Wean nonprofits off special tax treatment

  • Article by: MIKE MEYERS
  • Updated: August 18, 2013 - 11:10 AM

Charity is wonderful — so wonderful it shouldn’t need a subsidy. Let’s wean the whole ‘nonprofit’ world off special tax treatment.


Photo: Michael Osbun, Tribune Media Services

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The Supreme Court and Congress have toiled tirelessly in recent years to ease that fear. They merit the thanks of a grateful nation — or at least a high-five from well-heeled lobbyists shilling for everything from hospitals to handguns.

A confection of the federal tax code known as 501(c)(4) — a name that barely hints at the obfuscation it fosters — has been the focus of some public discussion lately. But often not for the right reasons.

The right reason is the paragraph in the statute that allows any group that claims to be acting primarily in the “public welfare” — including by lobbying — to avoid taxes. Donations to such groups are not tax-deductible, but the enterprises, which themselves are fast-growing, thriving businesses, go untaxed.

In election year 2012, these lobbying groups spent $310.2 million trying to influence voters and politicos — nearly 60 times the spending of 2006. The growth was fueled by two key factors. First, the “Citizens United” ruling, in which the Supreme Court equated the free flow of political donations with free speech. And second — and here’s the big attraction — the tax code allows donors to such groups to remain anonymous.

Thus, the public-spirited but ever-so-modest benefactors who nourish these groups will not be mortified by public acclaim.

The outcomes are at best incoherent and often absurd.

The U.S. tax code is subsidizing: groups that want to build oil pipelines, and groups that oppose them; efforts to promote abortion rights, and drives to restrict them; labors to limit the sale of guns, and campaigns to ensure that every man, woman and child has a pistol on the nightstand.

In effect, taxpayers are underwriting builders and demolition crews with blind evenhandedness.

The only clear winners are lobbyists, advertising agencies and television stations drumming home the themes of their faceless benefactors.

The IRS has been accused of targeting conservative lobbying groups for extra scrutiny, a charge that’s been undermined by disclosures that liberal champions have been earmarked for similar reviews. In fact, conservative groups outspent liberals by nearly 7 to 1 in the last national election.

The hundreds of millions spent by lobbying groups probably soon will morph into billions. And yet, those tax havens make do with chump change compared with the $316 billion in total donations in 2012 to charities and nonprofits. Their special treatment results in tens of billions of dollars of forgone tax dollars for federal and state treasuries — money lost to the public in service of the private.

All the blather surrounding tax-favored lobbying efforts obscures a greater question. Why does the federal government continue to offer tax breaks to nonprofits, religious organizations and charities? Is doing so the best path to public welfare? Not likely.

Many charities do plenty to promote public welfare. You bet. Whether providing aid after floods, fires and earthquakes; giving children their first exposure to classical music or art, or helping to get food to the elderly, the instinct to help the less-fortunate is laudable. Such efforts deserve all those donor checks.

All those tax breaks tied to charity are another matter.

The public gets no vote on how all those tax breaks — called “tax expenditures” in the parlance of Washington bookkeepers — are allocated.

Many of these tax-exempt ventures, despite their banners of working in the public interest, adopt the practices of eat-what-you-kill capitalists.

Nonprofit hospitals are not known for offering bargain-basement rates to patients. They often pay their executives salaries of six -figures, even seven. A Houston, Texas, hospital, a nonprofit in the eyes of the tax code, had an operating profit of $531 million last year — a profit margin of 26 percent. It paid its chief executive $1,845,000 in 2012, a Time magazine exposé on health costs reported earlier this year.

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