Tuesday, July 14, 2009

Providence Considering Taxing Private Colleges and Nonprofit Hospitals

A new wrinkle is emerging in the state law trend to impose PILOTS on tax exempt instituions in a quest to make up budgetary shortfalls.  Now, local municipalities are getting into the act.  According to the Providence Journal, the Providence City Council is initiating a study on how to squeeze money from local nonprofits:

 The City Council on Thursday agreed to establish a commission to study tax-exempt institutions. Councilman John J. Lombardi, D-Ward 13, who sponsored the resolution, says the goal is to come up with a uniform plan for collecting compensation for city services. Lombardi says the new panel is modeled on a 2003 council commission to study tax-exempt institutions. Shortly after the formation of that commission, Mayor David N. Cicilline signed a landmark compensation agreement with the city’s four private universities that gives the city $48 million over 20 years. Local hospitals were not parties to the agreement.

The trend is interesting because of its use of euphemisms and the implications for the independent sector if things really get out of hand.  A euphemism, it should be remembered, is an "inoffensive or indirect expression that is substituted for one that is considered offensive or too harsh."  Its like urinating out of a high rise window and telling the people below that its raining.  Some local governments call the velvet gloved fisted requests "payments in lieu of taxes," others call them "impact fees."  But, with apologies to Shakespeare, a tax by any other name is still a tax.  The trend therefore ought to be called what it is, a creeping repeal of tax exemptions spurred on by expediency rather than reasoned consideration.  A tax on "tax exempt organizations!  Why hide that fact?  Probably because legislators don't want to just admit that they are taxing charities.  The issue, by the way, is much more than that some charities are sitting on large endowments.  It is more akin, I think, to the government taking over the press.  Hyperbole?  Maybe.  But charities comprise the "independent sector" because they offer criticism, implicit or explicit, to orthodoxy.  A different solution, usually bottom-up rather than top-down.  Of course, there is nothing that says government has to allow for tax exemption.  But tax exemption has been in the federal tax code since its inception most probably because of an implicit recognition of the value of bottom up, grass roots problem solving.  I don't mean to sound Reaganesque.  Even Obama agrees that it is good to nurture grass roots movements alongside "big government."  But if we keep taxing nonprofits, by some other name or not, we will soon have only the latter (top-down problem solving) and none of the former (bottom-up solving). 



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