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Effective the first of this year, the Tax Cuts and Jobs Act imposes a 21 percent excise tax on nonprofits that pay $1 million or more to their five highest-paid employees.

The tax applies to all remuneration, including non-cash benefits, with some exceptions. The tax is on salaries of the executives, not medical professionals such as doctors, nurses, or veterinarians.

Sharp HealthCare and Scripps Health will probably be hit hardest. I asked the two organizations to list the salaries of the five highest-paid employees and neither would do so. I could only come up with the 2015 form 990s (a government form for nonprofits) for Sharp and Scripps.

In 2015, Christopher Van Gorder, chief executive of Scripps, was paid $3.39 million; that same year, Michael W. Murphy of Sharp was paid $1.78 million. Ann Pumpan, chief financial officer of Sharp, was paid $940,076. These salaries have almost certainly risen since 2015, if the individuals are still at their jobs.

I received carefully written replies from both institutions. Toni Dolby of consultancy Integrated Healthcare Strategies, which works for Scripps, wrote, “Scripps has established a very thorough process in reviewing and setting executive compensation for the organization. The program is structured to be competitive among Scripps’ peers…. We anticipate Scripps will have a few individuals over the threshold for 2018. This law is so new that most organizations — including Scripps — are still working to understand it and determine what the options are.”

John Cihomsky, vice president of Sharp, wrote, ”In health care, attracting and retaining talented executive leaders through fair-market compensation is a requirement… We are very disappointed with the new legislation as it relates to taxes on executive compensation, chiefly because it may end up taking resources away from delivering that care by unnecessarily increasing costs.” Cihomsky said this will be the only comment on this matter.

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Comments

swell Feb. 15, 2018 @ 8:20 p.m.

Confusing. So if they only have 4 million dollar executives they are exempt? What if they have 20 million dollar executives- should they pay more? And it seems that the executives have no penalty, only the company. They are probably OK with that.

The concept of a non-profit hospital is bizarre. Many millions flow thru these institutions and many hands are out to grab that money. Just like any corporation.

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Don Bauder Feb. 15, 2018 @ 8:48 p.m.

swell: There is nothing confusing about it. The executives who rake in $40 million a year and the Wall Streeters who may bring in between half a billion and a billion, line the pockets of the politicians in Washington. Do you a think a politician is going to put an excise tax on the company or the investment firm that pays its nabobs such big bucks and passes big money to politicians? Best, Don Bauder

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JustWondering Feb. 16, 2018 @ 3:51 a.m.

I was just wondering about my $85,000 bill for my two day stay at Scripps’ new Prebys Cardiovascular Institute in 2017.

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dwbat Feb. 16, 2018 @ 10:37 a.m.

Although I didn't pay a penny, my statement for one day at Sharp Memorial (including ER and surgery) in 2017 was $50,000.

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Don Bauder Feb. 16, 2018 @ 2 p.m.

dwbat: That's good, but the White House wants to cut Social Security, Medicare, and Medicaid. Best, Don Bauder

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dwbat Feb. 16, 2018 @ 4:51 p.m.

Seniors will never allow that to happen. We'll "march" on Washington if we have to, even though many of us have leg problems.

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Don Bauder Feb. 16, 2018 @ 9:27 p.m.

dwbat: I hope you are right. I participated in the Women's March, but I didn't have to walk very far. I fear a march on the White House would be too much of a strain on my legs and heart. Best, Don Bauder

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Don Bauder Feb. 16, 2018 @ 7:32 a.m.

JustWondering: I would not be surprised if Scripps adopts the same argument used by Sharp: that the excise tax on the institution with executives making more than a million a year will harm healthcare. Best, Don Bauder

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swell Feb. 16, 2018 @ 9:27 a.m.

Some non-profits pay their executives according to their ability to bring in donations. They have connections, they are smooth talkers, and they bring the organization more than they cost. I can understand that, though it seems wasteful. What is the criteria for paying a hospital executive more than $1m? Are they also fundraisers or do they have some other magical skill that makes them worth >$20,000 a week, $500/hour plus benefits & bonuses?

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Don Bauder Feb. 16, 2018 @ 2:01 p.m.

swell: Some making a million or more may be good fundraisers, but also good administrators. Best, Don Bauder

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Cassander Feb. 16, 2018 @ 10:04 a.m.

There's much popular confusion of "nonprofit" with "charity" as interchangeable—often deliberately encouraged.

A charity is designed to funnel almost all income to some third-party donee, minus a minimal overhead. A nonprofit can take in as much as it wants in the name of a "mission" and disburse it freely, so long as it doesn't carry a profit. A perfect example of the latter is the National Football League, which is a member-benefit nonprofit.

It's clear this bill is aimed at the Roger Goodells of the world, and long overdue.

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Don Bauder Feb. 16, 2018 @ 2:05 p.m.

Cassander: You may be right. A couple of years ago, Goodell raked in more than $40 million. However, both Sharp and Scripps are taking this seriously, trying to figure how it will affect them. And I don't believe the politicians who wrote this bill are after Goodell. They may worship him. Best, Don Bauder

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Founder Feb. 16, 2018 @ 12:20 p.m.

Great News Hospitals can and SHOULD pay their share of taxes, especially when they keep raising their top management salaries while crying poor to all their employees!

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Don Bauder Feb. 16, 2018 @ 2:08 p.m.

Founder: This is part of a bigger picture -- the ugly mentality that grips the U.S. right now. Billionaires believe that janitors make too much money. The Waltons of Walmart, multibillionaires, led the parade to cut or eliminate inheritance taxes. The Koch brothers think the same way. Best, Don Bauder

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swell Feb. 16, 2018 @ 6:14 p.m.

That kind of thinking goes all the way to the White House.

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Don Bauder Feb. 16, 2018 @ 9:30 p.m.

swell: You are so right; remember when Trump declared he would never touch Social Security, Medicare, or Medicaid? Another lie. Best, Don Bauder

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swell Feb. 16, 2018 @ 11:41 p.m.

Don: I'm hearing rumors that he wants to privatize the Veterans Administration now. Soon we'll be just like Russia and Mexico with all government functions handed over to friends of Trump, making them even richer.

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Don Bauder Feb. 17, 2018 @ 9:43 a.m.

swell: Well, he is selling off precious Utah park land so companies can dig for coal. Pruitt, who formerly sued the EPA many times, now heads it. A source told me that it will take years to reconstruct the EPA. DeVos favors for-profit colleges and universities. She hired an ex-Bridgepoint executive. One senator called Bridgepoint a scam. See my many columns and blog items on Bridgepoint. There are many more examples of Trump helping corrupt businesses and hurting consumers, whom he pledged to protect.

I suggest you read "It's Even Worse Than You Think: What the Trump Administration Is Doing to America" by David Cay Johnston. He is a brilliant writer and researcher who has followed Trump for years, and written other books on him. Best, Don Bauder

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Don Bauder Feb. 19, 2018 @ 3:28 p.m.

Dale Ganzow: I am delighted to be replying to someone at my alma mater -- the University of Wisconsin-Madison.

I agree with you.I don't see why nonprofits should be taxed for having executives making more than $1 million on their payroll. One million -- or three or four million -- is not excessive pay for a chief executive of an institution as large as Sharp or Scripps.

This is especially true since private sector companies -- particularly the big blue chips -- pay outlandish salaries to their top executives. A twenty million payout is not unusual and once in awhile you see an executive getting more than $50 million. Then there is Wall Street, where take-home pay is outrageous. There are heads of hedge funds who have raked in a billion dollars in a year, and paid low taxes on that sum. Best, Don Bauder

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