Door Finally Opens to Taxing Non-Profits in 2018

Door Finally Opens to Taxing Non-Profits in 2018

The new Trumpian Tax Law just passed by Congress did a lot of very unfortunate things, most especially handing out disproportionate tax cuts and advantages to the most wealthy individuals and companies at the expense of everyone else. In fact, it is quite extraordinary that the Republicans produced major tax legislation, purporting to be a middle class tax act, which blatantly disadvantages the poor, elderly and ill while handing out generous tax breaks to the very rich.

But, in spite of all that, there was one small part of the 2017 Tax Law that broke new and important ground. Specifically, for the first time in history, a small group of universities with huge endowments will now be required to pay taxes, albeit a tiny 1.4 percent of their annual investment income. Granted the tax will fall on only about a dozen or so of the richest and most endowed universities (universities with endowments of more than $500,000 per student), leaving out many more rich colleges and universities, but it is a start. So-called non-profits (universities, foundations, research institutions, religious institutions, etc.) have forever been allowed to amass very large endowments free of any taxation. The new tax law breaks importantly with this tradition and is to be applauded.

Universities have long enjoyed a protected status in America, but they have also long abused that status. They have forgotten their responsibility to the larger good, raising tuition and fees year after year, well above annual cost of living increases. They have added, as well, obscene numbers of administrators and ostentatious facilities, and thrown their own students into larger and larger debt. It is well past time to hold these institutions accountable, and to tax some of their investment income just as corporations must pay the government a proportion of their profits.

But universities are not alone, there exist many large private foundations with huge corpuses, and they too operate without oversight, do whatever they want, and enjoy absolute freedom from taxation. Wealthy foundations like the Gates Foundation ($40.3 billion), Welcome Trust ($27.1 billion), Hughes Institute ($15.7 billion), Ford Foundation ($11.7 billion), and the Lilly Endowment ($10.6 billion) have always operated free of taxation. They do good work at times, much the same as universities in America, but they must not be allowed to operate free of responsibility to the larger public, nor exempt from paying their fair share of taxes.

Let’s hope that the new tax law represents only the beginning of opening the door to more equitable taxation of private and so-called non-profit institutions. However unfair may be the new tax law’s inequitable taxation of individuals, let us at least recognize and applaud the new law’s first-time taxation of a group of heretofore free-loader institutions in our midst.

Ari Socolow
Ari Socolow: Ari Socolow is the Chief Economist and Editor-in-Chief at BestCashCow. He is particularly interested in issues relating to bank transparency and the climate crisis. Since co-founding BestCashCow in 2005, Ari has been frequently cited in the media as an expert on local and national savings accounts, CD products, mortgage and loan products and credit card rewards products.

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