such administrators. It's not like this is caused by nonprofit status.
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.
> And where there are several, it’s typically the ambulance who decides where you go, not you.
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.
> 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.
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"...)
And if you have several in the area, you might only have one that is in your insurance network. And that one may actually be substantially farther away than ones that aren't.
maybe if regulations and taxes weren't so high, there could be more competition? Transparency and the like would help...
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.
"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."
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.
Yeah... and the people that commit suicide in the parking lots waiting on help? They are chopped liver? They don't matter.
"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.
If you care about the people, look at the numbers across many different countries, not just US. The picture is pretty clear: US, with its mostly privately run and for-profit healthcare system, spends significantly more money per patient while achieving worse results for that money. The vast majority of Americans would get a better deal as far as their healthcare goes in literally every other developed country.
And it's gotten worse the more the government steps in to help.
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.
Those other countries that have it better than we do have healthcare systems either run directly by their governments, or tightly regulated by it in a way that effectively means that the government decides how things are run.
Those other countries also have problems and people with money still go elsewhere when they need help. Rationing exists. Long lines exist. Denials exist. Shortages of doctors exist. etc.
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.
You're making an assumption that a hospital is a monopoly. I explicitly said "unless it's a monopoly".
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.
Depends on your definition. Do you only have 1 local hospital if there is another in a city that is a 2 hour drive away? Maybe only 1 hour? 30 minutes? Where do you draw the line?
I agree, there's nothing wrong with focusing on profit.
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.
The healthcare industry has been thoroughly regulatory captured, so profits generally represent steeper zero-sum wealth extraction rather than having provided mutually consensual transactions. We likely agree that the main dysfunction of the healthcare industry is the complete lack of price signals, but without multiple key dynamics being fixed (off the top of my head: the nonsensical ability to create post-facto bills not based on any contract, anti-competitive arrangement between "insurance" and "providers" in the form of price fixing "networks", lack of statutory maximum rates for emergency care), superficial deregulation would only make the problem worse.
As someone from the UK this is a strange thing to hear about a healthcare institution. In my view the end user is a patient and not a customer.
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.
Your entire comment is based on that premise. If you gave folks the benefit of "not aligning with the majoritarian or stereotypical opinion" you wouldn't feel the way that you've expressed.
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.
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.
"Profit" means income in excess of expenses, and in for-profit companies the profit is used either reinvested or paid to the owners as a dividend.
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.
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.
My perspective was from Finland. Non-profit status there is tied to what the organization does rather than to the specific form of the organization. As a rule of thumb, if the organization competes against for-profit organizations, it's probably a for-profit organization for tax purposes. That covers most coops, including credit unions. There are of course specific rules for different types of organizations, but they don't change the big picture.
The US has a second form - the "benefit corporation" - that is based on what the organization does. It is possible to be a for-profit or not-for-profit benefit corporation, though sort of by definition almost all US not-for-profit organizations are inherently "benefit corporation" since otherwise they would likely lose their not-for-profit status.
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.
>Just give out all the profit as bonuses to execs and done, zero profit.
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).
> It gets taxed as personal income so where is the problem?
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.
"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."
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.
> Branches are not cheap to create or operate, and the large banks concentrate them in densely populated areas with relatively wealthy customers and businesses nearby. Community banks are willing to take worse economics to have branches in places where the large banks don’t; this keeps those places tied to the national financial system.
> 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.
The problem is that there are no truly 'public' interests, there are only clusters of private interests. Going down this route would eliminate all non-profits (which I'm not entirely against).
And other people claim that the personal is political and that there are no truly private interests.
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.
I disagree that there is a 'shared understanding'; for instance, the latest Freakonomics podcast episode featured an interview where the subject stated that live theatre was a social good that was critical to a functioning society, and worthy of public subsidy. I like theatre, but think it's a luxury good. There are many similar 'interests'.
It obviously depends on the society. Theatres run or subsidized by a state or a city are common. In many countries, supporting national culture is seen as one of the key functions of the government. Most people in those countries agree with that, and even those who don't generally understand that they are in the minority.
Now we have to argue about "culture". I'd say, movies and net series are culture and well funded and popular with the public. No need for subsidies for unpopular "theater". Also, according to that same episode of freakonomics, average income for theater goes is $270k a year. Those fans can afford to pay for their preferred entertainment. The government does not need to subsides them.
What's the median? The median excluding NYC, LA, and SF? Why is freakonomics using average? They know that's a 'manipulate public discourse' number not really a useful one, especially for something that can easily have 1 or 2 9 to 10 figure net wealth individuals in attendance.
Public subsidies to movies are common, especially in countries that are not very popular in the international market. TV channels and streaming services are often required to have a certain amount of domestic content. Even video games get public subsidies.
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.
> In practice, there is a shared understanding what acting in the public interest means in that particular society
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...
Promoting a political position or a religious belief usually counts as a public interest, as that's at the core of freedom of speech and religious freedom. I've never heard anyone claiming seriously that their political party should be a tax-exempt non-profit, while the opposing party should be a for-profit corporation that has to pay taxes.
In Germany there are housing unions (providing cheap rent for the members) and union banks / membership banks / Genossenschaftsbank (?) quiet common and tax exempt.
Both are motivated by money, but only one is motivated by profit. The drive to increase profits over and over, year over year, indefinitely is to the detriment of society as a whole.
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.
That's funny, because for-profit higher ed is notoriously, almost comically inferior in its product, how it treats its customers, and its fundamental soundness to not-for-profit higher ed.
What no one has stated so far is: jobs and salaries at non-profits have almost no discipline applied to them; market or otherwise. If they lose a little more money this year: ok, so what?
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?
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?
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 $$ come from to buy other ones?
The answer is hospitals target negative operating margins to meet various rules-- even though their "surplus" (ie profit) isn't taxed, it has to be near-0 to maintain non profit status. And, besides the normal games of revenue timing and amortization, they expense profitable activities to related parties.
I agree, someone, somewhere is making money off this stuff and know how to hide it or all these hospital groups would be belly up in a few years. What’s even more scary is all the rural hospitals that are going bankrupt at an escalating pace (in the USA). I have lots of “country folk”relatives and I worry about them. The closest hospital to my mother Is 20 miles away, if that one shuts down the closest is 55 miles away. I have at least 5 within 5 miles of me, 2 of which are major regional surgical/oncology centers because I live in an urban area.
> seeing heavy consolidation in the industry which is a clue something fishy is going on-- why would a hospital system choose to grow for instance
Economies of scale. When an industry faces headwinds, characterised by broad-based low or negative operating margins, the standard move is consolidation.
> why would a hospital system choose to grow for instance? where would the $$ come from to buy other ones
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.
as an outsider to this system of systems, I don't think anyone understand all of the parts, or all of the dynamics going on.. details with factual references are very much appreciated on this weighty subject!
From the other side of the pond:
As my 10-year old summarized some time ago:
”the fire and rescue department needs fires, the police needs criminals and the hospitals need sick people. That’s kinda backwards!”
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.
Hospitals certainly appear to be operated for the benefit of physicians and administrators, and their compensation is an expense not profit. The relevant statistic is highly compensated leaders, not profit.
True, though they'd still be paying payroll taxes. To me, it seems like the thing nonprofits could maybe let you "get away with" is building up an endowment that can fund sinecures, which could effectively turn it into a sort-of super IRA for the ultra-wealthy (i.e. with no required distributions for your beneficiaries after you die, you could have an effectively everlasting traditional IRA that your descendants control and could access through fake salaries). This has the side "benefit" of letting your descendants save face and pretend to have important charity work that they do as opposed to being a layabout that lives off great-grandpa's wealth. If you do it right, they might even believe it themselves!
Many hospitals never employ a single physician. Or next to zero.
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.
You’d have to be pretty naive, I’d say a nonprofit still needs to save some money to handle the ebb and flow of just existing and to have some money tucked away. I’m not sure how that works since I’ve never been part of one, but there has to be a way, because it’s the only pragmatic approach to anything that lasts more than a few months.
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.
> 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.
Having non-profits pay property taxes — similarly to how they pay employer taxes — seems like a good step. Property taxes are in part a fee for benefits which non-profits receive.
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...
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.
Yes but there are plenty of ways to do that with R&D, capital write-offs, “business expenses”, reinvestment, etc . I don’t think there are nearly that many for charities and other nonprofits. https://www.investopedia.com/financial-edge/0512/how-large-c...
Amazon did not consistently lose money. They were basically breaking even since the early 2000s and they proved they could turn on the profit faucet anytime they want once AWS came around. Although, they still heavily invest in infrastructure development, hence the continued low profit margins.
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.
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.
Yup. I was just writing on the charitable side. It wouldn't bother me if they taxed everything that was not gratis good works, such as feeding or housing people without sermons, but the bigger step that is really necessary is taxing the snot out of them if they touch politics.
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.
> 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.
>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.
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."
> 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.
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?
> 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.)
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.
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.
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.
These are detached gyms that are functionally a Planet Fitness with Hospital_Name branding. There is no medical staff or patients, they have a network of rehab facilities for that.
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.
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.
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?!
> 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.
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.
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).
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).
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.
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”.
Meanwhile the infrastructure is not exactly doing great in many places, and it seems doubtful that it would be doing particularly better with more taxes collected. Anyway, there's been a pretty clear trend towards not-less, even in just the last few decades (really, compare quality of services and infrastructure at revenues and debts in the 90s to now), without a clear sign that it's actually worth it or that more would make anything better. A fruitless 20 year war didn't help either.
They have a high trust society where people follow rigid norms thereby lowering the cost for infrastructure. For example, they probably don't need to clean the streets as much because people don't shit on the sidewalk.
I’ll give you an example, I live in rural Utah and more than once walked into a store and bought something and left money on the counter when there were no employees in the store. Or, as a pilot I’ll fly into an airport and the keys to a courtesy car will be on a table in the lounge with a note to fill up the gas tank.
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."
There isn't a clear trend to more taxes in the US (scaled to GDP). Federal tax receipts were higher in the 90s (17-20%) than the 00s/10s (14-18%). Local and state receipts have been basically flat at ~8.8%.
Has GDP gone up or down over time? It's gone way up, so even if the percentage was constant, the amount of money collected has increased significantly. This is what I mean by a clear trend towards "not-less". Despite this increase, I don't think we're seeing proportional returns, and I'm very doubtful that increasing it even further will help anything. If the root problem is mismanagement/corruption/inefficiencies/pointless wars, throwing more money at it isn't going to fix anything, while taking money away could.
Until you start looking at what those other places are.
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.
>>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.
> Also, “less taxes are good for the economy,” is unarguably true
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.
>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.
We would also slow down the economy. Higher taxes = less spending = less GDP. The inverse is also true.
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.
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.
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.
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.
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.
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.
> 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.
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.
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.
For me that's only true if I itemize. With the standard deduction being $29,200 for me this year, that's a tall hurdle. And at that, the only benefit is any amount over the standard deduction.
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.
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.
"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
Quite a few politicians suggest we take one of the various approaches the rest of the OECD countries do, as they're clearly more cost-efficient... but that gets derided as socialism.
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.
The US can clearly afford both, as your chart demonstrates. It shows we pay more in tax than the other OECD countries pay in total, including taxes for healthcare.
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.).
Its corruption. Explain it in the terms I have on the national debate stage, everyone is on board. NHS style healthcare AND lower taxes. You'd win every election, but you'll never see that stage.
> The US can clearly afford both, as your chart demonstrates.
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 US government is currently paying as much per capita for healthcare as socialized systems, then individuals pay again. If we can afford what we're doing now, it's obvious that we could afford a socialized system. It costs less.
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.
> 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.
> How often do you ask a doctor to work for free? They still get paid by the hospital.
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.
> 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).
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.
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.
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.
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.
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.
> 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.
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.
Actually non-profits to have file just as much annual paperwork as a regular tax return, plus getting the status takes a long time and involves a lot of paperwork too.
And if they aren’t making a profit they aren’t paying taxes, regardless of filing status.
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.
> 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?
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.
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.
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.
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.
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
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.
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.
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.
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.
> 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.
The concept is this: When you're donating reasonably large amounts of money to charity (a church in this case) you can deduct that amount from your taxable income while simultaneously supporting an organization that you like (your church) If that feature goes away, and now you have to pay tithing on top of paying taxes at your full income tax bracket rather than a reduced bracket, are you still willing to pay your tithing?
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.
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".
> Taxing churches would then be a way for government to suppress and eliminate religion/religious organizations they do not like.
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.
> That said, I don't think I've heard of a case where IRS/government refused to acknowledge a claimed religious organization?
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.
Except churches would still be tax-exempt. All they would have to do is make their finances public, so that the people donating money to them know what that money is going towards.
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.
Your post seems to be misleading. Both rulings focus on selling goods to non-members, which seems rightfully taxable.
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.
> we should be "Reining in America's Overindulgent Lifestyle and Runaway Spending Spree".
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.
I don't think this holds water, especially when the default behaviour is to just treat them like any other business. You could make this absolutely dead simple by exempting donations from tax but taxing all other forms of income and removing all deductions.
My problem is the lack of transparency with how donations are handled. Many churches primary source of income is donations, which they turn around and spend on private jets, lavish clergy salaries, or even for-profit endeavors like giant shopping malls.
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.
> Many churches primary source of income is donations, which they turn around and spend on private jets, lavish clergy salaries, or even for-profit endeavors like giant shopping malls
You're describing maybe a dozen or less mega-churches - not the thousands and thousands of typical churches.
I personally don't really care how donations are handled, as they should mostly be after tax dollars. I care quite a lot about the tax sheltered growth and the avoidance of property tax most churches in most places receive though.
You could start an organisation to do exactly that and it would qualify.
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!
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.
It might make them feel even more empowered to inject their religious beliefs into politics. Nowadays there is a paper thin pretend curtain around that, I believe, due in part to tax exemption.
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)."
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.
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.
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...
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".
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.
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.
I deliberately avoided the usage of the term “charity” because the legal definition for tax purposes is indeed different from what people colloquially think of as charities.
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
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
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.
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.
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.
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?
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.
You're not taxed on it if you deduct your charitable contributions. (Presuming you're in the US, and don't make so much that you're under Alternative Minimum Tax, and maybe a few other assumptions...)
Yes, but only if I itemize. With the standard deduction being $29,200 for me this year, that's a tall hurdle. And at that, the only benefit is any amount over the standard deduction.
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.
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!
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?