Is it Time to Tax Non-profit Organizations?

The Dallas Business Journal (September 16-22, 2011) posted a list of the top 25 executive salaries in non-profit businesses in North Texas. The numbers are shocking!

The figures on total compensation come from the most recent fiscal year reported, and they include salary, bonus, benefits, and vague category called “other.” Of the top 25 listed, there are thirteen health care organizations, primarily the hospitals and facility networks that fall under the auspices of non-profit status.

Texas Health Resources

The top compensation package belongs to the CEO of Texas Health Resources, a large and growing network of medical facilities, currently owning 24 hospitals in the area. The compensation for the CEO with Texas Health Resources is reported to be $5,716,724, which includes a salary alone of over $5 million, and over one-half million in the category of “other.”

The total revenue for THR in the same time period was $334,944,000. In other words the CEO’s compensation equals about 1.7% of the organization’s total revenue. If you went to a THR hospital last year, and you and your insurance company were billed $10,000 for a short stay, Mr. CEO himself was paid $170 of it. This is a new definition of “obscene.” It also represents one decent paying 8-hour day of wages ($21.25/hr). And, this is just one example of one short-stay billing for one patient.

Texas Health Resources can also tout, if they want to show off their numbers, having positions five and fourteen on the DBJ top 25 list. Together, just among the top 25 executive salaries, THR paid out in total compensation of almost $7.5 million. This is roughly equivalent to the salaries of 43 U.S. Senators or 300 regular jobs at $25,000 annual salary. Swallow hard, and look at this next example!

Baylor Health Care System

Baylor Health Care System is one of the area’s most highly regarded medical operations. The DBJ top 25 list includes six executives within the Baylor system. The total compensation of these six executives is reportedly $4.85 million, roughly equivalent to the salaries of 28 more U.S. Senators.

Other Medical Facilities and Systems

Other top 25 executive salaries within the general category of health care are employed by Children’s Medical Center, Cook Children’s, and Methodist Hospitals of Dallas. Through the organizations of these five entities, including the aforementioned two, one would suppose, is the majority of health care distributed to citizens of North Texas. It is safe to assume, based on the THR statistic cited above, that one dollar out of every one hundred dollars the citizens of North Texas pay in health care goes directly into the wallets of a relative handful of executives.

Dallas-Fort Worth Hospital Council

It should also be mentioned that number 21 on the top 25 list is the President and CEO of the Dallas-Fort Worth Hospital Council whose total compensation is listed as $451,156. Sitting on the council’s ledger beside revenue of $2.99 million, this chief executive receives about 15% of the fees they receive from member organizations, such as hospitals and other medical facilities.

The Dallas-Fort Worth Hospital Council describes their mission as (from their website):

Creating innovative solutions through collaboration and coordination of efforts; Serving as advocates for day-to-day issues that affect hospitals, while balancing the demands of the region with state and national issues; Providing the most accurate, timely and comprehensive information to our members and other constituents; and, Improving the workforce numbers in our region.

Advocacy sounds a lot like lobbying. Guess who sits on their governing board? There are thirteen regional hospital executives who make up this board of trustees. Ten of the thirteen are in positions as CEO or president of their hospitals.

It’s Not Just Health Care

While health care executives dominate the DBJ’s top 25 list, there are some notable surprises: the Boy Scouts of America (#4 at over $1.2 million), Carter Blood Care (#6, the only woman in the top 10, $1.05 million), three institutions of higher education, the American Heart Association, the United Way, the YMCA of Metropolitan Dallas, The State Fair of Texas, two performing arts organizations, and the Dallas Convention and Visitors Bureau.

Altogether, the top 25 executive compensation packages amount to $26.5 million per year. This would roughly fund the entire salaries of the President of the United States, all 100 U.S. senators, and about 10% of the U.S. House of Representatives.

An Idea

It does not make sense that non-profits can pay this kind of money to top executives without the organizations being subject to the corporate taxation that for-profit companies must pay. It is a poor reflection on what it means to be charitable. It is UN-charitable and greedy.

It is, perhaps, time to reconsider the non-profit tax exemption status. There are reasons beyond this issue of executive compensation. Churches and tax-exempt religious organizations are among the worst offenders of the spirit behind the tax-exempt status. While the law allows a modest degree of political activity, it strictly forbids tax-exempt religious institutions to participate in political campaigns, either for a candidate, or in opposition to one.

An organization will be regarded as attempting to influence legislation if it contacts, or urges the public to contact, members or employees of a legislative body for the purpose of proposing, supporting, or opposing legislation, or if the organization advocates the adoption or rejection of legislation.

Organizations may, however, involve themselves in issues of public policy without the activity being considered as lobbying. For example, organizations may conduct educational meetings, prepare and distribute educational materials, or otherwise consider public policy issues in an educational manner without jeopardizing their tax-exempt status. (IRS website)

Subsidizing extravagant compensation packages, partisan political activity, and safeguarding cronies of old “wink-and-a-nod” politics is beyond the pale for ordinary taxpayers. It is not a partisan issue, but one in the best interest of taxpayers generally.

(A portion of this article first appeared on Blogcritics, written by the author.)

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