Wednesday, July 16, 2008

Is that really a charity?

Governments and courts are joining me in questioning the tax-exempt status of a growing number of organizations. If they offer fees for services that are the same as similar for-profit organizations is the tax-exempt status really a ploy to reduce expenses?

The New York Times looked at the growing trend of governments and the courts considering taxing non-profits.

I consider the worst tax abusers right now might be "educational" institutions and hospitals.

Many colleges with large endowments financially are more investment holding companies than instructional institutions. Money from endowments in some cases is surpassing the fees for services. What amounts to an excess profits tax on endowments is being discussed.

Rich individuals have realized that establishing non-profit organizations to "educate" the public on political-social issues makes donations that are purely political become income tax write-offs. The abuse of nonprofit organizations for political purposes is part of the Abramoff scandal. The Republican "charitable" groups set up by Tom DeLay and Newt Gingrich have been clear abuses of the law. Some churches are also in danger of losing their tax-exempt status by not giving equal treatment to candidates and illegally endorsing candidates.

Many charitable hospitals appear to be transferring what would be profits for shareholders to salaries and perks to executives, administrators and employees. They are also reducing health care competition because of the cost advantage they get from their tax-exempt status. The amount of charity care these charitable hospitals are giving for their tax-exempt status has been an issue since at least 1990. Currently the Wall Street Journal reported that On Top of Tax Breaks, Nonprofit Hospitals Reap Big Profits.

People should consider the consequences of the present liberal use of tax-exempt status. What doe the future look like if some institutions are considered exempt from supporting government services?

In an extreme example, H. G. Wells looked at possible consequences if a charitable trust was set up to manage the wealth of a man in a trance for over two hundred years in When the Sleeper Wakes. The advantages that trusts have lead to most of the world being owned and managed by the board of the trust.

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