Monday, August 1, 2022

Tax Policy Center Study Estimates Benefit from Income Tax Exemption

An interesting new Tax Policy Center study by Nathan Born and Adam Looney estimates how much nonprofits gain from income tax exemption. While they found most nonprofits do not benefit, a small group earns significant benefits

They state: "a minority of tax-exempt organizations do earn large, persistent profits, and benefit a great deal from the tax subsidy: We found they saved around $21 billion in 2018. The largest beneficiaries are hospitals that charge more in patient fees than they spend providing medical care. They saved about $10.7 billion in taxes on their profits, 62 percent of the total subsidy. Universities that charge more in tuition than they spend on education saved about $1.7 billion. Public charities (a catch-all category of organizations financed by gifts from the general public), make up 44 percent of charities. But they saved $1.4 billion or only 8 percent of the total tax benefits."

They do not focus on 501(c)(3)s alone: "Within the tax-exempt sector, charitable (501(c)3s) were the largest beneficiaries ($17.7 billion). Civic Leagues and Social Welfare Orgs (501(c)4s) saved about $1.2 billion, as did Chambers of Commerce and Real Estate Board (501(c)6) organizations. Labor, Agricultural and Horticultural Organizations (501(c)5s) saved about $600 million."

Unsurprisingly most colleges and universities lose money and gain nothing from the benefit. 

"Colleges and universities are a case in point. While in aggregate they earned about $31 billion in investment income (mostly from endowments) and received $230 billion in revenues (mostly from tuition), they spent about $323 billion on educational and research services. On a tax basis, they lost money. Hence, the sector’s $1.7 billion tax subsidy is less than one might infer from examining endowment income or tuition revenue alone.

Within colleges, the subsidy is concentrated among a few profitable organizations. Some are well-known institutions with large endowments, such as Yale and Princeton. But some just charge a lot in tuition for low-cost and online education, like Liberty University, Savannah College of Art and Design, Southern New Hampshire University, or Grand Canyon University."

Find the full report here.

Philip Hackney

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