THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Monday, June 26, 1995 TAG: 9506220036
SECTION: FRONT PAGE: A8 EDITION: FINAL
TYPE: Editorial
LENGTH: Medium: 59 lines
Sen. Alan Simpson, R-Wyo., has been holding hearings to question the nonprofit tax status of the gigantic senior-citizens lobby - the American Association of Retired Persons.
Whatever else it is, AARP is brilliantly successful. Annual dues are just $8, but it's a low-price, high-volume strategy. The organization signs up almost everyone who passes the 50-year age threshold. Membership stands at 33 million. That gives AARP unparalleled clout in Congress.
It would be naive to overlook the political reasons for Simpson's interest in the AARP. He's for pruning entitlements, and AARP is a major force for their preservation and expansion. But motives aside, Simpson's inquiry raises interesting questions because AARP is far more than a benevolent association of lobbying groups. It is big business.
AARP pays taxes on profits for mutual funds it markets in conjunction with Scudder Stevens and Clark and on advertising revenue generated by Modern Maturity magazine that each member receives. Together, these accounted for $55 million last year.
But total revenues were $382 million and most of the rest was tax-exempt due to AARP's nonprofit dispensation. Less than half - $146 million - came from dues; most of the rest from royalties for letting other businesses use the AARP name and logo to sell products.
Prudential sells insurance to AARP members, and Amoco a motoring plan. Other companies market pharmaceuticals, car rentals and a wide range of other products and services.
AARP has been locked in contention with the IRS over this issue. The feds have claimed the association isn't really making its millions from royalties on its name, which is tax-exempt, but from selling its mailing list, which isn't. The IRS is pursuing a similar inquiry in regard to another 800-pound lobbying gorilla, the National Rifle Association. It too earns income from sales of health insurance and bank credit cards it endorses.
Simpson has set his sights on an issue worth raising, but focusing exclusively on AARP would be a mistake. The big question is - when is a nonprofit not a nonprofit? Churches qualify for the status, but more than one self-enriching televangelist has abused the privilege. When lobbyists like AARP turn into money machines, why should they qualify for a tax break not available to other profit-making businesses? When charities spend more on executive overhead than on good deeds, do they deserve nonprofit treatment? Where should the line be drawn? Or should it be drawn at all?
If anything, Simpson's inquiry may simply highlight the need for tax reform. It can be argued that AARP is abusing tax loopholes. But it can also be argued that the tax system is an abuse. And it's not unheard of for the IRS or politicians like Simpson to use the tax code as a stick with which to beat organizations that have fallen afoul of them.
We might be better off if the opportunity didn't exist. Under a flat-tax scheme, much of the exemption nonsense would cease. Under a consumption tax, profit or the lack of it would be immaterial since income would not be taxed. by CNB