TIME's Michael Grunwald: Hey, Let's Just Tax Every Non-Profit

May 31st, 2013 6:50 PM

Time magazine's Michael Grunwald got to thinking about how to end IRS abuse of power when it comes to reviewing applications for tax-exempt status. But somewhere along the line he opted for the ol' liberal standby: more TAXES!

In his commentary piece, "One Nation, Tax Exempt," Grunwald held out the idea of completely eliminating tax-exempt status for non-profits:

The entire concept of a tax-exempt nonprofit—not only the controversial 501(c)(4) social-welfare shelters but also motherhood-and-apple-pie 501(c)(3) charities and foundations—is odd. An organization that doesn’t make any taxable profit shouldn’t need a special status to avoid paying taxes. My wife owned a retail store that didn’t pay taxes during the Great Recession; it was an unintentional nonprofit, which is why it no longer exists. Charities, foundations and other intentional nonprofits shouldn’t need tax exemptions unless they have profits they need to shelter. Which many of of them do.

In 2012, the U.S. had 1,616,053 tax-exempt organizations, 10 times the number of fast-food restaurants. Harvard University is tax exempt even though it has a $31 billion endowment; it’s basically a huge hedge fund with a lucrative merchandising operation attached to a school. The NFL is also tax exempt, to help its owners keep more of their profits away from Uncle Sam. The Prostate Cancer Foundation [sic] doesn’t pay taxes either, although it did pay its CEO $1.2 million. You may or may not like the Heritage Foundation or Planned Parenthood, the Chamber of Commerce or the AFL-CIO, the Boy Scouts or the NCAA. But the tax dollars you send to Washington help ensure that none of those groups has to send any tax dollars to Washington.

Of course, questioning tax-exempt organizations makes it sound as if you hate soup kitchens and Kevin Durant (the NBA star whose foundation gave $1 million to tornado victims), not just country clubs and Alex Rodriguez (whose sketchy foundation actually lost its exemption). It’s almost as impolitic as questioning the tax deduction for charitable donations. But as long as I’m using my chain saw, the charitable deduction, which costs the Treasury nearly $50 billion a year, is another perk for folks who want hospital wings in their name. You can’t take advantage unless you’re rich enough to itemize. The higher your tax bracket, the more you benefit from the deduction.

The real beneficiaries of all this complexity, aside from 1,616,053 CEOs, are the lobbyists, lawyers, accountants, consultants and other middlemen who help navigate it. A more rational society would simply tax moneymaking individuals and businesses, then use the revenues to finance vital services the private sector won’t provide. If altruistic Americans also wanted to support symphonies and Rotary Cubs and scouting groups with perverse views about homosexuality, fine! They just wouldn’t receive tax advantages for their altruism, and neither would the groups.

Consider this a mutation of the "Apple is greedy because it doesn't pay enough in taxes" meme. Surveying the landscape of the nation's 501-exempt entities, Grunwald argues for elimination of tax-exempt status and throws in some quite successful non-profits to gin up an emotional response.

[Oddly enough, there are other kinds of 501(c) subsection groups he failed to excoriate, like 501(c)(13)s -- cemetery companies --- but we already know liberals are okay with death taxes.]

What's really motivating him, however, is not a concern that basic government service is being shortchanged by rather that there are millions of dollars floating around in the non-profit sector rather than in the hands of government bureaucrats to be spent at the whims of politicians.

"A more rational society would simply tax moneymaking individuals and businesses, then use the revenues to finance vital services the private sector won't provide," he huffs.

So wait, getting rid of tax-exempt organizations will somehow cure irrational political behavior? Somehow, now flush with even more cash -- at least in the short-term -- politicians will rationally, wisely, and equitably allocate money without corrupting influence?

Something tells me the average local volunteer fire department chief -- who raises money for his 501(c)(4)-chartered fire company to buy trucks and equipment as it is now -- would beg to differ.

Grunwald wants to burn the 501(c) superstructure to the ground and on its ashes raise a bigger, even more bureaucratic government. A "rational society" does well to question whether it might be Grunwald who's out of his mind.