Tuesday, May 27, 2008

Holiday Reading

New York Times reporter Stephanie Strom published a page one piece on May 26th once again raising the issue of charities' tax-exempt status, leading with "Authorities from the local tax assessor to members of Congress are increasingly challenging the tax-exempt status of nonprofit institutions — ranging from small group homes to wealthy universities — questioning whether they deserve special treatment." Her story cites a Minnesota Supreme Court decision requiring a child care center to pay property taxes because they charge one price for all regardless of any subsidies they may receive from government.

The article underscores that with the economy in recession, state and local governments are trying to replace shrinking tax revenues any way they can. Making tax-exempt groups prove they are actually charities - i.e, they give away their services - may be as much as the Times could come up with on a lazy, sunny, long Memorial Day weekend. Not to be disrespectful to Ms. Strom but this dog barks in every recession. As she mentions private hospitals as well have cut way down on charity care yet remain tax exempt. What she doesn't write is that the grumbling has been going on for decades with no legislative result. (See Oram Matters April 4th blog below).

Her piece also gets to the Congress's interest in going after wealthy universities, who pound for pound are much wealthier than hospitals. They have alumni. Hospitals have those who left vertically or their sometimes grateful families when they go out toes up. But Congress going after wealth through legislation is markedly different from local tax authorities squeezing local nonprofits. Legislation to force reform is going nowhere in an election year and if history is a guide not any time else either.

Immense wealth is ever more concentrated in fewer and fewer hands. For example the worth of the 20 richest Americans, reported by Forbes was $436 billion last year. Efforts to redistribute that wealth is really not an agenda item for any breathing politician or government official. Nor will it ever be. No matter how they may game the system and there's some pretty inventive stuff out there - including complex gifts to charity - the taxes these folks paid in are enormous, assuming an effective 15% tax rate that's $65.4 billion.

The aggregate worth of the universities is much less. MSNBC reported that the 20 largest endowments were sitting on 134.4 billion dollars. If these schools' spend rate was 5% - which it isn't - $6.7 billion would be going into operations and the cost of sending your kid to one of these schools could go way down. In fact a few have made big cuts in their tuition to respond to the pressure but most are sailing merrily on.

Loathing the tax collector is an American pastime and an attack on wealth concentration is not in the cards.

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