My April 24th column (“Let’s tax Yale — Here’s why and how”) created more of a dustup than I anticipated. In the column, I tried to deflect the state employee union’s search for new tax revenue in Yale’s direction by, in essence, making a case for taxing Yale’s endowment — based primarily on the “tax-the-rich” meme unions keep recirculating. Yale is, of course, rich, as these things go.
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My April 24th column (“Let's tax Yale — Here's why and how”) created more of a dustup than I anticipated. In the column, I tried to deflect the state employee union's search for new tax revenue in Yale's direction by, in essence, making a case for taxing Yale's endowment — based primarily on the “tax-the-rich” meme unions keep recirculating. Yale is, of course, rich, as these things go.
The dustup that blew back on me was all defensive of Yale — ranging from an indirect jab from a lobbyist who suggested that this was not the kind of argument a nonprofit organization advisor (which I am) should be making, to a rock-ribbed fiscal conservative saying we should shrink government with budget cuts instead, and finally, to a comment by my wife (Yale class of 1980) that we should be grateful to have a world-class institution of this type in the state.
I agree with the fiscal conservative and my wife, but think the lobbyist missed the point, which is the following.
The uncompromising attitude of union leadership (in the face of a mountain of unfunded obligations we will never be able to satisfy in full) has finally brought us to a tipping point that has put the unions in an adversarial position relative to just about everyone else in the state — including our nonprofit organizations, of which Yale is the largest and most prominent member.
This is an unfortunate and frightening development for policy reasons discussed later, and it puts the state's nonprofit organizations in a new (for them) and uncomfortable position in which their own economic interests (and survival in some cases) may compel them to advocate for a smaller state government, union concessions, and, last but not least, pro-business regulatory and legislative changes to get the state's economy kick-started so there will be more money in the system.
None of our nonprofits are immune, as the traditional tax exemptions afforded to them are being tested and in some cases threatened with elimination. Throughout the state, local tax assessors are challenging the property tax exemptions that are vital for smaller nonprofits. The legislature has suggested eliminating the sales tax exemption nonprofits rely upon for goods and services they purchase, and the state has shortchanged nonprofit social-service providers for a decade, pushing their employees' compensation to near minimum-wage levels while equivalent employees at the state make twice as much.
These developments are disturbing because nonprofit organizations exist (and they are policed by the IRS on this) to fulfill what the law recognizes as a charitable and public purpose, which includes everything from health care and education to social services, shelters for the homeless, the arts, and everything in between.
Moreover, these organizations are precluded by law from having shareholders or owners who, as such, have a right to a share of any of the organization's income or assets. In other words, to the extent our nonprofits are taxed there is less money for them to use for the charitable and public purposes for which they exist, and more for state government to use to try to make a dent in the billions of unfunded retirement and healthcare promises that are not affordable. Money is fungible, so don't let anyone tell you anything different.
Unless and until union leaders and their acolytes in the legislature prove competent to face Connecticut's “new economic reality,” large nonprofits like Yale may be more of a target than one would think. There is, for example, in the state constitution, a tax exemption that applies to Yale's “income,” but “income” has a very precise meaning in this context; and under modern investment statutes that first became law in the early 1970s, a constitutional exemption for “income” would likely not preclude a state income tax on capital gains in Yale's endowment.
I mention this only to suggest that Yale may have more of an interest in governmental reforms than one would think because it cannot follow General Electric to Boston, nor could the many other nonprofit organizations upon which we depend to care for our citizens and that enrich our lives in innumerable ways.
John M. Horak is the director of TANGO Nonprofit Education and Consulting.
