> More than half (55 percent) of all the income generated by 501(c)(3) organizations comes from tax-exempt hospitals and health-care plans.
The median operating margins for hospitals is around 0% or some times negative. Injecting more costs into the system is only going to push prices further upward.
> The majority of tax-exempt organizations today are business-like in form and function, including credit unions, hospitals, utilities, insurance companies, universities, professional athletic associations, golf clubs, and consulting firms, to name a few.
I'm completely on board with clamping down on tax exempt status for a lot of these other businesses, though. Credit Unions are nice, but they're still just banks. Insurance companies are obviously businesses. Athletic associations, golf clubs, consulting firms -- What is even going on that allowed these to be nonprofits?
I work in the healthcare space and hospitals, in my opinion, are motivated by profit. The rise in private equity purchases of hospitals indicates that the money is going somewhere and it's certainly not any kind of "charity".
Perhaps many small, poorly run hospitals have consolidated into a handful of large, poorly run hospitals. Still, that's no excuse to let Kaiser Permanente generate billions tax free.
You could, but as described that would be a crime (almost certainly multiple crimes). Fraud, breach of fiduciary duty, self-dealing, just to name a few avenues that a prosecution could pursue.
It's the MO to extract profits from private, non-profit kindergartens here in Norway. Non-profit kindergartens get subsidies from the state, so it's lucrative to have that status.
The owners of the kindergarten hire the daily manager. They hire out the building itself to the kindergarten, as well as HR, accounting services etc. The prices are not 1000% market rate but certainly not competitive. By controlling the daily manager they make sure the kindergarten doesn't try to find better deals.
Thus the kindergartens make no profit, yet the owners can extract a decent profit regardless.
Pretty sure this idea was imported, and not something unique here.
In the U.S. this has come up in the healthcare space because the Affordable Care Act limits insurer profit margins to a specified value. People have been prosecuted and imprisoned for violating this requirement.
It would be fairly easy to hide with the byzentine beurocracy and lack of pricing transparency involved in health care. And even if you did get caught, I'd be surprised if the punishment was anything worse than a fine that pales in comparison to the money you made.
how about a 20% markup that could very well be reasonably defended as a fair premium for a better product over the market, and while doing that we could be buying a lesser-than-average product for this, which we later sell, netting us a higher markup in practice.
That's what lawyers and accountants are for. A transaction between a sufficiently complex web of inter-related legal entities is indistinguishable from arms-length transactions.
You do not buy a syringe for a 1000x markup. You stand up a group purchasing organization (GPO) as a subsidiary and spin off your entire procurement department to it. You have your negotiating team accept nominal trade discounts off catalog prices, and instead prioritize lump-sum off invoice rebates at various spending thresholds. So while you previously got a $50 syringe discounted to $25 from a supplier, now your group purchasing subsidiary is paying nominally less than ~$50 per syringe but recieving a lump sum rebate against accounts payable from a supplier equivalent to $25 per syringe based on your primary client's expected spending volume (which is pretty predictable considering your former procurement department turned subsidiary has been working with this supplier for ages).
The group purchasing subsidiary then adds a nominal markup of their supply catalog, say 20% or so. So that $50 syringe is sold to the hospital for $60. A 20% markup is considered fair and reasonable so your auditors give it their blessing. Suddenly the hosital is paying $35 more per syringe but the supplier is still getting the same $25 they always have. You also sign up another local hospital to join the GPO and negotiate even higher rebate thresholds. Both hospitals auditors and lawyers point to the industry wide practice of GPOs and their perceived benefits, making plausible enough defenses against both criminal and civil complaints. The executive team of the GPO that came over from their parent orgs and orchestrated this whole thing get generous (but fair market rate) employment contracts and benefits that just happen to absorb the maojrity of that $35 per syringe profit so very little ends up bubbling back up to the non-profit parent entities.
Do the same thing with selling your real estate to a real estate holding company, which leases it back to you at market rates (that just keep going up and up). Do the same with your nurses – spin up a nursing staffing company and contract all your nurse staffing through it. Same with physicians – spin off any directly employed physicians into a physician staffing company and conmtract with them for services.
As long as you follow the appropriate corporate formalities, you suddenly have a ton of knobs you can turn to engineer any particular operating margin you want your healthcare system to be perceived as having. This isn't limited to hospital systems, but with the prevalent level of inefficient middlemen entities that already exist in the US healthcare system and contribute to runaway costs, it's pretty damn easy to throw a few of your own into the mix in a manner that passes legal scrutinty around self-dealing. There are also plenty of liability-related reasons to justify such setups as well, so it's not purely a shift around profits from your tax-exempt non-profit entity.
And insurers don't actually care much at all about any of this. As they're required to pay out 80% of premiums as claims and only allowed 20% for administrative expenses and profits, the easiest way to increase profits is for claims to increase (and subsequently allowing the absolute value of that 20% piece to grow). If hospital charges go up across the board because of these sorts of shenanigans, that's as much a boon to the insurers paying out as it is to whatever lucky winners are siphoning off the profits from those related entity subsidiaries.
Sure, a nonprofit hospital can have administrators who make an obscene amount of money. But a for-profit hospital is equally likely to have such administrators. It's not like this is caused by nonprofit status.
We’re talking about hospitals. Many areas are served by one local hospital. And where there are several, it’s typically the ambulance who decides where you go. It’s also pretty difficult to compare one hospital with another.
IMO hospitals resemble utilities where market forces aren’t enough to guarantee good service.
> And where there are several, it’s typically the ambulance who decides where you go, not you.
Don't necessarily disagree with most of your sentiment, however the vast majority of hospital patients do not arrive in an ambulance, or even through the ER.
A lot of hospital services are elective or planned (surgeries, pregnancies, etc) and for those I've found it very helpful to 'shop' for the best options.
Also, the one time I was in an ambulance, they asked which hospital I wanted my daughter transported to.
All that said, it isn't always possible or feasible to choose - but it's not because of an ambulance.
> We’re talking about hospitals. Many areas are served by one local hospital. And where there are several, it’s typically the ambulance who decides where you go. It’s also pretty difficult to compare one hospital with another.
Paramedic here. It's typically, effectively, your insurance that dictates how we decide where you go.
If you're an acute, time-sensitive patient, then from a multitude of angles, "closest appropriate facility" makes sense.
Perhaps you dislike a hospital, or it's inconvenient, and you're not as acute or timely a patient, and your view is "I want to go to X hospital, and since I'm paying, why shouldn't I get to choose?"
As a paramedic, personally, I don't care.
However.
Your insurance does. And their perspective (sometimes rightly, and quite regularly wrongly) is that if you are well enough to bypass a hospital or multiple hospitals en route to a "chosen" facility, then did you need the ambulance? And if you didn't need it, why are "they" paying for it? And they can, and absolutely will, kick bills back to the ambulance company with a "please justify why an EMS transport was required versus advising POV (privately owned vehicle) transport or physician followup".
What they want to see happen, and what generally is actually the better option, as a provider is "we will go to the closest facility where they will assess and stabilize you as needed. if you then wish to be -transferred- to your facility of choice, they will organize that" (and, since the insurance criteria and questions are met, and a physician ordered the EMS transport, you should be covered). Though it is certainly less "convenient" for you.
Even beyond that, the area I'm in we have two hospitals. One is a Level 2 Trauma Center, one is a Level 3, but they're mostly comparable except for, well, acute trauma. We as providers will have a solid perspective of patient load in the ED of those hospitals, so I might ASK, not TELL you, hey, we might want to go to Hospital B, not A. And occasionally, though diversion is a convenience, not a concept under EMTALA (we can still absolutely show up at the ED with a patient even if they're "on divert"), some of the facilities here will round-robin to balance patient loads.
(Also, don't start me on Certificates of Need, where new hospitals essentially have to get the permission of existing hospitals in the area before they can open - essentially, "will you be okay if we take patients away from you"...)
And if you have several in the area, you might only have one that is in your insurance network. And that one may actually be substantially farther away than ones that aren't.
maybe if regulations and taxes weren't so high, there could be more competition? Transparency and the like would help...
Increasing taxes and removing alternatives is never a good deal.
"market forces aren't enough" government forces aren't enough either.
The VA is the penultimate example and I wouldn't wish that upon my worst enemy. That's where our veterans go to commit suicide in the parking lots waiting on help.
"The VA is the penultimate example and I wouldn't wish that upon my worst enemy. That's where our veterans go to commit suicide in the parking lots waiting on help."
The people I know who use the VA are quite OK with it. It's not perfect but none of them would want to put up with the insanity the rest of us has to.
Yeah... and the people that commit suicide in the parking lots waiting on help? They are chopped liver? They don't matter.
"it's not perfect" It's garbage and a prime example of government programs. Works for a few and fucks over the rest.
The ACA helps a few... and is built on lies - keep your plan? keep your doctor? save $2500 a year? Lies, lies, lies... a few million get help. The other 100m pay more, higher deductibles, lose their plans, lose their doctors.
But who cares about the 100m if the 1m get helped, eh?
the biggest problem is the wasted money, the lies and the people dying in the parking lots.
If you care about the people, look at the numbers across many different countries, not just US. The picture is pretty clear: US, with its mostly privately run and for-profit healthcare system, spends significantly more money per patient while achieving worse results for that money. The vast majority of Americans would get a better deal as far as their healthcare goes in literally every other developed country.
And it's gotten worse the more the government steps in to help.
The problem is the suggestion that government solutions will solve government created problems.
I have no problem admitting things can be fixed... but stuff like the unAffordable Care Act which is built on lies (Like your plan? Like your doctor? save $2500/year) is not going to solve the issues - nor is single payer, government ran solutions.
You'll never solve government created problems with government ran beauracracy.
Those other countries that have it better than we do have healthcare systems either run directly by their governments, or tightly regulated by it in a way that effectively means that the government decides how things are run.
Those other countries also have problems and people with money still go elsewhere when they need help. Rationing exists. Long lines exist. Denials exist. Shortages of doctors exist. etc.
The problem is that the conversation only focuses on the good parts of those systems and ignores the issues.
You can't have a real conversation and claim "have it better" when that may be true in parts but not in whole.
I don't claim the US system is better... or the best. But claiming that government ran or government overregulation leads to better is a lie. The VA is proof of that. the lies around the unACA is proof of that. The ever increasing prices and decreasing results due to government influence is proof of that.
Destroying what we have with something like the ACA isn't proof that government ran will be better... it's simply proof that people are willing to destroy what was working and claim that the destroyers will do a better job if only they have more money and more power.
That's like CA solving homelessness. "more money, more power and we'll solve homelessness" and there's never been more homelessness or less affordability in CA.
You're making an assumption that a hospital is a monopoly. I explicitly said "unless it's a monopoly".
Ok, if "many areas have one hospital"... I don't think that's true at all. Most areas have multiple hospitals. Most people live in metropolitan or suburban areas.
Depends on your definition. Do you only have 1 local hospital if there is another in a city that is a 2 hour drive away? Maybe only 1 hour? 30 minutes? Where do you draw the line?
I agree, there's nothing wrong with focusing on profit.
The "non-profit" organizations are given tax-exempt status because they are centered around providing a public or social benefit, they explicitly should not be focused on providing a profit to their owners.
In my opinion the majority of people can't afford to choose their hospital. Often it's the one that is within their means to travel and provides the service they require, regardless of the quality of their services. And, of course, after a serious accident you end up wherever the ambulance brings you.
The healthcare industry has been thoroughly regulatory captured, so profits generally represent steeper zero-sum wealth extraction rather than having provided mutually consensual transactions. We likely agree that the main dysfunction of the healthcare industry is the complete lack of price signals, but without multiple key dynamics being fixed (off the top of my head: the nonsensical ability to create post-facto bills not based on any contract, anti-competitive arrangement between "insurance" and "providers" in the form of price fixing "networks", lack of statutory maximum rates for emergency care), superficial deregulation would only make the problem worse.
As someone from the UK this is a strange thing to hear about a healthcare institution. In my view the end user is a patient and not a customer.
If a sandwich shop produces bad sandwiches then eventually people stop buying them and shop around. This doesn't work with hospitals. In the worst case, dead people can't shop around.
Your entire comment is based on that premise. If you gave folks the benefit of "not aligning with the majoritarian or stereotypical opinion" you wouldn't feel the way that you've expressed.
Credit Unions are far more than just banks. That's like saying Apple iOS and Linux are pretty much the same. They both do have similar features, but the relationship towards the user/member is arguably different in practice. I.e. cooperative owner vs customer-to-extract.
From my non-American perspective, any organization that exists to provide material benefits to its owners / members / employees / other affiliates is a for-profit organization. A non-profit should pursue public interests, and only its core activities should be tax exempt. If a non-profit operates a business, that business should pay taxes normally.
"Profit" means income in excess of expenses, and in for-profit companies the profit is used either reinvested or paid to the owners as a dividend.
Credit unions (and other US 501c3 organizations) do not exist to make a profit, and any income they have in excess of expenses is reinvested. There are no dividends.
You gave a specific legal definition in a single jurisdiction. It does not match the definition in many other jurisdictions or the intuitive understanding many people have.
From my perspective, there is no fundamental difference between an ordinary company distributing its profits as dividends, an employee-owned company distributing profits as higher wages or bonuses, and a coop distributing its profits by providing better/cheaper services to its members. They are all for-profit businesses. Only the mechanisms of profit distribution are different.
A company that exists to make money for its owners, who do not materially participate in the operations of the company, is (for me) substantively and qualitatively different from worked-owned coops, consumer-owned coops, credit unions etc.
I'd be interested in a jurisdiction that does not make this distinction.
My perspective was from Finland. Non-profit status there is tied to what the organization does rather than to the specific form of the organization. As a rule of thumb, if the organization competes against for-profit organizations, it's probably a for-profit organization for tax purposes. That covers most coops, including credit unions. There are of course specific rules for different types of organizations, but they don't change the big picture.
The US has a second form - the "benefit corporation" - that is based on what the organization does. It is possible to be a for-profit or not-for-profit benefit corporation, though sort of by definition almost all US not-for-profit organizations are inherently "benefit corporation" since otherwise they would likely lose their not-for-profit status.
But this reminds me ... I think that this conversation has not paid enough attention to the difference between the legal sense of a non-profit (in the USA, a 501c3 is the main classification, though there are others) and the colloquial sense (such as a credit union).
In the USA, you cannot be a 501c3 and also a credit union, for example. or a consumer owned cooperative. Nevertheless, people will sometimes refer to such organizations as "not for profit".
I think there's less difference between the USA and Finland than we've been suggesting.
Problem with this (in all kinds of contexts) is that it is trivially easy for any company to have zero profit.
Just give out all the profit as bonuses to execs and done, zero profit.
Or in cases where there is some oversight that makes it look bad, just hire a handful of consulting companies (just by random chance owned by friends and family of the execs) to do some highly overpriced work and get rid of the "profit" that way while still funneling the money back to them.
>Just give out all the profit as bonuses to execs and done, zero profit.
It gets taxed as personal income so where is the problem? Even if the execs are located in Georgia where dividends and stock appreciation count as foreign source income and remain untaxed, the bonus is considered to have been earned in Georgia and is taxed (at a low rate).
> It gets taxed as personal income so where is the problem?
The thread was about non-profits. So it's a way to run a non-profit that meets the letter of the law but keeps raking in enourmous profits by shifting them elsewhere.
There are other scenarios as well where this is abused. For instance regulated corporations that are supposed to have a cap on profits in an attempt to control prices. But that fails, because they can raise prices infinitely and just shift the profits elsewhere.
"Credit unions (and other US 501c3 organizations) do not exist to make a profit, and any income they have in excess of expenses is reinvested. There are no dividends."
A lot of non-profits funnel the "income they have in excess of expenses" to their execs or friends of the execs who provide business services. They don't reinvest or give to charity.
> Branches are not cheap to create or operate, and the large banks concentrate them in densely populated areas with relatively wealthy customers and businesses nearby. Community banks are willing to take worse economics to have branches in places where the large banks don’t; this keeps those places tied to the national financial system.
> This is a policy aim of the government, both due to the economic impacts and because most residents being banked is core to orderly provision of benefits, taxation, and other government functions. A bank branch is a retail point-of-presence for the SSA getting funds to a pensioner, for the IRS collecting payroll taxes, and for the DEA interdicting fentanyl, staffed and funded by the private sector.
From the excellent blog [1] that everyone interested in how the financial system operates should read.
The problem is that there are no truly 'public' interests, there are only clusters of private interests. Going down this route would eliminate all non-profits (which I'm not entirely against).
And other people claim that the personal is political and that there are no truly private interests.
In practice, there is a shared understanding what acting in the public interest means in that particular society. Laws can also provide a non-exhaustive list of examples to clarify the meaning.
I disagree that there is a 'shared understanding'; for instance, the latest Freakonomics podcast episode featured an interview where the subject stated that live theatre was a social good that was critical to a functioning society, and worthy of public subsidy. I like theatre, but think it's a luxury good. There are many similar 'interests'.
It obviously depends on the society. Theatres run or subsidized by a state or a city are common. In many countries, supporting national culture is seen as one of the key functions of the government. Most people in those countries agree with that, and even those who don't generally understand that they are in the minority.
Now we have to argue about "culture". I'd say, movies and net series are culture and well funded and popular with the public. No need for subsidies for unpopular "theater". Also, according to that same episode of freakonomics, average income for theater goes is $270k a year. Those fans can afford to pay for their preferred entertainment. The government does not need to subsides them.
What's the median? The median excluding NYC, LA, and SF? Why is freakonomics using average? They know that's a 'manipulate public discourse' number not really a useful one, especially for something that can easily have 1 or 2 9 to 10 figure net wealth individuals in attendance.
Public subsidies to movies are common, especially in countries that are not very popular in the international market. TV channels and streaming services are often required to have a certain amount of domestic content. Even video games get public subsidies.
What you say about the average income of theater audience sounds very foreign to me. I guess that elitist theater is the only form that remains viable when it has to rely on the market and charitable donations.
When I was a kid, theater was something you went to on a school excursion every year or so. It wasn't my thing, but some of my friends got interested in it. Later in the university, our student union had a semi-professional theater group that had become a national institution. Many student organizations had hobbyist theater groups. Even students of science started one shortly after I graduated. And before my time, socialist theater used to be a big thing. But that was when socialism meant actual socialism and primarily appealed to the working class.
> In practice, there is a shared understanding what acting in the public interest means in that particular society
No there isn't lol. Half of society thinks promoting one political party is in the public interest, the other half thinks promoting the other one is. Same for religions, same for handling unwanted pregnancies, same for education...
Promoting a political position or a religious belief usually counts as a public interest, as that's at the core of freedom of speech and religious freedom. I've never heard anyone claiming seriously that their political party should be a tax-exempt non-profit, while the opposing party should be a for-profit corporation that has to pay taxes.
In Germany there are housing unions (providing cheap rent for the members) and union banks / membership banks / Genossenschaftsbank (?) quiet common and tax exempt.
Both are motivated by money, but only one is motivated by profit. The drive to increase profits over and over, year over year, indefinitely is to the detriment of society as a whole.
Meanwhile, not-for-profit entities like credit unions don't need to justify not making an extra few billion dollars this year compared to last year, meaning they're less likely to make customer-hostile moves for their own sakes.
That's funny, because for-profit higher ed is notoriously, almost comically inferior in its product, how it treats its customers, and its fundamental soundness to not-for-profit higher ed.
What no one has stated so far is: jobs and salaries at non-profits have almost no discipline applied to them; market or otherwise. If they lose a little more money this year: ok, so what?
WETA (the public TV station) paid Sharon Percy Rockefeller $855,000 in 2022. The 12 highest paid employees all made more than $300,000. Maybe they are all "worth it" but how could you prove that WETA wouldn't function just as well at median salaries for everyone?
That shows a negative median operating margin for the last 5 years. How can an industry carry on losing money like this? This must be only part of the story, right?
You're still seeing heavy consolidation in the industry which is a clue something fishy is going on-- why would a hospital system choose to grow for instance? where would the $$ come from to buy other ones?
The answer is hospitals target negative operating margins to meet various rules-- even though their "surplus" (ie profit) isn't taxed, it has to be near-0 to maintain non profit status. And, besides the normal games of revenue timing and amortization, they expense profitable activities to related parties.
I agree, someone, somewhere is making money off this stuff and know how to hide it or all these hospital groups would be belly up in a few years. What’s even more scary is all the rural hospitals that are going bankrupt at an escalating pace (in the USA). I have lots of “country folk”relatives and I worry about them. The closest hospital to my mother Is 20 miles away, if that one shuts down the closest is 55 miles away. I have at least 5 within 5 miles of me, 2 of which are major regional surgical/oncology centers because I live in an urban area.
> seeing heavy consolidation in the industry which is a clue something fishy is going on-- why would a hospital system choose to grow for instance
Economies of scale. When an industry faces headwinds, characterised by broad-based low or negative operating margins, the standard move is consolidation.
> why would a hospital system choose to grow for instance? where would the $$ come from to buy other ones
Not all networks are for-profit.
By merging into larger networks, you allow hospital networks to consolidate the very expensive back-office processes like billing, insurance, IT, procurement, staffing, etc.
All the intermediate "glue" needed for medical care has grown expensive due to either compliance or general profiteering, which forced consolidation in order to leverage economies of scale.
This is why both for-profit and non-profit networks have been increasingly merging.
as an outsider to this system of systems, I don't think anyone understand all of the parts, or all of the dynamics going on.. details with factual references are very much appreciated on this weighty subject!
From the other side of the pond:
As my 10-year old summarized some time ago:
”the fire and rescue department needs fires, the police needs criminals and the hospitals need sick people. That’s kinda backwards!”
If these functions in society receive public funding, are of public interest, there should not be any way it’s main objective is to create finacial profit.
Hospitals certainly appear to be operated for the benefit of physicians and administrators, and their compensation is an expense not profit. The relevant statistic is highly compensated leaders, not profit.
True, though they'd still be paying payroll taxes. To me, it seems like the thing nonprofits could maybe let you "get away with" is building up an endowment that can fund sinecures, which could effectively turn it into a sort-of super IRA for the ultra-wealthy (i.e. with no required distributions for your beneficiaries after you die, you could have an effectively everlasting traditional IRA that your descendants control and could access through fake salaries). This has the side "benefit" of letting your descendants save face and pretend to have important charity work that they do as opposed to being a layabout that lives off great-grandpa's wealth. If you do it right, they might even believe it themselves!
Many hospitals never employ a single physician. Or next to zero.
Am a paramedic. All of the ED physicians in the Level 2 Trauma Center I take most patients to are not employed by the hospital, but by a collective called "XYZ Emergency Medical Providers". The hospital then (I don't know these details) contracts with the collective. I also believe, very similar to a union, that if the hospital wishes to hire a new provider, they may handle all the interviewing, but ask for the collective to hire them.
You’d have to be pretty naive, I’d say a nonprofit still needs to save some money to handle the ebb and flow of just existing and to have some money tucked away. I’m not sure how that works since I’ve never been part of one, but there has to be a way, because it’s the only pragmatic approach to anything that lasts more than a few months.
Healthcare systems costs and operations are a mess. Here are a few examples, hospital systems setup places that can do anything which adds complexity and increases costs. So, they are not cost optimized. The more a facility can do the more it costs to do any one thing.
Hospitals loose money on many procedures while making some money back on others.
There is also costs around staffing. For example, nursing schools aren't producing the growing number of nurses needed. Supply and demand kicks in.
> The median operating margins for hospitals is around 0% or some times negative. Injecting more costs into the system is only going to push prices further upward.
You only pay taxes on Profits (not Losses).
So what's the argument you're trying to make?
It's not like paying taxes would cause you to become unprofitable.
Having non-profits pay property taxes — similarly to how they pay employer taxes — seems like a good step. Property taxes are in part a fee for benefits which non-profits receive.
It would also incentivize local governments to encourage the growth of non-profits. Currently Cambridge's tax revenue is negatively affected by Harvard's growth...
And how will they do that? You can’t just “drive profits to zero by accounting nuisances”. Otherwise every for profit organization would do that.
(Although, separately, this is what IKEA does but they setup an extremely intricate multinational structure to achieve this, and this is what Amazon does, but that required heavy re-investment which only worked because the markets trusted the reinvestment would eventually be profitable and therefore invested in AMZN despite it not showing profits).
They’d have to do it by paying salaries or buying products, etc all of which are also taxed, and usually at rates higher than taxes on profits.
Yes but there are plenty of ways to do that with R&D, capital write-offs, “business expenses”, reinvestment, etc . I don’t think there are nearly that many for charities and other nonprofits. https://www.investopedia.com/financial-edge/0512/how-large-c...
Amazon did not consistently lose money. They were basically breaking even since the early 2000s and they proved they could turn on the profit faucet anytime they want once AWS came around. Although, they still heavily invest in infrastructure development, hence the continued low profit margins.
What they really need to do is be absolutely strict about tax-exempt status for religions.
If they want to be a religion and do good works, fine.
If they want to even mention politics from the pulpit, whether working for a candidate, advocating for or endorsing a candidate, or even organizing voting like "Souls To The Polls" (i.e., this will be politically neutral and affect both sides), then your organization is fully taxable.
Insane amounts of money is in circulation in the religious sector. If it is for good works, that is wonderful. If it is being diverted to political activities, that is not something the entire set of taxpayers should be effectively subsidizing.
Most of the money they take in isn't for truly "good works", it's just for building churches or more buildings and trying to convert more people. There's nothing wonderful about that. Even their free meals programs come with strings attached: poor people have to listen to a sermon before they're allowed to eat.
Yup. I was just writing on the charitable side. It wouldn't bother me if they taxed everything that was not gratis good works, such as feeding or housing people without sermons, but the bigger step that is really necessary is taxing the snot out of them if they touch politics.
I'd take it a step further (while allowing religious organizations to remain tax exempt still and even do politics if that's what they are into).
The rule I'd like to see is this: A religious organization's total assets may not exceed some reasonable amount for operating costs (private jets and mansions and multi billion dollar real estate and security holdings are out). Books are audited annually and publicly posted. Work out formula that say (for example) ministers pay may not exceed some multiple of average US salary, improvements to church facilities my not exceed some amount per congregant per decade etc. It could actually be very generous and allow nice churches and plenty of charitable work and well compensated ministry without the free for all grifting we have going on right now.
You can be a business, or you can be a religion and you have to chose.
I think this may actually improve churches many of which now are simply big scammy untaxed businesses selling not much of any use.
> The median operating margins for hospitals is around 0% or some times negative.
That so patently false it's almost comical.
Here's one source feel free to google. It's not hard to find evidence to the contrary.
> Nonprofit executives have embarked on an acquisition spree, assembling huge systems of hospitals and physician practices to raise prices and increase profits.
>The median operating margins for hospitals is around 0% or some times negative. Injecting more costs into the system is only going to push prices further upward.
Well if they can't run themselves within a budget constraint and require outside subsidy/transfers to function, they should be public services rather than private firms, for-profit or nonprofit.
Credit Unions are all managed differently, but in my region they stand out from banks in two ways:
The tax savings allow the Credit Unions to offer better interest rates on savings accounts than any of the local or national banks.
Credit unions in my area also keep mortgages in-house, so my interest payments end up paying salaries of local staff who shop at the same local grocers and restaurants I do. The CUs all have a half dozen brick and mortar facilities which each require local IT contractors, janitorial, groundskeeping services, and utilities. A dollar spent with them stimulates the local economy a few more times than if you sent it directly to a wall street conglomerate.
I'm not sure if tax law is the enabler for both of these distinctions but I'd hate to lose a unique local financing option to the thought that 'it's just another bank."
> What is even going on that allowed these to be nonprofits
They are operating as non-profits, as defined by the IRS code and the law?
"Athletic associations" for example includes your all your local youth sports clubs. There's a lot of activities that can be done for a charitable purpose that may be organized under 501(c)(3) and similar regulations.
Yeah a Credit Union is like a bank, but it's not a bank. It's not operated for profit.
All but the smallest non-profits all have to file an annual Form 990 which is mostly public. You can go look them up, if you're wondering what they do and how they spend their money.
If they have income that is not directly related to their charitable purpose, they are supposed to pay tax on that. According to TFA that is weakly enforced, and while that may need fixing we need to be careful that we don't throw out the baby wth the bathwater.
What is the baby here though? What's the benefit to having all these entities be tax-exempt? Would it really be so bad for the likes of youth sport clubs to pay normal taxes on their (presumably tiny) profits?
> The median operating margins for hospitals is around 0% or some times negative. Injecting more costs into the system is only going to push prices further upward.
Removing costs from the system will only increase profits, so why pretend that increasing costs will necessarily increase prices rather than decreasing profits?
(And before anyone plays the 'nonprofit' card, a nonprofit is only nonprofit in the sense that its net income must be zero. The owners and administrators of a nonprofit can most certainly profit by it.)
Credit unions and regional banks have historically been advantaged in the US because these types of lending institutions make up a disproportionate amount of rural and small business lending.
One notable feature of the banking system in the US is that it's relatively unconcentrated. Only three major banks hold more than 10% of deposits in the US, at which point the feds actively block bank mergers barring something exceptional, like JPMorgan Chase absorbing SVB to save it.
Perhaps limit employee income differentials in these non-profits and have stricter rules regarding definition of employment.
Require democratic voting among a broad membership, including customers and/or employees, not a tiny board passed down among a small group of insiders.
Of all of these, I support credit unions having this status. Their members have a democratic vote.
These hospitals are spending immensely on expansion. Just think about how every (or the one) hospital around you seemingly has all manner of offices and facilities everywhere. Many even have gyms/"wellness centers".
You don't build a gym when you are borderline bankrupt. You build a gym when you need to spend money.
These are detached gyms that are functionally a Planet Fitness with Hospital_Name branding. There is no medical staff or patients, they have a network of rehab facilities for that.
A healthy proportion of local American hospitals were set up and later expanded through many, many rounds of charitable proto-crowdfunding in the first place. Fraternal (Shriners), ones with Saint in the name, and so on.[0] Credit unions were of course formed to provide local lending pools in good times and bad and to smooth out the peaks and troughs of credit availability.
The phenomenon that a lot of American credit unions now advertise and compete with the capital markets (for where to get money from, or where to invest it) and with interstate banks, or that farm-credit nonprofits compete with nationwide programs, is an unanticipated and relatively recent legal development (and most interstate banking holding companies themselves are only 40-50 years old - before that, they couldn't coordinate across state lines).
The wider phenomenon that it sometimes seems like "everybody with the choice to do so" is merging into the fast lane due to red tape and other incentives is partially sampling bias, but even if it's true I don't consider it to provide proof that we should get rid of any remaining slow lanes. Probably we need more specific types of slow lanes, some of which will let you switch lanes later but cost you the back taxes.
There are many different nonprofit tax code section 501 types already, but I don't think that nonprofit status itself is a very well tailored conceptual solution to answer "what kind of slow lanes are useful nowadays?"
There are many commons and cooperative options that are hard to shoehorn into 501(c)(3). It would be nice to have some social benefit activities protected from taxation even in otherwise-taxable cooperatives.
While some American state legislatures have enacted a "Low Profit Limited Liability Corporation" or L3C status available, the first thing you learn about it is that it is no different in tax status from any other LLC. HM Government in the UK offers a CIC or Community Interest Company business model, and this requires all profits to be reinvested for the benefit of a geographical area designated by the enterprise, and has an asset lock so that its possessions cannot be distributed to shareholders, although there can be shares traded -- all of which might be steps in a promising direction. But again there is no tax exemption (partial or total) for which these social enterprises are specifically eligible.
I see this sentiment a lot with US internet providers - "but they aren't making any money as is, it must be a real tough business environment". I think there are limitless ways for bad actors to make lots of money in a broken market that doesn't mean there must be a unidimensional monopolist giga corp at the center of it raking in all the margin.
I mean, if they’re not turning a profit, taxation isn’t going to be a problem, but what I really want to know is: the USA has the most expensive health care system in the world, with the worst outcomes of any first world system. How is it not making money?!
> The median operating margins for hospitals is around 0% or some times negative. Injecting more costs into the system is only going to push prices further upward.
The median operating margins for hospitals is around 0% or some times negative. Injecting more costs into the system is only going to push prices further upward.
> The majority of tax-exempt organizations today are business-like in form and function, including credit unions, hospitals, utilities, insurance companies, universities, professional athletic associations, golf clubs, and consulting firms, to name a few.
I'm completely on board with clamping down on tax exempt status for a lot of these other businesses, though. Credit Unions are nice, but they're still just banks. Insurance companies are obviously businesses. Athletic associations, golf clubs, consulting firms -- What is even going on that allowed these to be nonprofits?