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Michael Osbun, Tribune Media Services

Wean nonprofits off special tax treatment

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

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.

The blurred lines between nonprofit and for-profit are everywhere.

The AARP, once a clear advocate for oldsters, today looks more like a marketing arm for UnitedHealthcare insurance.

The National Rifle Association claims to represent 3 million members. Polls show most of those members favor background checks for people buying weapons. But the NRA stands opposed. Its views more closely represent the interest of gun manufacturers than of all those donors sending in small checks.

The Bill & Melinda Gates Foundation, Ford Foundation, W.K. Kellogg Foundation, Robert Wood Johnson Foundation and Rockefeller Foundation in 2011 had more than $7.1 billion in donations beyond the reach of tax collectors. They also fostered links to food and pharmaceutical companies with a stake in their grants, according to a study that year by researchers at Harvard, the University of California, and the London School of Hygiene and Tropical Medicine.

While no one has accused the people running the Minnesota Orchestra of lining their pockets, they’ve behaved like union-busting, hard-charging business managers out to pare spending at any cost. Paying construction workers expanding Orchestra Hall took priority over paying musicians.

Nonprofits are antidemocratic, by definition, and often plutocratic in practice.

Symphony orchestras, art museums, private libraries, dance companies and other philanthropic enterprises routinely have directorships composed of affluent elites culled from the ranks of corporate boardrooms.

Do rank-and-file donors have much say in how these institutions are run? No. Typically, the real power is in the hands of 60-year-old white guys — or their spouses. The boss at work ends up also being the boss in the community.

What’s worse, tax breaks on charitable contributions are regressive. For every charity dollar given by a household living in a McMansion, 35 cents or 40 cents are saved on the family income tax bill. Lesser mortals get charitable tax breaks worth far less because their income tax rates are lower.

If a loaded benefactor wants his name on the side of a new hospital wing, that’s great. But let him pay for it. All of it.

Face it: “A thousand points of light” — President George H.W. Bush’s celebratory descriptor for private charity — sounds better in principle than it plays in reality. Herbert Hoover touted the same idea amid the cold winds of the Great Depression. Passing the hat is a feeble answer to coping with many economic and social problems, from education to health care to disaster relief.

In a $16 trillion economy, only government has the resources to feed the hungry, tend to the sick, educate the population and, yes, promote the arts more consistently, and with deeper pockets, than private charity.

Maybe the idea sounds naive, given the corrosive politics of the moment. After all, Republicans in the U.S. House in July failed to finance food stamps. Yes, the move was cynical and stupid. But politicians are susceptible to public outrage. Make the cuts a political fight.

When charities have trouble raising money in hard economic times, where are irate citizens supposed to protest? At country clubs and plush resorts? Besides, during economic slumps, the middle class seems even more likely to cut back on giving than those with deeper pockets.

I’d choose government as a benefactor over private charity, at every turn.

In questioning tax breaks for philanthropic enterprises, nothing should be sacred. Especially churches. They’re where the real money is.

While ending tax breaks on churches and their property surely would bring howls of harming God’s work, exactly what work is that? Building megachurches and vacation resorts with TV-generated cash? Bankrolling media, retailing and insurance conglomerates? Inserting church “values” into political debates?

One person’s faith is another person’s flapdoodle. Why subsidize religion through the tax code? Test the flock’s religious ardor. Do true believers really require tax subsidies to practice their beliefs? A lot of money changes hands in the temple.

The 2012 statistics on nonprofit donations, compiled by the National Philanthropic Trust, offer a snapshot of givers’ priorities: Religion, $101.54 billion; education, $41.33 billion; human services, $40.4 billion; grantmaking foundations, $30.58 billion; health organizations, $28.12 billion, and public-society benefit groups, $21.63 billion.

Private charity sometimes fails to reflect the interests of the public. For instance, while churches claim the largest chunk of charitable donations, only four of every 10 Americans regularly attend church. Why are the people who stay home on Sunday subsidizing those who spend the morning singing hymns and passing the offering plate?

A nation with more than 1.5 million nonprofits practices charity. It should apply focus.

Tax deductions for private charity leave the government with billions less in revenue to do the public’s business. Meanwhile, citizens are further removed from decisions on how to spend money on “public welfare” than they would be if government had a direct hand in doing work now left to charities.

It’s possible the status quo won’t endure. Right-wingers never have been keen on a complex tax code, riddled with “tax expenditures.” On the left, do-gooders should see that government has the potential to be a more reliable benefactor than the perpetual rounds of charity balls, fundraising appeals and $100-a-plate ­rubber-chicken dinners that are staples of the nonprofit arena.

Will the nation ever make the shift? Someone should form a 501(c)(4) group and start lobbying.

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Mike Meyers, a former Star Tribune business reporter, is a Minneapolis writer.

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