Eliminate Tax Exemptions!!
Lee Hustead
In certain media circles lately there has been much ado about the IRS tax exemption status of certain entities such as that of ALEC (e.g., see http://www.truth-out.org/news/item/30809-wielding-new-evidence-watchdogs-push-irs-to-investigate-alec-for-tax-fraud).
While I agree with the sentiments generally expressed in such complaints it is, in my opinion, only the tip of a huge dirty iceberg. Think about it — exactly what does such a tax exemption and associated contribution mean? Among other things it means that those who qualify (most taxpayers do) can choose to pay their favorite tax exempt organization rather than our general interest US government. As the income tax bracket increases, the real cost of a charitable gift decreases, making contributions more attractive for those in higher brackets. The actual cost in the lowest bracket (15%) for a $100 contribution is $85. For a person in the highest bracket (39.6%) the actual cost is only $60. Not only can the wealthy afford to give more, but they receive a larger reward for giving. What a great benefit for the “you should hate your government” segment. What they really intend is that you should hate your government except to the extent it is acting in their favor (military/industrial complex, low taxes for them and their special interests, and legislation beneficial to their narrow interests, etc).
According to the US House Committee on Taxation as of 2005 there were 1,540,534 Tax Exempt organization in the IRS Master File, not including Churches and other religious organizations because those are not even required to file. See page 19 of [http://www.jct.gov/x-29-05.pdf]. The American Society of Association Executives (ASAE) asserts that there are now more than 1.9 million such US associations. Wikipedia notes (under “Trade Associations”) that there are over 7600 national trade associations in the US with approximately 2000 of them headquartered in Washington, DC (is there any wonder why?). Wikipedia also notes (subtitled “controversy”) that a common criticism of trade associations is that they are not per se “profit-making organizations that do valuable work which is ultimately for the public benefit”, but rather they are in reality fronts for “price-fixing cartels” and other subtle anti-competitive activities that are not in the public interest. The author’s own “Institute of Electrical Engineers” has and continues to accomplish much in the public interest but they also publish/promote an “Engineers Guide to Influencing Public Policy, subtitled Effective Lobbying at the Grassroots Level” - whose content is, in my opinion, directed primarily at — candidates and legislation for the benefit of engineering and engineers. You can read some of it here: [https://www.ieeeusa.org/policy/guide/grassroots.html]. Of course narrow interests will always support their “narrow interests” and that is exactly why contributions to none of them should enable a tax exemption. They are an exception to “government of the people, by the people and for the people.
And who pays for the lobbying of some 7600 plus trade associations — you do. Lobbying by a trade association is a tax exempt business expense, 100 % deductible, the same as the cost of the materials and labor used for a product or service. See [http://www.nolo.com/legal-encyclopedia/deducting-dues-subcriptions.html]. That cost is thus a part of the cost of every bottle of milk you buy for your baby, a new refrigerator, your rent, your electric bill, etc. So you the general public pay for over 7600 national trade associations to lobby against your general interests and for their special interests.
Non profit is not the issue. According to the National Center for Charitable Statistics non-government non-profits accounted for 9.2% of all wages and salaries paid in the US in 2010 (other remuneration unknown). Do they do good things for the general public — absolutely yes, most if not all do. For example about 58% of the hospitals in the USA are non-government and non-profit, most of them affiliated with churches or other charitable organizations (e.g. Shriners). Many hospitals are owned/operated by state and local governments and of course all state and local governments and such things as Credit Unions sponsored by any government are exempt from federal income taxation. There are many elements of Federal Legislation and the IRS Code that declare and or deal with clarifications of operations that justify tax exemption on the basis that in point of fact the entity truly has no profit. See [http://www.jct.gov/x-29-05.pdf]. The argument here is not concerned with non-profits per se because, of course, non-profit means there is no profit to tax. The remuneration of the employees of non-profit entities is not taxed differently from the employee remuneration of “for profit” entities. And certainly non-profits are entitled to capital accumulation for growth and expense the same as a “for profit” entity. It is the tax deduction for contributions to IRS qualified “tax exempt” entities that constitutes the “huge dirty iceberg”.
Tax exemptions have a long history. In ancient Egypt (Ramses III) Priests and their temple estates were exempt as were those who worked for them, the fishermen, fowlers, natron gathers, salt-gathers, etc. See [http://www.reshafim.org.il/ad/egypt/economy/taxation.htm]. During Constantine’s reign the Christian Bishops and Priests of the Roman Empire and their workers and estates were exempt from taxation — but since in effect the entire christian church was in the employment of Constantine at that time (his empire paid for new churches, christian Bishops were official counselors to the Emperor, etc.) it might equally be said that his government was exempt from the government tax. Prior to the so called English “reformation” church taxes (collected by the church from its members) were paid directly to Rome (in conformance with royal law) while afterwards the very existence of the roman catholic church organization remained illegal (would not agree to the Kings divorce) until the 19th century. See [http://en.wikipedia.org/wiki/English_Reformation]. I would say the history of tax exemption has primarily been a history of each (government and exempt entities) paying for the support of the other. But presumably now we in the US should have government of the people, by the people, and for the people, and taxes should be levied accordingly.
At the time of the enactment of the US income tax in 2013 its provisions applied only to the highest incomes, the upper 2% of the population, and did not provide for tax deductions for contributions to any entities. See [http://www.taxhistory.org/thp/readings.nsf/ArtWeb/C82515A4B6B7A24C85257D1B0041C86E?OpenDocument]. The income tax deduction for charitable contributions (so named) was introduced by the War Revenue Act of 1917. Income tax rate increases were enacted to fund the US involvement in WW1, and legislators ostensibly feared that the rate increases would reduce individuals’ income “surplus” from which they supported charity. See [https://www.jct.gov/publications.html?func=startdown&id=4506]. (If you suspect other reasons, not admitted in writing by our US legislators, you are not alone!)
The narrow interests of organizations benefitting from tax exempt contributions is broad and expanding at a rate of over 35% every 10 years. See [http://www.jct.gov/x-29-05.pdf]. Those interests include children, babies, labor unions, teacher retirement associations, farm cooperatives, insurance cooperatives, churches and religious organizations, various disease trusts, agricultural seed organizations, mutual insurance companies, cemetery companies, homeowners associations, etc. See [http://www.irs.gov/pub/irs-pdf/p557.pdf].
The tax deduction for religious entities has been frequently but unsuccessfully challenged over the years on the basis that such an exemption violates the first amendment (Congress shall make no law respecting an establishment of religion). In my opinion the US Supreme courts justification is patently frivolous (see [http://scholarship.law.wm.edu/cgi/viewcontent.cgi?article=2747&context=wmlr] but will probably remain unchanged pending election of supreme court justices (because political nominations will always be political). As to exempt contributions for all the other narrow interest entities, courts have either avoided ruling or determined that the US constitutional provision for the income tax (16th Amendment) equally provides legislative authority for exemptions — an interpretation that seems reasonable to this writer. Interestingly enough the use of this interpretation should then be that the US Congress can also disallow any tax exempt contribution including those for religious entities. So what we need to fix the huge dirty iceberg is a congress elected by a huge turnout of the general interest US public.
Well, you might ask, why not just eliminate only the worst, such as the Trade Associations? But who are we to say they are the worst? The Trade Associations would scream bias, why not also eliminate the Professional Associations and Labor Unions? And all of these and others would scream that their work is just as much in the public interest as that of the churches, and on and on. Non profits and narrow interest organizations are generally wonderful, but taxation should be unbiased and universal with respect to all narrow interests. That means — no exemptions for contributions to any narrow interests, but rather taxation of the people, by the people, and for the people.
BE AWARE - At least on my Mac clicking on the underlined items will open my web browser and find the referenced item. However web sites change frequently and a click tomorrow may not find/display the same item as it does today. == Lee