Get the latest tech news

Reining in America's $3.3T tax-exempt economy

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, roughly equal to the fifth-largest economy in the world.

The vast majority of tax-exempt organizations are business-like in form and function, such as credit unions, utilities, insurance companies, hospitals, universities, professional athletic associations, golf clubs, casinos, cemeteries, and consulting firms, to name a few. Unfortunately, the guardrails lawmakers have created to prevent unfair competition from nonprofits have been either too weak or too flexible to draw firm lines between benevolent activities, such as a local women’s shelter, and large business enterprises, such as the $1.1 billion NCAA. Overall, nearly 70 percent of university income comes from “program service revenue,” which includes tuition, fees, ticket sales from sporting events, patent royalties, rents from dorms, and cafeteria sales—all considered substantively related to their mission and, thus, exempt from taxes.

Get the Android app