Get rid of 501(c)(3) entirely, tax everyone, and spend the extra tax revenues on social services rather than the opera. (Spend some of it on the opera as well, but set priorities more rationally than private philanthropy does.)
Problem solved. Also, you've now freed up a whole lot of IRS resources with which to audit rich people.
1: preach it.
Also I had no idea that Mr. Show sketch about the fake Make-A-Wish charity was actually a documentary.
Get rid of 501(c)(3) entirely, tax everyone, and spend the extra tax revenues on social services rather than the opera. (Spend some of it on the opera as well, but set priorities more rationally than private philanthropy does.)
When you say "Get rid of 501(c)(3) entirely, tax everyone," do you mean get rid of tax-exempt organizations entirely (which is what would seem to be implied by "tax everyone"), or do you just mean get rid of 501(c)(3) entirely (which doesn't make an entity itself tax-exempt, it makes contributions to that entity tax-deductible)?
Because I would be on board with the latter. But the former seems like a terrible idea.
Right, I'm on board with 3. Charitable organizations can be income-tax exempt, but donations to them shouldn't be deductible. Though I thought 501(c)(3) itself did in fact make charities tax-exempt.
3: I'm committed to killing the tax deduction (in the sense that nothing I do will have any effect on bringing that about). I like the idea of getting rid of tax exemptions completely, but I recognize that as wacky enough that if I paid attention to all the implications there's a good shot I could be talked out of it.
My grandmother was extensively ripped off by these kinds of organizations as she descended into dementia. Hundreds of thousands of dollars just disappeared. She was fortunate enough to have family nearby who stepped in and took over her finances before she utterly destroyed them.
You think you've got problems. Eton College (alma mater of David Cameron and the Duke of Cambridge, to name but two) is a registered charity, as are all similar institutions.
4: Actually, you are right. 501(c)(3) does makes them tax-exempt. I normally don't think of it that way, because you don't have to do anything to get that exemption, if you aren't interested in the deductibility of donations, whereas you have to seek a 501(c)(3) designation letter from the IRS if you are. But 501(c)(3) is actually the code section granting the exemption. So: doing away with that is a bad idea.
I like the idea of getting rid of tax exemptions completely, but I recognize that as wacky enough that if I paid attention to all the implications there's a good shot I could be talked out of it.
My modest proposal is to forbid using the tax code at all for encouraging certain types of activity. Make all tax breaks into checks directly from the US Treasury. Don't initially change anything at all in terms of who's favored and who's not, just change the way the money arrives in their pockets. I think momentum for eliminating the resulting set of entitlements might be enough to result in real reform, just based on reframing the issue in terms that lay bare the unfairness and meddling.
Also I definitely agree with 10. Let's get explicit about how much money goes to which organizations.
Charitable organizations can be income-tax exempt
Income-tax exempt and also probably more importantly property-tax exempt (which is a state and not a federal tax issue, but still), unless you don't want any charitable entities at all in any high-rent area of your city, and you don't want any land-intensive charities (think youth sports leagues, or even YMCA) to exist at all.
Make all tax breaks into checks directly from the US Treasury.
Isn't that what happens now for individuals? I itemize my charitable contributions and the IRS sends me a check. Then I use that check to pay private school tuition.
It is true that the IRS (and local governments) really do need to start being more aggressive about collecting tax from entities, like big hospital chains, that basically are just using the non-profit designation as way to engage in commercial activity. But I'd still keep some form of tax exemption for charitable nonprofits.
8: Why is that a bad idea?
Well, first, are funds donated to the entity "revenue"? I'd think they'd have to be. So we're swinging from giving people a tax break for donating to charity to having charities only collect, after taxes, ~65% of anything donated to them.
Also, more importantly, I think charitable activity is important and I don't trust the government to continue to "spend the extra tax revenues on social services rather than the opera" (or, more realistically, corporate welfare or tax breaks for the rich). And cutting spending on social services from the general budget seems a lot easier than rewriting the tax code to remove the charitable exemption. So, I'd expect this change to ultimately lead to less overall spending on charitable social services. And I oppose changes that do that.
13: Replace the tax exemption with direct government subsidy. It comes out the same in the wash, it's just more deliberately decided.
Replace the tax exemption with direct government subsidy. It comes out the same in the wash,
...until the subsidy is cut and then it doesn't any longer.
19: Which means you've either got to do some fairly great damage to the establishment clause or take on every religion in America at once.
There are efforts in multiple states to get hospitals off the tax-exempt list, unless they actually provide a lot of charity care. In the absence of wholesale reform, I'm very on board with that.
(Per ProPublica's Nonprofit Search, the biggest 501(c)(3) by revenue is Kaiser; reading down the list, the first non-health-related one is Batelle Memorial Institute at #7, then U. Penn, then Harvard. And the biggest 501(c)(4) is Delta Dental!)
I'd be down with some form of 19 (obviously all of this is pretty utopian -- even the most modest reform, removing the charitable deduction, is never ever going anywhere).
The biggest problem with the charitable income tax deduction, in my view, is that it massively disproportionately favors charities that benefit rich people, like the opera (sorry, I do love the opera but) or Harvard or Ducks Unlimited or whatever. The disproportionately-favoring-the-wealthy-and-charities-the-wealthy-like issue is less of an issue for the general rule exempting charities from income and property tax more broadly.
Ideally we'd have massive state subsidies for the fine arts and for universities, so that there would be no need for tax exemptions at all, I guess. But that really is pretty utopian.
UPMC is #4. That's pretty impressive considering we're the 23rd largest metro area by population.
or take on every religion in America at once.
I have to amuse myself somehow, don't I?
Yeah, I dunno, I mean, obviously the current system is screwed up, and needs, at the very least, broad-based reform, but I think we might be throwing the baby out with the bathwater here.
The thing is, operating a 501(c)3 is hardly the license to print money that these articles would have you believe. I mean, these are pretty complicated scams, with a lot of moving parts. Not just anyone could set up something that remains profitable to the tune of millions of dollars year-in, year-out, while scrupulously avoiding actually breaking the law (or at least giving evidence of doing so.)
Also, some of the terms of the article seem a bit screwy -- where did they get all of this "direct cash payments" business? I'm not opposed to Susan G. Komen because they're not writing checks to breast cancer patients, after all. There are a plethora of reasons why a really solid social service charity wouldn't make any direct cash payments.
Speaking of UPMC and tax exempt status, I linked to this article before. I'm still astounded by it, but not it is topical.
The biggest problem with the charitable income tax deduction, in my view, is that it massively disproportionately favors charities that benefit rich people, like the opera (sorry, I do love the opera but) or Harvard or Ducks Unlimited or whatever.
I don't disagree with this and, again, I'd support the elimination of the tax deduction. But, let's be honest: Congressional appropriations also massively disproportionately favor spending that benefits rich people. The poor aren't exactly a powerful lobby.
I'd feel a lot better about getting rid of the charitable tax deduction if it were part of a comprehensive reform a la 10. Get rid of the charitable deduction and the mortgage interest deduction and the capital gains preference all at once? Sold!
Well, first, are funds donated to the entity "revenue"? I'd think they'd have to be. So we're swinging from giving people a tax break for donating to charity to having charities only collect, after taxes, ~65% of anything donated to them.
Wouldn't donations be gifts? So ordinary people can give whatever they like to charity and the charity keeps it tax free, just like if you give money to your nephew, and anyone with the money to give more than the exclusion can pay the gift tax.
(But then does Congress use the new revenue to open more soup kitchens and properly fund the symphony or to increase subsidies to agribusiness and defense contractors? Which would you predict?)
Not just anyone could set up something that remains profitable to the tune of millions of dollars year-in, year-out, while scrupulously avoiding actually breaking the law (or at least giving evidence of doing so.)
That's a point - I bet these enterprises could still work without tax exemption. (They wouldn't show a lot of profit, too, since so much of their revenue goes to contractors and salaries.) So where do we fall back to - consumer protection law? Disclosure?
Not just anyone could set up something that remains profitable to the tune of millions of dollars year-in, year-out, while scrupulously avoiding actually breaking the law (or at least giving evidence of doing so.)
That's a point - I bet these enterprises could still work without tax exemption. (They wouldn't show a lot of profit, too, since so much of their revenue goes to contractors and salaries.) So where do we fall back to - consumer protection law? Disclosure?
Looks like only individuals are liable for gift tax.
Gift tax is against the donee, right? Or can you not give a gift to an organization rather than an individual?
Wouldn't donations be gifts?
Ooph. The IRS right now is very unreceptive to the idea that an individual unaffiliated with a for-profit entity can just give it a "gift" (and that no sale of goods or provision of services was involved)--for good and obvious reasons. I guess the law could change, and you could just have affidavits that no value was received for the donation (the same affidavits that nonprofits provide now, to justify your tax exmeption), but that seems to open a real enforcement headache, that quite a lot of non-charitable small businesses might try to wiggle through.
("I swear, Mr. IRS examiner, he just gave me a voluntary donation. Yes, I suppose I'm a lawyer and I gave him some legal advice, but it was worthless advice and of no value to him.")
Am I selling iphone apps for $0.99 each or am I giving away freebie iphone apps as a token of appreciation to anyone gives me a small voluntary donation to further my ambitions for a career as an artist?
Etc.
Don't non-profits have to do exactly that sort of accounting now? Deducting the value of the totebag from the donation, so that your $75 donation is only $73 deductible, because you got a $2 tote bag for it?
That doesn't seem like a hard class of fraud to police particularly.
I've never seen it for a tote bag, I've seen them list the value of a charity dinner that you can deduct.
But that is relatively simple because they just take what they spend on food/venue/balloon animals/etc and divide it by the number of tickets.
39: yes, non-profits do have to do that (although in your example the $2 tote bag would be considered de minimus, I think (without looking at the rules), and so they wouldn't have to deduct it). But nonprofit incentives here aren't particularly problematic--they don't pay taxes either way (outside of a UBIT scenario), they're just trying to get you what you need to claim a valid tax-deduction. FOR-profits don't currently have to do that sort of accounting, and not only is that a much larger class of companies, their incentives towards fraud would be wildly different, if we're saying they're avoiding tax on gifts recieved (but still paying it on sales of goods and services).
39.1: Yes
33/34: Yes, most arts non-profits I'm familiar with would rarely pay much in the way of taxes, even if they were taxable.* Even if you're theoretically liable for UBTI, it is almost childishly simple to avoid paying it, at least under the current set-up.
*Except for payroll taxes, which we already do pay, and which wind up being a fairly sizable chunk of the budget.
The big thing on the arts side of it is that almost everyone is totally dependent on foundation grants. If those were to dry up, you'd probably see 60-80% of the arts just cease. Making them taxable revenue (where not offset by deductions) would, as I aver above, probably not be that big a deal for us small fry, although your giant arts institutions would probably take a fairly big hit, if only because they have pretty decent finances, and actually do turn a "profit"/operating reserve a lot of the time.
18: So you think that firms that are tax-exempt do more good, as a class, than firms that are not?
Are credit unions, for example, that much better than banks? Do the not-for-profit affiliates of B\ue Cross B/ue Shield do more good than the for-profit ones? Does Harvard's investment fund do more good than a for-profit hedge fund?
Do the not-for-profit affiliates of B\ue Cross B/ue Shield do more good than the for-profit ones?
Have you seen the for-profit health insurance companies? Yes.
45. There are no investment credit unions, so I would say yes to that question.
So you think that firms that are tax-exempt do more good, as a class, than firms that are not?
How did you get this from 18?
I know a huge industry trade association, with some rather nice businesses attached, that's organised internally as a bunch of operating companies in Dublin reporting to a 501(c)(3) in the States.
Trade associations have their own tax exemption category here - 501(c)(6) - though only if they're nonprofit.
||
The shiny new admin is fantastic. (Our old admin, who's also here, is also great, but I'm not allowed to use her much.) Being able to throw a box of documents at her, tell her to give me a log of all the documents in the box, and get back a reasonable version in a couple of hours? Spectacular.
|>
(I did not actually throw the documents at the admin.)
49: If you want to subsidize one at the expense of the other, presumably you think the marginal non-profit is more socially valuable than the marginal for-profit.
"As a class" was an ill thought out wording which I regret.
presumably you think the marginal non-profit is more socially valuable than the marginal for-profit
18 doesn't say anything about "non-profits", it talks about charitable activity and spending on charitable social services. And yes, I think on the margin that a dollar spent on charitable services does more to increase aggregate social welfare than a dollar spent on private for-profit enterprise. Don't you? (I think that's true today, even with our tax breaks and exemptions for charitable spending, and I think it would be all the more true in a world without those tax breaks and exemptions, which was the scenario discussed in 18.)
56: It depends a lot on the exact definition of "charitable."
It's possible that charitable organizations do more good with the money, but there is also a lot of wasted feel-good activity, fundraising, etc. (That said, as an individual, I don't find it hard to find charities worth the money; but I would assume that the typical person is about as good at picking a charity as they are at picking a mutual fund.)
The 501c3 designation isn't strictly limited to what I would consider true charities, unless you would include, e.g., the Metropolitan Opera, which is a means for the rich to get tax deductions for buying entertainment and status symbols. So an argument for retaining the 501c3 designation should show that an average non-profit does more good than an average business.
I realize this is not possible to settle quantitatively, but I find it hard to believe that you think there's even a possibility that, at the margin, dollars spent on private profit-seeking create more social welfare than dollars spent on charitable activity of any sort, even if you restricted your definition of charitable activity just to the funding of snooty arts like the opera and snooty private universities with already large endowments, which I think we would all agree are probably just about the least socially useful of all possible forms of "charitable" spending. It's still, at root, arts and education, which we don't have enough of.
60: But we've just been shown an article full of examples of really crappy, scam charities that are clearly creating almost no social value for anyone. And there are plenty more charities that are less fraudulent, but still do very questionable things -- anti-abortion pregnancy counselors, for instance. There's plenty of more-or-less honest business enterprises that do very socially valuable things -- solar energy producers, or medical device makers, or science fiction publishers or what have you.
Sure but on net charity is going to beat for-profit widget makers every time.
Personally I'd be pretty sad if we lost the opera, especially the Met. And Harvard. Losing Princeton and Duke would be totally awesome though.
61: Honest business enterprises that pay taxes that are used to pay mercs from the Philippines.
63: Well yeah, that's why I'm not a capitalist. But the non-profit industrial complex would have you believe it is the angelic upstart of capital & empire, and it is really just part of the problem.
62.1: But what urple said in 60 was: I find it hard to believe that you think there's even a possibility that, at the margin, dollars spent on private profit-seeking create more social welfare than dollars spent on charitable activity of any sort. We're not talking about all of for profit vs. all of non-profit, we're talking about the marginal cases.
1: Also, you've now freed up a whole lot of IRS resources with which to audit rich people.
16, 000 of them. With guns. (Per Roger Ailes.)
I think you're confusing two senses of the (admittedly confusing) word "marginal." I agree that the worst nonprofit is worse than the best for-profit.
Maybe urple has invented a totally novel economics terminology?
Yes, 66. No question that there are a lot of charities that don't do a lot of net good, and a lot of for-profit companies that do. But on balance shifting more resources towards charities of all stripes would be a good thing. (And vice versa, the original point: shifting current resources away from charities in order to have more private economic investment would be a bad thing. Which is what the elimination of nonprofit tax benefits would do, if not replaced with direct government subsidies.)
Still not convinced. Where are some good numbers on what the overall landscape of 501(c)3's looks like? Obviously, I don't want the Guggenheim to shut down, or whatever. Nor even the jerky non-profit hospitals, even though they oppress nurses and screw over poor people. But there's a lot of 501(c)3 activity that's pretty questionable. And there are very good arguments against continuing anything even remotely like the status quo, where what is essentially a huge transfer of public wealth to private foundations puts a very coterie of wealthy, politically connected people in a position to massively influence the direction and outcomes of what are allegedly socially owned enterprises.
OT: WTF is up with the weather in NYC lately. We've had over sixteen inches of rain in the past five weeks, and now we're supposed to get another two inches through tomorrow.