States should consider ending the absurd practice of granting property tax exemptions to charitable organizations. Exemptions like those narrow the tax base and cause everyone else to pay more. Moreover, the organizations receiving exemptions use public services.
I know that's a political pipe dream. Just the suggestion that they should pay property taxes causes universities, hospitals, and religious groups to go into a frenzy. Universities and hospitals commission studies to show how many jobs they create and what a gargantuan impact they have on the economy. But those are fallacious arguments. For-profit enterprises do the same things and still pay taxes.
The exempt groups then fall back on the old canard that they provide a public service. Private universities and hospitals charge for their services -- and unless you've been off the planet for the last decade, you know they charge a lot. Religious organizations are trickier because they fall back on the First Amendment. But I challenge anyone who thinks that making churches pay for the government services they use would somehow burden the free exercise of religion.
Ending all exemptions won't happen -- at least not anytime soon. I once heard a rabbi say that the way to unify the main religions is to threaten their exempt status. The universities and hospitals are big, powerful, and armed with highly paid lobbyists. But there are steps that can bring us closer to better tax policy.
For example, Vermont lawmakers have approved a proposal (S 221) to repeal the statewide property tax exemptions for buildings owned by social fraternities and sororities. Those organizations are fighting back, of course (I note the irony that Vermont's property tax is earmarked for education). They argue that property taxes will result in the loss of their property and that their members will be forced to live in more expensive housing. They point to all the public services they perform to justify their exemption.
It's true that paying property taxes will make maintenance of frat houses more expensive. But why should the public -- that is, non-frat members -- pay the bill? When fraternal organizations don't pay property taxes, someone else pays more. Frats can raise their dues, charge more for housing, or host a toga party fundraiser. Their property taxes shouldn't be everyone else's problem.
And then there's the public service argument. There are service fraternities that do nothing but good deeds; they generally don't offer housing. Sure, most social fraternities do perform public service. But universities across the country are requiring or strongly encouraging all students to engage in public works, so I'm not convinced that members are doing more than nonmembers.
Several people told me that other nonprofits are supporting the Vermont fraternities and sororities. The idea is that if lawmakers determine that Greek property should be taxable, other exempt properties might be next.
I've never belonged to a fraternity, but in my youth I attended more frat parties than I could count (or remember). I saw the fun side of fraternity life -- which, when I was in college, revolved around booze, drugs, and debauchery. I don't think all fraternities are reincarnations of Animal House's Delta Tau Chi (although that would make my argument irrefutable), and I'm sure most fraternity and sorority members are studious, upstanding students. But I don't think the universities should be tax exempt. For me, ending the exemption for fraternity property is an easy call.
This post is an excerpt of an article that first appeared in State Tax Notes.