Wednesday, February 15, 2012

The Tax-Exempt Game

According to The Daily Caller, there is renewed interest on the part of Republicans in Congress in examining the tax-exempt status of Media Matters for America. And why not, given that Media Matters is very obviously interested in political outcomes and, as previously noted by TheDC and talked about here, has regular strategy meetings with the administration:
Media Matters also began a weekly strategy call with the White House, which continues, joined by the liberal Center for American Progress think tank. Jen Psaki, Obama’s deputy communications director, was a frequent participant before she left for the private sector in October 2011.
Tax-exempt organizations have to meet the requirements of the IRS code in that regard, specifically those in section 501(c)(3):
To be tax-exempt under section 501(c)(3) of the Internal Revenue Code, an organization must be organized and operated exclusively for exempt purposes set forth in section 501(c)(3), and none of its earnings may inure to any private shareholder or individual. In addition, it may not be an action organization, i.e., it may not attempt to influence legislation as a substantial part of its activities and it may not participate in any campaign activity for or against political candidates.
Now come on, who can seriously argue that Media Matters meets the bold-faced requirement? How is this even an issue? But the truth is, Media Matters is far from alone in this regard. Check out this website. Tax exempt organizations have over $5 trillion in assets and over $3 trillion in income. No doubt, many of these organizations are quite legitimate, do good things, fund research, help people in need, and/or provide valuable information and services.

Many of these organizations do not, however, fall under 501(c)(3) requirements. Here's a breakdown, according to 501(c) categories. Taking out all of the other categories still leaves the largest portion in the 501(c)(3) grouping, however. Hit the "play" button and watch how the size of this group has grown since 1991. That's some serious growth.

But back to the listings at Tax Exempt World (the first website). Assume--just for fun--that these organizations were not tax exempt. If that $3 trillion in income was taxed at an average rate (assuming corporate tax rates were applicable) of 25%, that would be $836 billion dollars in tax revenues (to be fair, changing the status of these orgs would impact income substantially, if donations by individuals were no longer tax deductible).

Of course, the idea behind tax exemption is that it allows charitable-type organizations to do more with the monies they have and receive, since taxes are forgiven. But here's the thing: all of these organizations--all of them--utilize services and infrastructure provided by state, local, and federal governments. So, why should they not pay for the services they use, the same as the rest of the population (well, most of the rest of the population at any rate)?

In the interest of full disclosure, other tax exempt organizations in the 501(3)(c) category include the Cato Institute, the Heritage Foundation, and the Federalist Society, all three of which I am a member of and write off contributions to on my own taxes.

And by the way, the fact that the first two enjoy tax exempt status is probably why you won't hear much from them on the issue of Media Matters' tax exempt status. Let's face it, both are politically active in ways similar to Media Matters. But I'd like to think that the powers-that-be at both (especially Cato) would welcome an end to the tax exempt farce.

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