Autobiography - The Galindo Group

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Ram Galindo THE MAKING OF AN AMERICAN Page 220 In Texas the current sales tax is 8.25 % of the invoice cost. When buying any equipment, parts or supplies the private owner is obliged to pay the state 6.25 % of the cost of his purchase and the city of its residence up to 2 %. Its tax-exempt counterpart contributes nothing. When a customer signs up as a member, the private club charges 8.25 % tax on all dues. The tax-exempt charges nothing and remits nothing to the state or city. This not only creates a significant increase in operating costs for the private person, but also hurts the state’s revenues, which must seek other taxes from the same tax-paying groups that are already overtaxed. Even worse, at year’s end the local school district, city, county, hospital district, fire district, drainage district, junior college and other ad-valorem taxing authorities together demand a property tax payment sometimes in excess of 3.9 % of the gross market value of the private club installations. The tax-exempt entity pays nothing. This by itself is an overwhelming imposition on the businessperson trying to deliver a service against such unfair competition. What is equally bad however, is the loss of revenue for local governments. Every one of these local taxing authorities turns around and makes up that loss by taxing again, at a higher rate, the already overtaxed private investor. Finally, if by extreme better management and great good luck, the private club is able to make a profit, the federal government taxes it immediately. By inference it follows that if in the face of these overwhelming negative odds some private clubs are able to make a profit, the tax-exempts most certainly must make a greater surplus. Yet, none of it is taken by anybody. As long as it observes the bureaucratic rules and definitions of “notfor-profit,” these surpluses remain entirely for its own use, as only it sees best to use. This is the dream of the American system! Should we all now claim tax-exempt status? The fact that this sector of the economy continues to grow unabated seems to indicate that more and more people are doing so. As all informed Americans know, Senator Phil Gramm has been a very incisive and courageous figure among our national leaders. His perception of the relative weight of factions lobbying politicians is equally shrewd. When I brought this issue up to his attention his response was, “Touching the YMCA is getting too close to touching Mother Church.” He declined to do anything about it, and I still wonder why Mother Church herself should be tax exempt. This effort demonstrated to me then, and I have not changed my mind today, that practically all of our laws are made reality by the most powerful lobbies. Neither the grassroots, the legislators or the executive power, will pass a law without the input of the lobby. I see this shifting of law-making power as a potentially serious soft spot on the armor plate that protects our system. Obviously, this business model glares with unfairness and it must be changed lest everyone file for tax-exempt status. The difficulty is not in understanding the message. Everyone who sees it understands it. The difficulty lies in disseminating it among the right people. The tax-exempt lobby has been around for a long time and at its top it connects industries as basic and disparate as health, education, housing, Autobiography.doc 220 of 239
Ram Galindo THE MAKING OF AN AMERICAN Page 221 transportation, electric generation and banking to name a few. Entrepreneurs are a ragtag bunch of isolated, usually small, businesspersons unable to pool resources. Despite the efforts of a few leaders such as Jack Farris, who built-up the National Federation of Independent Businesses (NFIB) as the most coherent and strongest voice for small business, it is most difficult for them to wield significant group-clout. Although it is widely believed that in the large scheme of things the revenue loss for federal, state and local governments is only marginal, I think this thesis is incorrect and needs to be studied in more depth. In my experience, gaining access to lawmakers is not enough. A coordinated and massive public education program lasting years is necessary to disseminate an understanding of this clear weakness in our tax system. It operates against the innate desire of all people to compete on a fair and even playing field. During the Texas legislative session of 1999, I attempted to introduce a “Fair Competition” bill for consideration by the lawmakers. My efforts were to no avail. After that close personal experience with the process of originating laws, my thinking is now affected by a better understanding of the tactics used by large tax-exempt organizations to secure their privileged positions. This view has been further strengthened by experiences such as the Rec Center at TAMU, the Bryan hospital and the Houston health fitness clubs that I related before. They have led me to the conclusion that, as things stand today, it is not important how much of the charitable funds raised by tax exempt organizations really reach the intended beneficiaries. Tax-exemption is not driven by charity. It is driven by the power of the delivery organization. Due to the intermingling of markets and services within the organizations themselves, to my knowledge, there are no generally accepted accounting rules to determine correctly and clearly the efficiency of the charitable segment of their operation. This murkiness makes it hard to assail their charitable claims. Therefore, they would rather keep it murky. I continue to be a strong believer in helping the less fortunate among us, and I will continue to seek opportunities where my little grain of help can go directly to the needy, and not to the delivery organization. Taking a sheet from the advocates of school vouchers, where the taxpayers’ money would go directly to the student rather than to the schools, I can envision a more enlightened public policy where an effort could be made to empower the intended beneficiaries more than the delivery bureaucracies in the distribution of charity. Again, this is certainly an important, but to my knowledge, not heavily researched issue. --- 054--- VOLUNTEERISM Autobiography.doc 221 of 239
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Autobiography - The Galindo Group

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