Washington Highlights: April 22,
2005
House Committee
Reviews Size and Growth of Tax Exempt Sector; Explores Ways to Improve
Laws and Regulation, Oversight
Contents
Prior Issues
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Suggesting that tax-exempt organizations do not have "constitutional
rights," House
Ways and Means Committee Chairman Bill Thomas (R-Calif.) said
it was time for Congress to review the tax-exempt sector. "Tax-exemption
is an important benefit and the Congress has a responsibility to
oversee and assure the American taxpayer that the tax-exempt sector
is living up to its legal responsibilities," said Chairman
Thomas. Government representatives and tax law experts reviewed
the size and growth of the tax exempt sector, the evolution of the
501(c)(3) laws and regulations, as well as recommendations to improve
the law - through both legislative/regulatory changes and oversight.
According to George Yin, chief of staff of the Joint Committee
on Taxation, there are 28 different types of tax-exempt organizations.
Charitable organizations "is by far the largest category, comprising
two-thirds of all organizations" stated Mr. Yin. Among charitable
organizations not including churches, the largest category of organizations
are hospitals and post-secondary educational organizations, holding
29 percent and 21 percent of total assets respectively and collecting
42 percent and 11 percent of total revenues.
Douglas Holtz-Eakin, Ph.D., director of the Congressional Budget
Office, indicated that because the ownership structure of untaxed
business entities differ significantly from that of for-profit firms
(i.e., there are no shareholders), "managers of non-profit
entities have different incentives from those managers of privately
owned businesses. Taxation of these entities might not generate
as much revenue as initially anticipated because taxation would
bolster managers' incentives to reduce or eliminate entities' tax
liabilities by using more of any surplus to cut prices, boost costs,
or both."
Several academic witnesses, including University of Illinois College
of Law Professor John Columbo, criticized the tax-exempt law as
"more or less 'just happen[ing]' without a great deal of thought
regarding why we hand out tax exemption." In light of an unspecified
"rationale that allows us to tie down exactly what good behavior
should be rewarded with exemption," Professor Columbo suggested
that exemption be limited to entities that are substantially dependent
on donations for their operating revenues each year.
Bruce Hopkins, a Midwest tax lawyer, recommended 12 areas in which
Congress should consider making changes. One of the areas includes
spelling out the criteria for tax-exempt status such as "address[ing]
what is charitable, educational and scientific." Stated Mr.
Hopkins, it is in this "setting that law could be created stating
criteria for exemption for hospitals."
Frances Hill, professor of law and director of the Graduate Program
in Taxation at the University of Miami School of Law, suggested
that the tax-exempt law further focus on development of the "concept
of public benefit." Ms. Hill argued that Section 501(c)(3)
should specify categories of person who may receive the benefits,
thus providing a foundation for exemption. "Greater attention
to issues of the concept of a charitable class would help eliminate
confusion and would protect the diversity f dynamism of the exempt
sector."
David Walker, comptroller general of the U.S. Government Accountability
Office (GAO), testified that good governance related to operations
and transparency of entities' practices "are essential elements
to ensure that tax-exempt entities operate with integrity and effectiveness
in carrying out their missions." Mr. Walker also mentioned
how the Internal Revenue Service (IRS) has been challenged to provide
oversight of the tax-exempt sector; however, the IRS is renewing
its attention to the sector. Mr. Walker recommended that the IRS
and states could improve their oversight practices with more data
sharing.
Information:
Lynne Davis Boyle, Assistant Vice President
AAMC Government Relations
ldavisboyle@aamc.org
(202) 828-0526
Newly Released Document Outlines Cost of Changing
Medicare Physician Payment Formula
Proposals to change the Medicare physician payment methodology
would cost as much as $154.5 billion over 10 years, according a
new table of estimates
released by the Congressional Budget Office (CBO).
The $154.5 billion estimate reflects the cost of replacing the
sustainable growth rate (SGR) methodology with an update that accounts
for increases in the cost of providing care (the Medicare Economic
Index, or "MEI"). This option is similar to one supported
by the Medicare Payment Advisory Commission (MedPAC). Freezing payment
rates at CY 2005 levels would cost $48.6 billion over ten years.
A two-year extension of the physician payment provisions in the
Medicare Modernization Act (MMA), which set the CY 2004 and CY 2005
updates at 1.5 percent, would require $20.8 billion in additional
spending over 5 years. However, the temporary increase would not
eliminate the SGR methodology, which produces negative updates to
compensate for spending that exceeds annual targets. Subsequently,
the table shows that the ten-year cost of the two-year extension
would be $1.7 billion due to significant payment reductions in CYs
2011 - 2015.
Another proposal to retrospectively and prospectively remove physician-administered
drugs from the SGR calculation is estimated to cost $114.2 billion
over ten years.
Information:
Christiane Mitchell, Senior Legislative Analyst
AAMC Government Relations
cmitchell@aamc.org
(202) 828-0526
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