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1 Scott Hodge, Reining in America's $3.3 Trillion Tax-Exempt Economy 1 (2024)

handle is hein.taxfoundation/rinaca0001 and id is 1 raw text is: * TAX FOUNDATION Reining in America's $3.3 Trillion Tax-Exempt Economy Scott Hodge President Emeritus & Senior Policy Advisor June 2024 Key Findings • For over a century, lawmakers have exempted politically favored organizations and industries from the tax code. As a result, the tax-exempt nonprofit economy now comprises 15 percent of GDP, spans more than 1.8 million organizations, and manages over $8 trillion in assets. In 2019, it pocketed more than $238 billion in net income. • The tax-exempt sector is overdue for review and reform. The U.S. needs a principled, rules-based approach to 1) distinguish between benevolent organizations and tax-exempt businesses, and 2) level the playing field between the business activities of nonprofit and for-profit entities. • Many industries exempted from the income tax were designated as such in the Wilson-Gorman Tariff Act of 1894 and the Tax Act of 1909, but they reflect the social norms of the 19th century, not our 21st century economy. • 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. • Business-like income has been the fastest growing source of income for 501(c)(3) tax-exempt orga- nizations over the past 30 years, now accounting for 71 percent of their income. Charitable donations make up just 12 percent of nonprofit income. • More than half (55 percent) of all the income generated by 501(c)(3) organizations comes from tax-ex- empt hospitals and health-care plans. The largest nonprofit in America is Kaiser Permanente. Kaiser's health plan, hospitals, and state health plans generated over $110 billion in revenues in 2019. • In 2019, there were 325 501(c)(3) nonprofits with more than $1 billion in revenues-nearly all of which are hospitals and universities. • The unrelated business income tax (UBIT) rules that were intended to rein in tax-exempt businesses have become toothless and have allowed the growth of large nonprofit businesses. • A reasonable rewriting of the tax-exempt rules should include narrowing the definition of public char- ity and subjecting all non-charitable income to the corporate tax rate of 21 percent. Doing so could raise nearly $40 billion annually in new tax revenues. The Tax Foundation is the world's leading nonpartisan tax policy 501 (c)(3) nonprofit. For over 80 years, our mission has remained the same: to improve lives through tax policies that lead to greater economic growth and opportunity. TAX FOUNDATION 1325 G STREET, NW, SUITE 950, WASHINGTON, DC 20005 202-464-6200 1 laxfoundation.org